Why might US threats of protectionism have limited consequences for the further expansion of the global economy?

• Author: David Floyd
• Date: 01 September 2018
• Published date: 01 September 2018
• DOI: http://doi.org/10.1002/jsc.2227

RESEARCH ARTICLE

Why might US threats of protectionism have limited

consequences for the further expansion of the global

economy?*

David Floyd

Lincoln International Business School,

University of Lincoln, Lincoln, United Kingdom

Correspondence

David Floyd, Lincoln International Business

School, University of Lincoln, Brayford Pool,

Lincoln LN6 7TS, United Kingdom.

Email: dfloyd@lincoln.ac.uk

Abstract

Protectionism is the main risk for the global economy. This article sets out to examine the cur-

rent developments in global trade and the specific trade policies being adopted by major trading

nations. Evidence would suggest that global ties have come a considerable way since the initial

promotion of trade through the International Monetary Fund and US at the start of the post

war period. The rising growth in the Asian and Far East economy and other emerging markets is

also playing its part in supporting the process.

1|INTRODUCTION

The world economic growth is starting to improve in 2017. For

some time since the 2007 financial crisis growth and foreign invest-

ment in emerging markets has been expanding at a much higher

rate than in Western countries. According to the World Investment

Report 2017 inflows of foreign direct investment into the G20

Countries were up by 20% compared with the previous year. Global

growth for 2017 has improved particularly supported from the

Asianmarketreachingover3%accordingtotheWorldin2017.

Unemployment in the Eurozone is predicted to drop to 8.5% from

12% in 2013 and growth has been accelerating to 2% according to

the World in 2018. Even Russia and Brazil are out of their last

recessions and India is set to grow at nearly 8%. Japan has also

been improving. 2018 forecasts from the International Monetary

Fund suggest emerging markets may grow as much as 4.5% in 2018

and as much as 2.5% for developed economies.

2|AMERICA FIRST POLICIES

Closer examination of the United Nations 2016 ASEAN investment

report further suggests that western investors have invested there to

supply the region rather than exporting products back to countries

such as the United States. This implies that protectionist policies to

support US manufacturing may have limitations as manufacturing in

the US for the home market demand is already being done too much

of the necessary capacity.

The recent announcement of Foxconn creating 3,000 jobs in

United States is only likely to have a limited impact on bringing

more industrial jobs back to the United States. It is also more diffi-

cult to encourage traditionally owned US companies to bring back

jobs as many companies have become global companies with multi-

ple country ownership, for example Virgin Atlantic is approximately

50% owned by Delta, 30% by KLM see Floyd (2016). In addition,

the necessary skill sets will take time to develop and even with this

there are some doubts whether the Trump administration will be

able to deliver the money needed for this as well as providing a

lowertaxregimewhichwouldputevenmorepressureonfinances,

see Sunday Times (July 30, 2017). Lower taxes recently announced

in 2018 may give a short-term boost to the economy and stock

markets though taxes may already be low enough that little extra

revenue is generated from the tax cut as the benefits of the Laffer

curve are more likely to take place when taxes are starting to be

reduced from a high base. The stock market went up further in the

Obama first year period of Office compared with the recent Trump

experience. The recent example of Toyota and Mazda creating

4,000 jobs in Alabama in the United States could partly be due to

these tax cuts but shows us more how jobs are created from global

companies these days rather than resorting to protectionism and

only supporting home owned industries. The recent tariffs on steel

*JEL classification codes: F1 O10 P4.

DOI: 10.1002/jsc.2227

Strategic Change. 2018;27:437–439. wileyonlinelibrary.com/journal/jsc © 2018 John Wiley & Sons, Ltd. 437