The Appealing Logic That Underlies Trump’s Economic Ideas
His policies may fail to deliver, but his rhetoric answers a question millions of Americans are asking about a globalized economy: What about me?
For years, whenever people have seen their livelihoods vanish, politicians have told them to “move to opportunity” or to “get more skills and work harder.” Embedded in their message is the assumption that there is no way to stop the market’s force, and that the best people can do is to fight for their tiny share.
President Trump rejects this. For him, the way to create economic prosperity is to “follow two simple rules: Buy American and hire American”—a line he has deployed many times with small variations, including in his address before Congress, and that he has echoed in preparing for his visit to Michigan Wednesday to meet with automakers. This is a combination of old-fashioned mercantilism and the bully pulpit: We will put Americans first, and we will do so by shaming and luring companies into building and hiring here. Part of the appeal is Trump’s can-do attitude: Nobody else can save you; I alone can save you.
While Trump’s economic doctrine may fall apart when it comes to the specifics, which in the end is the only measure that will really matter, there is a certain undeniable logic to it. It answers the core question that millions have about economic policy over the past three decades or so: What about me? Instead of saying, “Just wait—this will all work out in the end,” the Trump economic doctrine delivers an emotionally and psychologically satisfying response: You first.
What is most striking about this economic doctrine is how dramatically it departs from policymakers’ longstanding economic ideas. Trump is entirely nationalistic in his outlook. As Trump put it in his inaugural address, “At the bedrock of our politics will be a total allegiance to the United States of America, and through our loyalty to our country, we will rediscover our loyalty to each other.” By contrast, consensus among the owners of multinational businesses and politicians has been that the path to prosperity lies in promoting global trade and transnational economic integration. The core theory that Trump offers—and his departure from years of prevailing economic doctrine—is that he can lead the way to something else. Globalism is not inevitable, nor are the accompanying job losses. (Full disclosure: I served as the chief economist to the Clinton-Kaine transition team.)
The globalist consensus emerged out of the Second World War, when a recognition emerged that the “beggar thy neighbor” policies of the 1920s and ’30s created the economic conditions that assisted the rise of fascism and, eventually, exploded into global war. Additionally, there was a hope that countries bound by mutually beneficial economic relationships would be at peace, building on the ideas of the philosopher Immanuel Kant, who 150 years earlier said, “It is the spirit of commerce that sooner or later takes hold of every nation, and is incompatible with war.” This is echoed in the statement of the French Foreign Minister Robert Schuman in 1950 when proposing the European Coal and Steel Community: “The solidarity in production thus established will make it plain that any war between France and Germany becomes not merely unthinkable, but materially impossible.”
Thus, before World War II was even over, 44 allied nations came together in Bretton Woods, New Hampshire, to craft a new, peaceful, economic order to be benevolently overseen by an International Monetary Fund to guide currencies, a World Bank to coordinate investment and development, and a General Agreement on Tariffs and Trade (the precursor to the World Trade Organization) to reduce tariffs and promote international commerce. A decade later Europeans began to pursue their own economic integration through the establishment of the Common Market, which later became the European Union.
The decades since have delivered what the economist and columnist Paul Krugman called in a recent talk “hyper-globalization.” The share of exports as a percent of the U.S.’s gross domestic product has risen from about 13 percent in 1960 up to 30 percent by the mid-aughts. And globalization goes way beyond companies exporting finished goods from one corner of the globe to another. The biggest firms are now multinationals with sophisticated—and complicated and fragile—supply chains that span the globe and locate production where it makes sense either based on costs or on proximity to market information. (And, as the economist Sue Helper points out, this logic applies within as well as between countries: Increasingly, firms “outsource” by relocating from one state to another, often pitting communities into direct competition with each other.)
Hyper-globalization has generated enormous gains in global wealth and lowered consumer prices. The past generation has seen large reductions in global poverty, especially in China, which now has a middle class. Branko Milanovic, an economist at the Graduate Center at the City University of New York, and his colleagues have documented that, between 1988 and 2012, the earnings of the broad middle of the global economy (those with incomes between the bottom 10 percent and the top 30) have risen by between 40 percent and 66 percent—the fastest generation of growth for the global middle of any time in history.
