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Growing Out of US Leadership

BEIJING – Donald Trump’s election has been greeted around the world with justifiable bewilderment and fear. His victory – following a fact-free, vicious election campaign – has trashed the brand of American democracy. But, while Trump is impulsive and occasionally vindictive – a potentially fatal mix in an already fragile world – his election should be a spur to challenge failed ideas and to move beyond excessive reliance on the United States’ inevitably imperfect global leadership.

In many policy areas, what Trump will actually do is unknowable: therein lies the risk. But in the case of economic policy, one thing is clear: fiscal policy will be loosened. The exact form of the stimulus will likely be inefficient and regressive: big tax cuts for the rich will exacerbate the inequality that helped fuel Trump’s success. And his infrastructure spending plans – based on investment tax credits – may have only limited impact.

But the direction of the policy shift – from monetary to fiscal stimulus – makes sense. Across the developed economies, the prevailing policy mix for the last six years – fiscal tightening and ultra-easy monetary conditions – has resulted in mediocre income growth but big wealth increases for the already rich. If Trump’s fiscal stimulus provokes a policy rethink elsewhere, some benefit will result.

On trade policy, meanwhile, the risks are probably lower than they appear at first glance. If Trump really did keep his campaign promises to revise the North American Free Trade Agreement and impose tariffs on many Chinese imports, he could tip the world economy from subpar growth to outright depression. But a pragmatic version of “America first,” focused on achieving re-election in 2020, is more likely to mean some largely symbolic measures (such as antidumping tariffs on some Chinese steel imports) and abandonment of further trade liberalization initiatives such as the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership.