When Tradewinds Get Rough
The new Dean of NUS Business School Professor Andrew K Rose takes a look at the thinking behind policies that has drawn the world to the brink of a global trade war.
Professor Andrew K Rose has served as Dean and distinguished professor of the NUS Business School since 1 June 2019. Prof Rose has published over 150 papers including, over 90 articles in refereed economics journals. His research addresses issues in international trade, finance and macroeconomics, and has received more than 45,000 citations.
The Trump presidency has invoked a strong response from various quarters from across the world — for a multitude of reasons. From your perspective, what areas should be concerned about with regard to his economic policies?
Singaporeans should be most concerned about Trump’s trade policy, and we should all thank the heavens that he doesn’t meddle with much more than that! I’m an international economist, someone who believes strongly that the international exchange of goods, services, capital, people and ideas almost always benefits all concerned. I think my initial fears about Trump — the catalyst for my move to Asia — were justified. Ignoring the other ills he has perpetrated, Trump has single-handedly undermined the international rules-based system of international commerce, and unleashed a trade war. Indeed, my recent research shows that countries that raise tariffs suffer reduced growth and productivity within a few years, along with increased unemployment and inequality. That should not be much of a surprise, since tariffs are just taxes on imports, which are things that foreigners produce more cheaply than we can do domestically. And that’s ignoring the effects on other countries, along with their retaliation!
But if tariffs raise the price of foreign imports, don’t people tend to buy more domestic goods instead, raising employment, the trade balance and output?
Well, tariffs do indeed raise the price of imports. Research has shown that’s the chief reason that most Americans have lost from Trump’s tariffs; they pay more for Chinese goods, which are particularly used by those with lower incomes. But tariffs also tend to lead to an appreciation of the foreign exchange rate, which harms export competitiveness, and offsets any effect on the trade balance. That’s exactly what I find in my research, and it’s consistent with common sense. In the past few years the US Dollar has risen considerably, while the American balance of trade has actually worsened since Trump was elected from around US$45 billion a month to around US$55 billion now.
So why do countries launch tariff wars if they tend to lose from them?
It’s important to remember that countries usually don’t launch trade wars! This is really the result of one man − who unfortunately happens to be President of the United States! It’s hard to see why Trump started his tariff war, and even more difficult to figure out how it will end; he hasn’t said what victory would consist of, or what his objectives are. But it’s unsurprising (at least to an economist like me) that the United States is losing from protectionism; that point was made by Adam Smith almost 250 years ago in The Wealth of Nations.
President Trump has said that it’s really about bringing industries back to American soil, thus creating jobs, and relying less on foreign imports, etc. And ultimately to revive the US economy and allow it to negotiate from a stronger position. What is the key flaw of such thinking, given the realities of today’s global economy?
It’s ludicrous to think about returning industry to America when the American unemployment rate is the lowest it has been in 50 years! America doesn’t need more jobs; it needs more productivity growth, and the one good way to spur innovation is through competition — including foreign competition. Imagine how poor Singapore would be if it closed itself off from international influences! America should become more like Singapore in my opinion, and less like the countries led by Trump’s current friends which include North Korea and Russia.
America doesn’t need more jobs; it needs more productivity growth, and the one good way to spur innovation is through competition — including foreign competition.
What about China, the target of President Trump’s trade war?
Of course, other countries also lose from the American trade war, including American rivals like China, and, unfortunately, allies like Singapore. Indeed, one of the key aims of American foreign policy over the 70 years after World War II was to create an international trade system that liberalised trade between the United States and its allies, binding them together in a network that reinforced security and commercial ties. Singapore is a perfect example of a country that has benefited enormously from the system that is now under threat. As international trade shrinks, ports like Singapore lose.
This being said, are any of President Trump’s allegations about China’s economic/trade policies possibly ‘justifiable’? i.e. Do China and/or other countries share the blame for this trade war? Or is this a purely an American doing?
America has been long concerned with bad behaviour on the part of the Chinese government, most especially the forced transfers of technology from foreign companies which are often the price of doing business in China. Indeed, there was a strategy to handle this: America formed a coalition of like-minded countries that are important to China, and negotiated a treaty to try to force China to shape up. But Trump dropped out of that — the Trans-Pacific Partnership — as literally his first action as president, simply because it had been negotiated by Barack Obama. Indeed, many of Trump’s actions are intended merely to reverse Obama’s policies. That’s not a sensible way to be president!
AN ECONOMIST ABROAD: THE PUSH AND PULL OF A NEW DEAN
In this exclusive online interview for The AlumNUS, Professor Andrew Rose, who took over from Professor Bernard Yeung as Dean of the Business School in June 2019, talks about his new role and what drew him to the University.
You recently arrived in Singapore after more than three decades at UC Berkeley, one of the leading public universities in the world. What prompted the move?
There were two kinds of forces: the push away from the United States, and the pull of NUS-Business and Singapore. The catalyst was the election of Donald Trump; I actually sent an email to my closest friend at NUS on election night saying that my family and I were ready to leave the United States.
What attracted you to Singapore?
As America turned more nativist and populist, I realised the most appropriate response was to go to a place that welcomes diversity and science. Singapore is nothing if not pragmatic, and the technocratic bureaucracy here appreciates evidence-based logic. The diversity and meritocracy of Singapore are features that I have always found admirable, which explains why I’ve been visiting Singapore regularly for decades. America may be pushing people like me away, but Singapore also exerts a mighty pull! Also, NUS has the advantage of an exceptionally clear-minded leadership team, which I appreciate.
Where do you think NUS is going?
Succinctly, I think of NUS as being committed to the production and dissemination of research — which is, in my view, the proper role for any serious university.
But what about teaching? Many have claimed that instruction is the appropriate goal for a public institution like NUS.
Well they’re not mutually exclusive since research is, in part, disseminated in the classroom. And you never want to forget that humanity only progresses through basic research which spurs innovation. Indeed, that’s the reason governments like that of Singapore fund universities — the spillovers are enormous.
The key reason I care about research in my role as dean is that it’s critical to our students, past, present and future. The reason is simple: universities are not judged primarily by the value of their teaching. They can’t be; teaching methods and quality just don’t vary that much across universities. Where universities differ is in their ability to produce innovative research. Professors at leading universities such as MIT and Oxford aren’t better at delivering lectures; but they’re better at producing the content that goes into the lectures. And as the calibre of NUS research rises, the faculty will attract better students who will create better alumni networks, and the virtuous circle continues. The irony is that it’s very much in the interests of NUS students to have faculty who spend most of their time doing research, and not teaching!
What’s the most exciting new development at NUS Business School?
Well, we have a lot of initiatives going on, but let me highlight one: our growth, particularly in the number of masters-level courses we can offer. We’ve seen tremendous growth in the demand for pre-experience MSc courses, along with continuing growth for our MBA and Executive MBA programmes. At this point, we unfortunately can’t satisfy much of it, because of constraints. We’re working very hard to expand our capacity to deliver high-quality instruction to our students, in two dimensions: space and people. We’re building a new Executive Centre next to the NUS Guild House which will have over 180 rooms suitable for short-term stays by our EMBA and executive education students, among others. We’re also renovating the Hon Sui Sen Memorial Library to provide a number of quality classrooms in order to deliver the classes we need, as well as the small breakout and group-study rooms that students demand at a top-quality business school. Simultaneously, we’re pushing hard to hire another dozen faculty members so that we’ll have the human capacity. It’s an exciting — and exhausting — process.
You have a lot of important work ahead of you; good luck to you and Biz School!