Francesc Xavier Mena (ESADE): "Trump's stance is early mercantilism"

“Trump’s stance is early mercantilism: he thinks that manufacturing, especially the automotive industry, needs to return to the United States,” commented Francesc Xavier Mena, Professor in the Department of Economics, Finance and Accounting at ESADE, at an event organised by ESADE Alumni, entitled “Economic Prospects for 2017. A Year of Uncertainties: The Trump Administration, Brexit and China.”

Prof. Mena reviewed the various treaties that the Trump Administration wants to renegotiate, including the North American Free Trade Agreement (NAFTA), signed by Canada, Mexico and the United States in 1994. “Mexico has become a major manufacturer and exporter of auto parts to the whole world, not just the United States,” he noted. “Mexico has signed numerous trade agreements with 44 different countries, and its automotive industry is one of the most powerful in the world.” Therefore, even though Ford has cancelled its plans to build a plant in San Luis Potosí, Mexico, and decided to invest in Michigan instead, Prof. Mena concluded: “Ford won’t find anyone willing to work for Mexico-level wages, so they will end up creating jobs for robots, not people. It will be a step toward industry 4.0.” Prof. Mena characterised the NAFTA treaty as “very consolidated” and argued that any changes could affect Spain and Catalonia, whose companies – including Gestamp, Ficosa and the Antolín Group – have many facilities in Mexico.

Tariffs and China’s competitiveness

“The United States used to use tariffs to protect its domestic industry,” explained Prof. Mena. “Trump is invoking an instrument not intended for use between NAFTA countries.” He added: “When tariffs are imposed, consumers are often the ones who lose out, but consumers find it harder to act as lobby. As it happens, the Great Depression was exacerbated by tariffs. The tariff wars of the Great Depression led to a drop in GDP.”

“The Trump Administration wants to put an end to the competitiveness of ‘Made in China’,” said Prof. Mena, referring to the documentary film Death by China, which has been cited by Donald Trump on more than one occasion and whose director, Peter Navarro, was appointed by Trump as Director of the White House National Trade Council. “If China enters into a trade war with the United States, the dollar will have a problem,” warned Prof. Mena. “It’s clear that the Trump Administration has its eye on China, since it has stopped the Trans-Pacific Partnership, or TPP. The Trump Administration thinks it’s going to strike bilateral agreements in which the US will come out winning, but we’ll see about that.”

Immigration, international diplomacy and monetary policy

Prof. Mena also discussed Trump’s executive order on immigration. “This order calls into question the very nature and essence of the United States,” he commented. “It will wreak havoc on the population pyramid and increase uncertainty in many sectors, including universities and airlines.” He added: “Trump has a peculiar view of the world. He has kicked over the table of international diplomacy.”

Turning his attention to the topic of American monetary policy, Prof. Mena observed: “The US economy is already growing. Unemployment has dropped and wages are rising.” He added: “There’s an 80% chance that the Federal Reserve will raise interest rates, and Janet Yellen, the current Fed chief, probably will not remain in her position.”