Retired Superman Goh Doesn’t Tell The Full Story When It Comes to Trade
After being told to shut up by Lee Hsien Loong and reminded that he is just an old age pensioner with no power (for criticising LHL’s slowness to fix a successor and apparent desire to follow China’s Xi and become Premier for Life), Goh Chok Tong has now broken his silence. According to state media, he has commented in a Facebook post on Trump’s decision to impose tariffs on steel and aluminium imports:
“The US is like a heavyweight sumo wrestler brow-beating wrestlers of lighter weight.”
“In a world where, as Lee Kuan Yew once said, ‘Big fish eats small fish, small fish eats shrimps’, these are worrying times for Singapore. That is why Singapore and 10 other countries signed the Comprehensive Trans-Pacific Partnership to keep international trade open and rules-based. Hope the sensible countries win.”
We know GCT is possessed of superhuman powers, or more accurately is a practitioner of the dark arts, because of his prodigious feat in the 1997 GE when he materialized out of nowhere inside Cheng San’s polling stations to intimidate voters and thereby swing the election to the PAP. He thus prevented what would have been the PAP’s greatest upset and both a breakthrough for democracy and the crowning achievement of my dad’s political career . GCT’s superpowers enabled him to escape prosecution, conviction and likely disqualification from PM under the Elections Act since as Chan Sek Kheong, then the AG but shortly afterwards promoted to CJ (which comes with a multimillion dollar salary), ruled, you cannot be within 50m of a polling station if you are already inside it. (This blinding insight from one of the finest legal minds of his generation never fails to elicit hoots of derisive laughter from lawyers that I tell it to in any free country).
However he is either hypocritical or does not understand any macroeconomics, which is a common failing of PAP Ministers. The US has run a huge current account deficit as a proportion of GDP for the better part of four decades and that has been a major factor propelling global growth. In 2017 the US current account deficit was just under 3% of GDP which was down from its peak in 2006 of over 5% of GDP. A lot of the money from the Trump tax cuts is likely to leak into additional imports widening the trade deficit.
By contrast Asian countries and the EU, particularly Germany, run big surpluses with the US and the rest of the world. This is in many cases the result of deliberate Government policy to run Budget surpluses which has the effect of increasing domestic saving and decreasing demand for imports. This reflects a mercantilist bent on the part of policymakers which believes, to put it crudely, exports and saving are good while imports and consumption are bad.
Mercantilist governments seek to impose austerity on their population in order to accumulate reserves and buy up assets in other countries. National strength is reflected in the size of reserves rather than the welfare of the people. Mercantilism means that manufacturing is regarded as the source of all wealth. Contrary to popular perception, mercantilism is not just an Asian phenomenon despite it suiting authoritarian governments who see huge reserves as a source of state power and also as a means of financing war if necessary. The term itself comes from Colbert, Louis XIV’s Minister of Finance in the seventeenth century, who pursued a policy of building up state manufacturing enterprises for export as a means of increasing government revenues and providing the means for war. Meiji Japan’s policy of industrialisation after 1870 when the Americans sought to force open Japan’s market is also a perfect example as it was chiefly pursued to provide the means to wage war and annex Korea, Taiwan and large parts of coastal China.
Today Germany, China, Japan and Korea are devotees of mercantilism, all countries running large trade surpluses as a measure of national virility. Chancellor Merkel of Germany is an enthusiastic advocate for export surpluses, often exhorting other countries like the Southern European laggards to follow the same strategy without recognising the absurdity. The world cannot run a global surplus obviously and if all countries tried to run surpluses the result would be a major depression on the scale of the 1930s.
Singapore is probably the most extreme example of mercantilism as it runs a general government surplus (which the PAP Government does its best to hide from both the citizens and foreigners) that may be in excess of 10% of GDP and a current account surplus of 25% of GDP. Instead of enjoying a reasonable level of consumption Singaporeans are told that they must continue to tighten their belts and save for the rainy day that will never come or for the thousandth generation after this. Of course the Government is lying when it says it is saving the reserves for future generations as it has no intention of ever spending them for the people’s benefit (if they have not been squandered or misappropriated already). LHL himself said some years ago that there was no point on providing more cash benefits to Singaporeans as any extra money given to ordinary citizens would just be spent on imports. Singapore’s huge current account surplus has attracted the attention of the IMF which in 2013 advised the Government to reduce it. However it has been ignored by the US because Singapore is one of the few countries to run a current account deficit with the US, partly because of its massive purchases of American armaments. Clearly that is a deliberate PAP policy to ensure that the US regards authoritarian Singapore as a key ally and market that must not be criticised.
It was deliberate US policy during the Cold War to adopt a policy of benign neglect of its current account in the interests of facilitating export-led growth in Asian nations and the EU in an effort to ensure that these countries developed and did not fall under Soviet or Communist Chinese control. After China opened up post Tiananmen Square in 1989 and became a major exporter, the US ignored the often devastating effects on communities in the heartlands as businesses closed and corporations moved manufacturing to China because it was believed that China would inevitably become democratic and peaceful as it industrialised. That myth has now been exploded and the US sees that it has created a fearsome strategic competitor that may soon surpass it.
So ESM Goh is wrong to characterise US policy as that of a heavy weight sumo wrestler throwing its weight around (though economic theory shows that big countries can gain from tariff wars with smaller economies which explains Trump’s taste for bilateral trade deals). Rather it is entirely reasonable to demand that other countries should reduce their surpluses and buy more American goods rather than seek to accumulate assets.
Singapore should take note. Even though we run a current account deficit with the US, we could and should contribute more to global growth by reducing our current account surplus. This is best done by reducing our huge Budget surpluses and returning it to the people. Such policies are not just altruistic but also good welfare economics. Unfortunately Singaporeans are so brainwashed that they believe that indefinitely delayed gratification is good for them. The reality is that it just benefits the Familee and the few elite families who control the state resources created by these policies.