America first

President Donald Trump’s inauguration speech left no one in any doubt that his administration will pursue trade protectionism aggressively. He argued for putting “America first” and that “protection will lead to prosperity”. The former echoes back to isolationism in the early 1940s while the latter is a remarkable break from the norms of the past thirty years, when globalisation and free trade were promoted as the best way of boosting prosperity for all. The incoming Trump administration will focus efforts on Mexico and China, not least because those two countries account for more than half of America’s trade deficit. It is possible that those two countries will offer concessions, not unlike Japan’s pragmatic response to the US protectionist push in the 1980s. But if not, protectionism could trigger a stronger dollar, retaliation from other countries and higher domestic inflation.