Hard economic realities to trump US populism

Donald Trump’s presidency will have to take into account the fact that the Middle East is an important trade region for the US.

Comedian-turned-politician, Beppe Grillo, is a populist leader of Italy’s second largest political party, who has called for an exit from the euro and said the country should prepare to use its ‘enormShow more

What is populism? All versions share a suspicion of and hostility towards elites, mainstream politics and established institutions. Populism includes right and left-wing versions – from Vladimir Putin in Russia to Hungary’s Viktor Orban, Holland’s Geert Wilders, Italy’s Beppe Grillo, France’s Marine Le Pen, to Greece’s leftist-leaning Alexis Tsipras. Populism helps politicians gain electoral advantage, yet hard realities become apparent when office is taken up by presidents and prime ministers alike. “Demagogic populism is not just a problem in America”, Wolfgang Schaeuble, the German finance minister, said in an opinion piece published on Thursday in the Bild newspaper. “Also elsewhere in the West, the political debates are in a worrying state.”

The rhetoric that dominated among pro-Brexit politicians in the UK is beginning to catch up with them, as “it is hard to fathom how a rather hard Brexit can be avoided unless both sides become much more flexible than they appear”, the ratings agency Standard & Poor’s said last week. Politicians on the continent have warned quite a few times recently that the UK’s access to trade freely with the EU’s 500 million consumers is part and parcel of the free movement of people (as well as ser­vices and goods).

Contrary to what some pundits expected before the referendum, the brunt of the negative economic impact will be felt by the UK itself. The London Chamber of Commerce and Industry says that 25 per cent of London’s workforce is foreign, while EU nationals account for a huge proportion of workers in industries such as finance, construction and hospitality. London would lose 160,000 workers and face a £7 billion (Dh32.38bn) negative economic impact, according to a report by the London-based Centre for Economic and Business Research.

The Italians are about to have their say on prime minister Matteo Renzi when the country holds a referendum on a key constitutional change on December 4. Many voters will have more than “Yes” or “No” on their mind. They will probably take the opportunity to vent their frustration with the anaemic pace of growth after the latest recession in a country where the economy has contracted by 2.1 per cent since 2002. Former comedian-turned-politician Beppe Grillo, who transformed Italian politics when he launched his anti-establishment Five Star Movement in 2009, has long been a bombastic critic of the euro. The populist leader of Italy’s second largest political party has called for an exit from the euro, and said the country should prepare to use its “enormous debt” as a weapon against Germany. The harsh reality is that whichever government comes, Italy will have to undertake real structural reforms.

Italy will have to change rigid labour laws – should it want higher growth – even under a populist regime, reform an excessively large bureaucracy and an inefficient judicial system, and combat corruption.

Italy has the third-highest burden of public debt in the world (after Greece and Portugal), the equivalent of 130 per cent of GDP.

When we turn to this region, Donald Trump’s combination of tough talk, vagueness and contradiction on Middle East issues have unsettled many who still look to the United States as a primary stabilising force in a volatile region. When he did reference the Middle East, it was mainly in the context of restricting Muslim immigration and defeating ISIL. On the latter point he offered almost no specifics, other than once expressing the notion of bombing oil installations in ISIL-held areas of Iraq and Syria. One response to Mr Trump’s remarks on the Middle East thus far is to simply ignore most of what he has said on the subject, and regard it as no more than campaign rhetoric that has little relation to what he will actually do once he is in the Oval Office. In September last year, Mr Trump said he would “renegotiate” the agreement – reached two months earlier – that curtailed Iran’s nuclear programme to peaceful activities in return for the lifting of crippling sanctions over time. Last month, Mr Trump said Iran “should write us a letter of thank you” for “the stupidest deal of all time”.

The US government has approved Boeing’s Iran Air deal, which can reach up to US$25bn.

And the $27bn agreement with Airbus Group for 118 planes will also benefit US firms, as more than 10 per cent of their contents are made in America.

Trade and business will be as important, if not more, during the Trump presidency when dealing with the world as well as the Middle East.

The fact is that the Middle East represents an important trading region for the US. According to the latest US government data analysed by the National US-Arab Chamber of Commerce, exports of US goods to the Middle East and North Africa region stood at $67.4bn last year, a decline of 5.6 per cent from $71.4bn in 2014. The top five destinations for US goods remained unchanged from previous years – UAE ($22.98bn), Saudi Arabia ($19.7bn), Egypt ($4.7bn), Qatar ($4.2bn) and Kuwait ($2.8bn). The GCC countries accounted for 79 per cent of US goods exported to the Arab world, with a total of $54.38bn in sales.

Together, the top two export destinations, the UAE and Saudi Arabia, accounted for 69 per cent of the total US goods exported to the Arab world.

Although much angst has been voiced about the impending Trump presidency, populism will give more way to hard economic realities.

John Sfakianakis is the director of economic research at the Gulf Research Centre in Riyadh

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