How a Trump economy could make Singapore great again

Restrictive policies on trade and immigration may shift innovation to the East - and it may never return

President-elect Donald Trump at a rally at the US Bank Arena in Cincinnati, on Dec 1, 2016. PHOTO: NYTIMES

Did the presidential election change the Pacific Rim as we know it? During these days of transition speculation, there is plenty of talk about what President-elect Donald Trump's victory means for healthcare, for immigrants, for the economy, for minorities, for Nato, and so on.

In terms of long-term national interests, it's important to add the endangered concept of a United States-centric Pacific Rim to this list. This is because the Trump victory may well spell the end of America's previous Pacific aspirations.

We will quite possibly see a significant shift of innovation and entrepreneurship westward in the Pacific Rim - indeed, so far west that the centre of economic gravity ends up firmly in the Far East.

There are two big reasons for these shifts. First, changes in immigration policy under a new administration will make the US less friendly to talented foreigners seeking to work in the US. Second, new trade policy is likely to diminish the competitive environment for domestic manufacturers.

The new administration's anticipated changes to immigration and trade policy are, whatever you think of them and their potential impact on the US economy, a response to real issues.

For one thing, globalisation has depressed incomes of the middle class - the average wage for production and non-supervisory workers is about the same after inflation as in 1974, at US$20.67 (S$29.40) per hour, according to the Pew Research Centre.

For another thing, immigration exacerbated competition for an ever-shrinking pool of low-skilled jobs. Economists have documented, for example, a 6 per cent decline in employment and a 2.5 per cent decline in wages for low-skilled African-American men attributable to this increased competition.

On top of that, manufacturing employment has been steadily declining for decades and is now at one-third the number of jobs in 1970.

Mrs Hillary Clinton promised a continuation of current policy (that is, these trends) and Mr Trump promised less of them. The voters have now asked for a different engagement with the world that will seek to blunt these three trends.

Immigration policy, in particular, may shift the geography. During the campaign, Mr Trump, with talk of walls and border security, was all over the place. His policy position on H1B work visas and J1 work and study visas has been unclear, though the views of his confidant and nominee for attorney-general clearly lean towards more restrictive visa policy.

Overseas news media and businesses - according to reports in the India Express, The Jakarta Post and elsewhere in the Pacific region - see current visa programmes as being in jeopardy. Suffice it to say that whatever new immigration policy emerges will be less inviting to foreigners.

In particular, innovators and tech entrepreneurs from China (vilified in the campaign), Indonesia (the world's largest Muslim country), Malaysia (another Muslim- majority country) and India (with a Muslim population of 175 million) will feel less welcome. This will be true even if there is an expansion in visa issuance to highly qualified tech people in general.

Instead, those ambitious, smart, entrepreneurial innovators will be more inclined to migrate to another hub of technological innovation, perhaps Singapore, Bangalore, Toronto, Tokyo or Shanghai.

The more attractive these hubs are to innovators, the faster their local economies will grow, potentially at the expense of US growth. Singapore, with centrality, six publicly-funded universities and several small technical colleges and the new Singapore Technology Development Centre, is especially ready to take advantage. But others are as well.

Shanghai eased restrictions for foreign science and technology professionals willing to participate in the Chinese Communist Party's innovation initiatives at its new technology hub last year.

When I was in Shanghai with a UCLA class last March, we learnt that even though China ranked low on intellectual-property protection, innovation in the new hub was starting to explode. Silicon Valley Bank, whose original mission was funding new ventures in California, is in a joint venture that provides funding to exciting new Shanghai start-ups.

The US election will push not only people but also the products they produce in a "westward to the East" direction. Innovative products coming out of expanding Asian tech centres will be traded among Asian countries and not as much with the US. This is because American trade policy will be less friendly towards imports that compete with US manufacturing.

The rejection of the Trans-Pacific Partnership trade deal and the consequent ascendency of the Chinese-led Regional Comprehensive Economic Partnership will reinforce this trend. Meanwhile, as America's innovation edge erodes over time, the US will likely lag in producing and exporting cutting-edge goods. Instead, US firms may come to copy what the foreign firms are doing, much in the same way that the Chinese now try to copy what quality US firms are doing.

One might argue that the US is a very large economy and therefore restrictive trade measures are not liable to have much impact. Domestic competition and the ability to sell in a very wealthy market should be attraction enough for entrepreneurs.

While that might be true, protectionist policies - what economists call import-substitution policies that include high tariffs on imports, like those suggested by Mr Trump during the campaign - have been pursued by many countries and studied extensively. The consensus is that, by protecting domestic firms from more efficient international competitors, they hurt economic growth and manufacturing efficiency.

Stagnation in Latin America is in part attributable to a reliance on import substitution. Argentina is a classic case. In 1909, it was the seventh-richest country in the world. Many things went wrong in the 20th century, but import substitution was part of the story.

Jawaharlal Nehru's India is another case of a country that insulated itself from world competition because it thought itself big enough to go it alone, and suffered the consequences.

Myanmar took protectionism to extremes and has basically been dormant for 50 years.

The point here is not that the US will stagnate nor that it will become Myanmar, Argentina or India, but rather that all of the examples of protectionist policies, however mildly applied, lead to a diminution of the country's ability to be a leader in the protected industries.

A desired move towards a more protectionist economy was one of the key takeaways of the Nov 8 vote, especially in battleground industrial states like Pennsylvania, Wisconsin and Michigan.

The electorate may have deliberately chosen international withdrawal, opting for stable but less efficient domestic industries over dynamic and nimble leading industries.

It is rare - and very valuable - for a place to achieve critical mass in a certain industry.

Critical mass in entertainment occurred in Los Angeles because it was possible to film in a variety of nearby locations all year long. Many states and countries have tried to counter it with subsidies, but Atlanta, Toronto and others have transferred wealth into Hollywood moguls' bank accounts in Beverly Hills, and not into a self-sustaining critical mass.

The same is true with technology and Silicon Valley. The Silicon Corn Field in Iowa and Silicon Bayou in Louisiana are only shells of what the planners dreamt of for them.

We don't know right now which places are going to be most competitive and achieve critical mass in innovative industries as the Pacific Rim centre shifts west.

My money would be on Singapore, with its English common law, low taxes, affluent and well-trained workforce, major universities and central location. If Singapore (or insert your top candidate here) hits critical mass, it will be very hard to dislodge.

So even if the US decides to reverse course on immigration and trade policy in the future, we will have to live with the consequences of this shift.

  • Jerry Nickelsburg is an economist at UCLA Anderson School of Management.
  • This article first appeared in Zocalo Public Square, a project of the Centre for Social Cohesion at Arizona State University and a not-for-profit "ideas exchange" that blends live events and humanities journalism.
A version of this article appeared in the print edition of The Straits Times on December 03, 2016, with the headline 'How a Trump economy could make Singapore great again'. Subscribe