Dubai: Protectionist policies pursued by the Trump administration are likely to hurt the global economic growth prospects and the stock market rally, Nobel Prize-winning economist Joseph Stiglitz said at the Arab Strategy Forum.

The current US administration is proposing de-globalisation, breaking up the efficient supply chains that have been created and raising costs. This is going to hurt the US mid-income groups, ultimately undermining the early signs of growth in the economy, he said.

The protectionist policies of the current administration is ostensibly targeted at bringing back lost manufacturing jobs to the US. According to Stiglitz, even if manufacturing were to come back, the jobs will not.

“Advanced manufacturing technology, including robots, means that the few jobs created will require higher skills and will be placed at different locations than the jobs that were lost. Like doubling down, this approach is doomed to fail, further increasing the discontent felt by those left behind,” he said.

The economist said the US trade deficit and fiscal deficit will rise owing to the flaws in current policies. While the tax cut for billionaires will result in a fall in national savings, the trade deficit will rise, owing to an increase in the value of the dollar which is likely to result in a surge in imports.

While the rise in twin deficits are expected to undermine the corporate earnings and eventually hurt the stock market rally, the economist said the rise in interest rates is going to reverse the growth momentum hurting corporate earnings. “Markets are overestimating benefits of tax reforms and underestimating the impact of protectionism,” he said

Bitcoin set to fail

Stiglitz said the current surge in bitcoin is mere hype and more of irrational exuberance of investors and lack of regulatory oversight on the instrument. The economist said it is only a matter of time regulators will come down on bitcoin and such other cryptocurrencies demanding transparency on their value surge and that will be the beginning of their downfall.

“The rise in the value of bitcoin is driven by the artificial scarcity. When regulators unveil the secret of its value and more such instruments are available in the market, their values will come down and many investors are likely to end up in tears,” said Stiglitz.

UAE needs to target long-term FDI

Dubai: A country like the UAE with relatively low population and consumption base should direct its policy initiatives to attract long-term investments that are focused on technology and innovation, Stiglitz said. While manufacturing jobs are going to shrink globally, focus on smaller economies should be on technology-driven investments, he argued.