Trump Rides a Wave of Fury That May Damage Global Prosperity
Posted by hkarner - 11. November 2016
Source: The New York Times
A populist insurrection is gaining force in much of the world, drawing middle-class and blue-collar recruits who lament that they have been left behind by globalization. This upheaval threatens to upend the economic order that has prevailed since the end of World War II.
This was evident before Donald J. Trump’s triumphant rogue campaign for the American presidency. Now it is beyond argument.
National leaders in Europe and North America are scrambling to placate energized, often unruly groups of people demanding change and a more generous share of the economic spoils. But the options for addressing the deficiencies of capitalism are severely constrained — both by traditional political realities and by the broader truths of the global economy.
In Britain, which shocked the world in June with its so-called Brexit vote to abandon the European Union, and now in the United States, with its stunning elevation of Mr. Trump, electorates have essentially handed governments a mandate to limit free trade. Voters have unleashed this action plan in the name of lifting the fortunes of working people.
But trade is such an elemental part of the modern global economy that impeding it is almost certain to produce the opposite effect. It will damage economic growth, diminishing prosperity for all.
Mr. Trump has promised to slap tariffs on Chinese imports and to punish American companies that manufacture their wares in Mexico. Britain’s new Conservative government has signaled that it may depart Europe’s vast single market as it negotiates divorce terms.
All of this may make for satisfying politics among populists railing against the predations of elites. After the American election, like-minded politicians, including Marine Le Pen of France, Nigel Farage of Britain and Viktor Orban of Hungary, welcomed the victory of Mr. Trump.
But speeches do not translate into viable job creation strategies.
The American economy depends on access to a global supply chain that produces parts used by innumerable industries, along with a great range of consumer goods. Mexico and China are central actors. Disruption threatens to increase costs for American households. Tariffs on China might provoke a trade war that could slow economic growth, while most likely just shifting factory work to other low-wage nations like Vietnam and India.
Britain sells half of its exports to the nations of the European Union. If the country leaves the single market, tariffs could apply to its goods, diminishing sales and costing jobs.
Mr. Trump’s election and Brexit together underscore a central facet of these times. The old ideological divisions of left and right have effectively been eclipsed by a new economic taxonomy — those who have benefited from globalization and those who have not.
In Britain, affluent communities of professionals who hire Romanians to clean their homes and who enjoy getaways to Spain overwhelmingly voted to stay in the European Union. Industrial communities that have lost jobs as manufacturing has shifted east — to Eastern Europe, Turkey and Asia — generally voted to leave.
In the United States, college-educated urbanites making a comfortable living in the quintessential trades of globalization — finance, technology and media — disdained Mr. Trump. People in the center of the country who lack degrees and have seen jobs transferred to China and Mexico played a leading role in delivering the White House to Mr. Trump.
In northeastern England (something like the Rust Belt of Britain) people who voted to leave Europe speak openly about doing so to punish those who beseeched them to vote to stay — people like the exceedingly unpopular former prime minister David Cameron. The situation is so depressed, it cannot get worse, the logic runs. Any economic pain will fall on wealthy Londoners, people say.
Mr. Trump drew support from factory town laborers who have traditionally voted for Democrats but did not trust Hillary Clinton, the Democratic nominee. Many recall how her husband forged the North American Free Trade Agreement, which helped cause a shift of American manufacturing to Mexico. If Mr. Trump does not find a way to satisfy their high expectations, these people are likely to feel deceived.
And any proposals need to navigate the reliably treacherous politics of Washington. The latest piece of Trump real estate, 1600 Pennsylvania Avenue, sits just down the street from a Capitol full of people who got themselves elected in part by railing against deficits and promising to cut federal spending.
The soon-to-be President Trump has vowed to counteract the problems afflicting workers by unleashing a wave of infrastructure spending that will generate jobs for skilled hands. Perhaps he will have more luck than his predecessor, President Obama, whose own plans for infrastructure spending died time and again at the hands of Republican deficit hawks. Mr. Trump is — at least on paper — a fellow Republican.
But whatever happens from here, one may assume that populist ferment is unlikely to exhaust its vast reservoir of grievances anytime soon.
Eight years after the worst financial crisis since the Great Depression, the people who caused it — reckless investment bankers — have bounced back almost as if it never happened, while many American homeowners and wage earners have yet to recover their lost wealth.
Europe remains mired in stagnation. Some economies — Italy, Greece and Finland among them — have gone a decade without any collective economic progress. In Spain, nearly 44 percent of young people are unemployed.
Many of Europe’s problems represent a failure to reshape its policies to spur growth. Germany is the most powerful actor in Europe, and Germany maintains an obsession with budget austerity as the response to all economic problems.
Since Britain’s vote to leave Europe, some regional leaders have argued that Brexit amounts to a warning for the European Union: Absent a new economic philosophy, the situation will continue to generate hostility among a populace that cannot pay its bills.
“If you want to close this divide and you want to persuade your citizens that there is opportunity in the internationalization of the economy and innovation, you need to invest a lot,” said the Italian minister of economic development, Carlo Calenda, during a recent interview in Rome. “Otherwise populism will prevail, and this is a risk that we are seeing all around the world, also in the United States. And this will be a disaster for the economy, and for the geopolitical situation.”
He said this before Mr. Trump was elected.
But Germany remains implacably opposed to spending more aggressively, continuing to put stock — against all empirical evidence — into the idea that cutting spending and eliminating worker protections are the keys to prosperity.
Only Britain has taken the challenge as an opportunity to alter its fiscal policies. The new chancellor of the Exchequer, Philip Hammond, has promised to scrap the deficit reduction targets of his predecessor, George Osborne.
Democracy is fundamentally a means by which citizens get to tell their leaders what they want. What many now want is to banish their leaders.
Either the new leaders will find a way to make global capitalism a more enriching proposition for larger numbers of people, or they, too, risk being swept aside as anger builds.