Yet, as is widely known and discussed, millions of middle-class Americans were left behind as the world’s economy grew. Contrary to what economists’ models assumed would happen, communities that have bore the brunt of the costs of offshoring have not been made whole. The United States is not alone in this trend. Many developed economies have seen only those at the top benefit from economic growth. In the United States, as Thomas Piketty, Emmanuel Saez, and Gabriel Zucman have documented, between 1980 and 2014, pre-tax income per adult grew by 61 percent, but the bottom 50 percent experienced only 1-percent growth in their incomes. Those in the top 1 percent scored 205-percent income growth.
Trump and Clinton (and Sanders) all sought to address this rising economic inequality. Clinton focused on “Stronger Together”—a slogan that echoes those globalist ideas. Trump looked at the same situation and said, “America First.” To say nothing of the economic merits of this idea, it at the very least responds to the real sense that people have that they are being left behind.
There is a dark side to America First, of course, starting with its Nazi-sympathizer echoes. And as much as this approach may have certain economic appeal, its consequences for issues such as immigration and foreign aid will be inhumane. America First, it turns out, doesn’t mean “everybody else next,” but rather “everybody else not at all.”
In his first few weeks in office, Trump has shown how America First will look in practice, bullying a handful of manufacturers into at least saying that they will create jobs in the United States. One theory, shared by many of his supporters, is that Trump can do this because he is a businessman. He knows that business leaders have control. He knows that when they say, like Carrier did, that they “have no option” but to locate to Mexico, this is a lie. And when Carrier changed its plans, the company made the case that progressives have made for generations: Businesses have the wherewithal to make decisions and act; they are not merely subservient to the market.
This is a flat-out rejection of the foundations of supply-side, trickle-down economics. This is the opposite of claiming that government must get out of the way of business leaders’ decision-making process and firms’ profit-maximization efforts. Donald Trump understands business and so can pick up the phone and convince businesses that they need to act in the national interest—or else. He will make sure that acting in the national interest is in their economic interest.
This is largely reality-TV theater. In practice, it seems that Trump will forge ahead with policies very much in line with old-school supply-side economics and counter to existing economic evidence. This includes the standard litany of ideas—massive tax cuts for the wealthy, rolling back the regulatory frameworks designed to rein in the worst of the financial sector, privatizing and cutting health care, removal of consumer protections—as well as a focus on carbon-intensive energy production. Each of these ensures that firms have greater leeway to make a dollar with less oversight and intervention. It also enables corporations that have monopoly power to keep a tight grip, elbowing out the competition and continuing to garner an outsized share of the economic pie.
Trump is right to focus on the creation of jobs domestically—the economy is so broken by years of policymakers looking abroad for the means to prosperity rather than figuring out how to deliver to communities across the country. But it is hard to imagine how “America First” plays out in a world in which America’s largest firms are global, not national. Multinational firms don’t seem to feel particularly allegiant to any country. They spend a great deal of energy finding ways to avoid paying taxes to any national government. And, as the economist Gabriel Zucman has documented in his book The Hidden Wealth of Nations, about 8 percent of households’ global financial wealth is hidden offshore, untaxed by any government. Over the past 40 years, the state has become less able to tax and regulate global capital.
The corporate headquarters of the largest U.S. firms are not embedded within the communities that voted for Trump. Will a phone call from the president be sufficient to change their business plans? And what if those communities have been left behind for good business reasons—such as a chronic underinvestment in schools to train workers-to-be, in world-class infrastructure, or in easy access to markets?
Some political scientists have argued that Trump’s election represents, as Vox put it, “the last gasp of the incumbent era.” In this view, developed by Yale’s Stephen Skowronek, such a “disjunctive” presidency occurs when one regime-cycle has run its course but another has yet to ascend. These presidents tend to be outsiders. While elected by one party, they are not tied to that party’s ideology. Trump may not be able to deliver on his promises, but there are plenty of good reasons for him to have made them.