- IHS Markit chief economist says protectionism biggest threat to global economy;
- Dr. Behravesh says election of Trump and Brexit ‘a slap in the face’ for ‘the elite’;
- Issues ‘call to arms’ for Davos 2017, saying companies and governments must work out how to help those ‘left behind’.
One of US President-elect Donald Trump’s key strategies to help get more Americans into work is to introduce protectionist trade measures.
The idea is that by raising taxes on goods imported overseas it will encourage businesses to bring jobs back to America as it is no longer economical to manufacture elsewhere and then ship to the US.
But Dr. Nariman Behravesh, the chief global economist at IHS Markit, told Business Insider that this effort to try and solve the employment problem is, in fact, the biggest economic risk of 2017 globally.
“I worry a lot about the world sliding or drifting into protectionism. The biggest single economic risk is protectionism,” Dr. Behravesh told BI. He was speaking to BI ahead of the World Economic Forum meeting in Davos, Switzerland, this week.
“If you look at the risks in the coming year, it is political uncertainty — vis-a-vis what Trump may do and what happens with Brexit. If we do go down the path [of more protectionist measures] then it could massively impact the US economy, as well as the rest of the world.
But he added: “However, for 2017, the probability isn’t high.”
Trump plans to overhaul the US tax code in 2017 and give greater tax relief to middle-class Americans. He claims this will grow jobs by two million and boost the economy. His protectionist trade plans are the most controversial aspect of his stated policies so far.
‘It certainly won’t help people get jobs in the mid-West’
At the beginning of December, Trump said the US should view trade “almost as a war” and vowed to implement protectionist policies. He said that his administration would renegotiate trade deals and “defeat the enemy on jobs. And we have to look at it almost as a war, because that’s what’s happened to us. That’s what’s happened to our workers.”
According to an HSBC report entitled “Unlocking the Growth Potential of Services Trade,” released in December, if Trump goes ahead with his protectionist trade plans the combination with a “hard Brexit”, where Britain leaves the EU single market, could kill $1.2 trillion of global trade value.
That’s because higher tariffs and other trade barriers will reduce the total amount of trade, which means less production, which means fewer jobs. It also means more expensive goods, as import taxes are factored into prices.
Dr. Behravesh said: “Protectionism doesn’t help people, it certainly won’t help people get jobs in the mid-West in the US and any promises to that effect are very misleading.
“For example, if Trump did raise tariffs and costs for Chinese goods, it would hit inflation and hurt poor people because they are typically the demographic that benefits from low-priced goods. It hurts the people he says he wants to help.
He added: “The good news is that heightened political uncertainty has not had much of an impact on outlook — businesses and consumers have shrugged off [this].”
Brexit and Trump: ‘It was a slap in the face’
Dr. Behravesh believes 2017 is a crunch year for Davos and says “the elite” at the high-end conference — attended by world leaders, celebrities, and business people — must find away to help those “being left behind” by globalization.
“The single biggest challenge to the WEF crowd, the elite, is the think about how Brexit and the election of Trump came about,” he says. “To put it crudely, it was a slap in the face. A lot of people are angry at being left behind because of tech and globalisation. This is because they’re losing jobs but don’t have the kind of higher level skills to fulfil new roles being created.
“Workers in older, traditional industries are being left behind and they are clearly scared and angry and they have essentially taken it out on the political establishment.”
WEF said in a 2016 report entitled “The Future of Jobs” that 7.1 million jobs could be lost through redundancy, automation, or disintermediation by 2020. While the creation of 2.1 million new jobs — mainly in more specialised areas such as computing, maths, architecture, and engineering — could offset some of the losses, that’s still a net reduction of 5 million.
Dr. Behravesh told BI that there is no longer time for “navel gazing” and business and political leaders need to do something right now to help skill-up those “left behind” workers who have lost their jobs to technology but are not skilled enough to take on those that are being created.
The challenge for the Davos elite is this — how can you help these people in the developed world to get the skills to take on new jobs and what policies can be put in place? If they don’t, Davos will become irrelevant.
“The challenge for the Davos elite is this — how can you help these people in the developed world to get the skills to take on new jobs and what policies can be put in place? If they don’t, Davos will become irrelevant. This is a call to action,” said Dr. Behravesh.
“I am not being negative on Davos, I just think we are at a crossroads right now and we can’t just keep talking. We need to do something.
“Other newer jobs being created are in higher tech industries and require higher skills. The workers who have lost their jobs need new skills to get those newer ones.”
What is the solution? Dr. Behravesh says the mantra of companies and governments should be: “Don’t protect jobs, protect the people.”
In other words, invest in people’s skillsets so that when society evolves through globalisation, workers will be able to chop and change roles without getting left behind.
“This is the time businesses have to put their money where their mouth is and find a way to work with the government. Businesses can’t sit back anymore, they have to be part of the solution,” he added.