Welcome to Trumponomics: A Variant of “Economic Nationalism”
Donald Trump’s economic policy and his perspective on globalization, trade and capitalism are very black and white. Does he have a real plan?
- Seems like Trump wants to promote "Trumponomics," a variant of "economic nationalism" or "national capitalism."
- The "race to the bottom" not only started at home. It was pushed by Republican state governors.
- Why do US car producers finish dead last in consumer satisfaction, way behind all imports and transplants?
- It is easy for political elites to sell the notion of economic nationalism. But it is almost impossible to deliver on it.
There is a delicious double standard in Donald Trump’s view of globalization, which may have a direct bearing on his emerging economic policy.
During the 2016 presidential campaign, the one-time owner of the Miss Universe pageant – a very global enterprise – never missed an opportunity to rage against economic globalization.
That put him in sharp contrast to the Republican Party, which has long embraced this process. Even more potently at the ballot box, his stance also put him into sharp relief to the Democratic Party. Thanks to the Clintons’ relentless steering, their party embraced economic globalization at least as much.
Trump’s good/bad filter
The underlying logic, in the world of Trump, was straightforward:
- Globalization is good when he benefits from it — as he did with his global Miss Universe brand, centered as it is on the visual merchandising of women’s bodies
- Globalization is bad — when it is not about his brands and the goods he sells, but all other firms’ goods and services.
Trade as an easy target
To date, Trump’s basic operating rule has been to say “to hell with the damn foreigners.” They are cheats and thieves who flout the rules and devalue their currencies in order to rob Americans in the global economic game.
Those damn foreigners, according to Trump, also engage in the wholesale stealing of our intellectual property.
It would be complete news to him that the historical record indisputably shows that Americans did so themselves in a very systematic way during all of the 19th century in order to build up their economy.
Trade and capitalism
But trade is only a part, if an essential one, of capitalism.
To be sure, as the owner of a private company, he could have bought more stuff for some of his ventures that was “made-in-America” — and thus more expensive, leaving him with smaller profits. He chose not to do that.
His operating rule is clear: Do as I say, not as I do.
On the road to “economic nationalism”
What will his economic policy look like? It seems as if he wants to promote Trumponomics, a variant of “economic nationalism” (championed by his chief strategist), or “national capitalism.”
A couple of his past statements point in that direction:
- Taking credit, rightly or wrongly (it does not matter), for Ford’s decision not to move part of the production of a plant in Kentucky to Mexico
- Throwing out the draft TPP agreement
The politically far bigger question, however, is what Trumponomics will achieve for the justifiably angry people of the Rust Belt. These voters should not hold their breath, for a whole lot of reasons:
First, the major competition for the Rust Belt states comes less from the (damned) foreign producers than from American brethren in the Southeastern states and Texas.
The Big Three automakers, for example, have faced (and created) misery in the Midwest, but created jobs and incomes in the South. As a result, the Midwest’s share of automotive employment contracted from a high of 42.8% to a low of 29.7% as of 2012.
Alabama, Kentucky, Tennessee and Texas are now leading the country in new automotive jobs. This is largely due to the heavy investments by the “Little Eight” car companies operating in the U.S. market — i.e. the German, Japanese or Korean brands (aka the “damned” foreigners).
Why eradicate unions?
Why did all this come about? The answer is simple: Lower wages and the near absence of unions. On average, only 5% of the work force in those states is unionized.
In addition, state governments provided massive incentives (up to $ 100,000 per job). Making such enormous financial concessions distorts competition.
Thus, Trump will soon find out that the “race to the bottom” not only started at home. It was pushed by Republican state governors and legislatures. They were united in one goal – eradicating unions from the face of the U.S. industrial landscape.
All economists (regardless of their political stripe) agree that the majority of U.S. job losses are the result of technology, not imports. They also agree that this trend will only get worse (self driving trucks, anyone?).
To ease the coming transition, it would help to have the social tools, such as wage insurance programs and trade adjustments budgets, in place.
However, this is precisely what Republican majorities have railed against vehemently or refused to fund, or seriously underfunded, over the years.
The U.S. math and science problem
It would also help to have a decent education system beyond the elite level. The United States ranks 35th in math skills worldwide. Coincidentally, that is way behind Vietnam — and a good reason to be scared of TPP.
The United States ranks only 27th in sciences. That is quite an achievement, given that many schools in the Bible Belt teach creationism. And let us not forget that an astounding 81% of Americans do not believe in Darwin’s theory of evolution according to a 2014 Gallup poll (then again, polls can be wrong…).
Protectionism has a cost
Third, protectionism has a cost, indeed several costs. A 45% tariff on Chinese imports sounds great, but it would:
- definitely hurt Walmart customers
- raise consumer price inflation and thus
- push interest rates up.
Instituting such “protection” also means less competition, something that Americans can witness every day.
Consider that, because of an absurdly high tariff of 25% on SUVs and light trucks, the U.S.’s Big Three car manufacturers make most of their profit margins in that segment.
In a very rational way that is also why the Big Three also neglect to invest in the development of small cars and sedans (since there are no outsized profits to be made).
It is thus not surprising that U.S. producers finish dead last in consumer satisfaction, way behind all imports and transplants.
Who can afford economic nationalism?
At a minimum, economic nationalism will cost Trump’s angry blue-collar workers a lot of extra money each year. That is money they definitely don’t have.
It is easy, and perhaps alluring, for political elites to sell enraged voters on the notion of economic nationalism. But it is almost impossible to deliver on it.
Is it all about sentimentalism?
It could be that a “true red” economic nationalist does not care about that small problem. A sports analogy is in order here:
- The NFL and AFL football championship teams meet each January in the “World Championship” game. So much easier to be “world champions” when basically nobody else plays the game!