By Dr. Neil McCulloch
Like many people, I have spent the day reeling from the shock of Trump’s election win. Not only was it not expected – for unashamedly liberal internationalists like myself it was unthinkable. Yet the unthinkable now needs to be thought about. Leaving aside all the many other potential ramifications of Trump’s victory, I have tried to sketch out below what his Presidency might mean for development.
Trump made much of his intention to tear up trade deals which he regards as bad for America. This includes not only TPP and TTIP, but also potentially the unravelling of NAFTA. Whilst the WTO was already in the chiller due to lack of support from the world’s leading economies for multilateral solutions, a Trump presidency might make it entirely redundant, at least for deals that involve the USA. Such moves would be bad for America and its immediate neighbours and would certainly make unblocking the Doha round of trade negotiations near impossible – but it is not clear that this approach will necessarily be bad for developing countries. Trump appears to want to strike deals with individual countries. This suggests that strategically important countries that are friendly to America might be able to strike bespoke deals with a Trump government that provide better access to the American market (in return for preference for American goods and services). However, whether the administration will have the resources or the energy to pursue such deals is very much in doubt; top priority will be securing new trading arrangements with the top trading blocks. This will inevitably mean striking a deal with China and renegotiating some kind of arrangement with the EU. Other countries are likely to take a back seat – probably for a while.
To my knowledge, Donald Trump has said almost nothing about aid and so it is very difficult to know what his views are on it. On the one hand, he might view aid as a useful weapon in the armoury of international deal making; on the other, he might see it as a waste of money that should be spent on hard working Americans. Officials will be keen to persuade him that aid is an important component of soft power. My guess, however, is that aid will shrink considerably and focus much more on promoting transactions involving American firms (as, for example, Power Africa already does). Given his attitude toward international organisations, it seems unlikely that a President Trump will worry too much about the niceities of OECD rules on ODA. Moreover the substance of aid may change in important ways: boosting (American) investment and trade will become even more important; supporting effective public health systems in poor countries probably much less so. And Mike Pence is likely to insist upon a deeply conservative approach – banning programmes that in any way support abortion or family planning or which accommodate liberal social values.
Trump’s signature policy has been to clamp down on immigration (and to deport the millions of people in America without legal status). Whether he does this or not, it is likely that the flow of migrants to America will slow sharply, as stricter controls are put in place. Remittances from the US may decline, particularly if he fulfils his threat to remove large numbers of illegal migrants. The pain and conflict associated with implementing the policies that he has stated mean that, almost inevitably, he will deliver less than he promised – but the policy environment for immigration will nonetheless change markedly and the large developmental benefits that it brings may be lost.
Defence and conflict
Trump’s policies on foreign affairs have spoken simultaneously of making America strong again – suggesting a significant increase in military spending; and a desire to disengage from foreign wars. The former is almost inevitable. However, disengaging from America’s current external entanglements may be more difficult. If he follows through on this we may expect a resurgence of ISIS in Iraq – but this will also create political problems at home and so the jury is out on whether a Trump presidency would do more or less in Iraq. Elsewhere, predictions range from the view that the world will be safer as a result of deals between strongmen in US, China and Russia – or dramatically more fragile if those relationships sour.
Action on climate change may be one of the biggest losers from a Trump Presidency. However, the efforts of international diplomats to ensure that the Paris Agreement came into force this week may make it difficult for the US to disengage immediately from the treaty. Notwithstanding this, it is clear that climate policy will take a dramatic shift towards fossil fuel companies and away from considerations of sustainability. A key concern will be whether, if the US withdraws from the Agreement, others will do so too – but this is probably less likely given the level of international commitment to the issue.
Trump has promised to build world class infrastructure throughout the US (not to mention a rather large wall). He has also promised to significantly cut taxes. Together these point to significantly looser fiscal policy and widening budget deficits. This may drive up inflation and subsequently interest rates, drawing portfolio funds away from the rest of the world towards the US. This may lead to an appreciation of the currency in the medium term, damaging growth and widening trade deficits. It will be interesting to see whether the initial boom caused by expanded spending is followed by crisis or a sudden tightening and tax rises in a few years time. Whilst the initial boost may benefit developing countries in the short run, worsening macroeconomic imbalances in the world’s largest economy are not likely to help the development of other countries whether rich or poor.
But only time will tell if these predictions are borne out in the reality of this highly unpredictable President.
Dr. Neil McCulloch is a freelance consultant and researcher. His main area of focus is on the political economy of reform in the energy sector, including work on fuel subsidy reform in Indonesia and Nigeria. Previously, Dr. McCulloch was the Director of the Economic Policy Program in Oxford Policy Management, and before that, he was the Lead Economist of the Australian Aid program in Indonesia. He has also led the Globalisation Research Team in the Institute for Development Studies in the UK and was a Senior Economist for the World Bank in Indonesia. He tweets at @neilmcculloch64
Featured Image: Trump at a campaign rally in Arizona, 2016 (Credit: Gage Skidmore/Flickr)