Cost of Trump’s trading club

I am a child of pre-globalisation. I reminisce about this at length in my book The Rise of the Neo-Locals: a generational reversal of globalisation. In it, I discuss how during my life of 60-odd years, I have seen the world come full circle—from the time of my childhood, when India’s development vision was about self-reliance and investment in domestic manufacturing, to my early youth, when the economy began to open up with the advent of World Trade Organization and free trade; when export-driven globalisation became the gold standard for growth. And now, with the second coming of Donald Trump to the White House, the grand disruption of this trade order is well underway.

Tariffs have been weaponised. They are now tools for reconfiguring global trade and foreign policy. The trade order, built on the premise that manufacturing would move to places with lower labour costs and environmental standards, is set to be rejigged. The jury is still out on whether this will actually happen. But Trump seems determined. He says manufacturing must return to the US to create local jobs and to regain control over the critical supply chains of medicines and high-tech computing power. Despite years of raking in money from the global trade order, where cheaper goods from foreign countries made it to the US’ shores, Trump says his country was cheated and ripped off.

The question is: what do countries of the South do now? The fact is, while some countries like India have been juggling the global trading order with domestic priorities, many others have raced ahead, building economies on the consumption of others.

Now, this order is being disrupted. What price does one need to pay to be part of this Trump global trading club?

For instance, as a condition for joining this club, Indonesia—home to large numbers of relatively poor people—has agreed to lift the ban on exporting nickel, a rare earth mineral, to the US—abandoning its efforts to localise its own wealth through value-addition. Furthermore, according to Trump’s social media post, Indonesia has agreed to buy fossil fuels—natural gas and petroleum—as well as agricultural commodities from the US. In return, it has received a slashed tariff rate, which it can use to promote exports on products that US consumers want.

The reason the US is managing to browbeat its way into these deals is the sheer size of its consuming class. The country—home to only 4 per cent of the world’s population—gorges on household goods. According to data, the US accounts for roughly 30 per cent of global house-hold consumption—it consumes double or more of what it produces, and hence faces a trade deficit. But it is also because of this gargantuan demand that countries are queuing up in submission. They desperately need and want a share of the US market—for everything from coffee to clothes to electronics and more. And this is what the Trump administration is counting on.

This scale of consumption of the US is not directly proportional to its economic wealth—it is not necessary that a country would become a US-style gobbler of goods just because it is rich. China, a close second economy and home to 17 per cent of the world’s people, accounts for only 12 per cent of global consumption.

Decoding this consumption puzzle is important because this is a determinant of what our future will hold. The fact is, US-style consumption will not work in a carbon- and resource-constrained world. It is often said that if everybody was to live like an American, the world would need several more planets—and that is true. We also cannot discuss our way out of climate change without confronting the consumption-oriented economic model. At the same time, it is also clear that economic growth needs consumption of goods—this is what the game is about.

So, what is the way ahead? There are two parts to solving this consumption puzzle. First, and most importantly, focus on increasing the distribution of wealth within a country so that consumption is not about the wealth of a few, but about the well-being of the majority. The fact is, as long as there is money in the hands of the poorest, they will become “consumers” of goods. Second, we need localisation of the economy—in other words, enable local production by the masses, not mass production for the locals (to paraphrase our favourite national hero, Mahatma Gandhi).

This should be the foundation of a modern, self-reliant economy. The more we grow from the bottom up, the more resilient our communities will become and withstand climate change shocks. The question now is whether we can build that new green future—one that sustains local production and livelihoods, but not by consuming the planet.