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Hitachi Research Institute

President Column

Commentary by our President, Hitoshi Shirai

President Column #16: Tragedy and Comedy

 Charlie Chaplin, the king of comedy, left behind many words of wisdom that abound in the subtleties of human life. For example, using analogies befitting a person in the acting world, he once remarked, “Life is a tragedy when seen in close-up, but a comedy in long-shot.” In other words, an individual’s view of the same event the moment it occurs and its significance for the individual over the course of that person’s long life may differ significantly.

 Mr. Donald Trump, who promoted the slogan, “Make America Great Again” throughout his presidential election campaign, and who promised to bring jobs back to the United States and build a wall along the US border with Mexico, recently took office as the new president of the United States, the very country that led the move toward free trade in the world for decades.
 In the wake of globalization, which went into full swing from the 1980s onwards, many people the world over escaped from poverty and many emerging countries achieved rapid development including China. The United States also attracted capital and human resources from all over the world, and as the rising emerging countries became destinations for US corporate investment as well as promising markets, the United States enjoyed significant economic benefits. During this process, however, certain people were disadvantaged as a result of the relocation of production offshore, not only in the United States but also in other developed countries. Nevertheless, the transformation of the economy to a higher value-added industrial structure and other benefits to the economy as a whole must have outweighed the disadvantages.
 That said, if one day a factory that employs American workers shifts to China or Mexico and those workers lose their jobs, this situation can only be described as a “tragedy” for these workers. If they are then told, “Your jobs have moved to an emerging country and no longer exist here in the United States. Please go look for a higher value-added job and be happy,” these words can only sound like dialogue from a “comedy” that is not at all laughable.
 The Democratic Party, which was in power for the past eight years in the United States, is a party that normally enjoyed a high degree of support from labor unions. In this presidential election, however, the Democrats lost even in states like Michigan and Ohio, which had previously been their support bases. These states are referred to as “the rust belt,” which describes the current state of decay of these once prosperous states due to the offshoring of production. While it is a fact that government unduly failed to act to resolve the “tragedy” US workers faced, the key to improvement is to take measures after ascertaining the true cause of this “tragedy,” even if it takes considerable time.
 During the 25 years from 1982, the year globalization went into full swing, to 2007, just before the financial crisis, world trade expanded at a pace twice the rate of GDP growth. However, growth in world trade from 2011 onwards, the year the financial crisis ended, has remained at the low level of only 2.5%. per annum.*1 During the 25 years prior to the financial crisis, various deregulation policies including NAFTA, GATT Uruguay Round, and the WTO, led by the United States, served to expand the market, cut trade costs, and accelerate growth of the world economy. Since the financial crisis, however, globalization has clearly lost momentum. In the G20 countries since 2010, discriminatory measures against foreign products and services, including countries’ own procurement of government-procured items, have been introduced at a pace of 300 to 400 policies a year.*2 And now, the prospects for bringing into effect the TPP, which was to deregulate trade and investment at the world’s highest level to date, are nil.
 The growth of the US economy accelerated in tandem with the expansion of trade over the past several decades. The expansion of trade led to improvement in productivity and efficiency through competition and strengthened the US economy. The United States still has overwhelming predominance in creativity in innovation, and Silicon Valley on the West Coast of the United States is playing a key role. More than half of the new start-ups in Silicon Valley have been launched by entrepreneurs who are either newcomers or the offspring of newcomers to the United States. In terms of human resources, the United States also enjoys the benefits of globalization more than any other country. In fact, the ongoing open door to globalization and initiatives to promote reform and innovations have brought about prosperity in the United States.

 Nevertheless, no matter how much we try to convince people of the merits of globalization, our words will not bring any consolation or solution as they look “tragedy” in the face. I must say that neither the politicians on Capitol Hill nor the frontline economists had a sufficient understanding of the state of affairs in the United States and, consequently, failed to take action to address the gravity of the issues of unemployment and economic disparity. On the other hand, if the United States increases trade barriers by raising tariffs, it may be able to improve employment for a period but the economy is certain to stagnate over time. Building a wall along the border with Mexico, applying high tariffs on foreign products, and neglecting internal reforms will never turn the present day “tragedy” into a “comedy” with a happy ending, even if we take a retrospective look at the situation some decades from now.
 Another adage Chaplin left us with is this: We all want to help one another. Human beings are like that. We want to live by each other's happiness, not by each other's misery.

The figure is from The Center for Strategic and International Studies (CSIS), US
The figure is from Global Trade Alert, UK