The economic consequences of Donald Trump

Submitted by martin on 19 November, 2016 - 4:46 Author: Martin Thomas

Newly-elected US president Trump will surely hack back migrants', workers', women's, and civil rights; speed environmental destruction; and raise risks of war, especially with Iran. He may also disrupt the large trends which have allowed capitalist growth for 60-plus years.

A trade-liberalising, world-market-boosting trend, embedded in institutions keystoned by the USA, was launched in 1947 and has emerged from five major convulsions since then strengthened or intact. It survived the US dollar's breaking of its link with gold, in 1971, and the crises of the 1970s: in fact, global financial flows zoomed in that decade. It was accelerated by the global shift to neoliberalism in the late 1970s and the 1980s. When most of the Stalinist states collapsed, and China and Vietnam shifted to "market Stalinism", from 1989 onwards, the institutions set up to order the affairs of the "Western" side of the Cold War adapted smoothly to draw in new territories. Where the Kennedy Round of GATT in 1964-7 had included only 62 countries, the World Trade Organisation, GATT's successor from 1995, had 128 countries subscribing to the 1994 Uruguay Round, and has 164 today. China joined in 2001. In 2008, the first G20 statement after the crash stressed above all avoiding protectionism; and on the whole that has held. Between 2008 and 2016 many new trade restrictions were introduced, but none huge, and almost as many trade liberalisations (WTO 2016).

Since 2008 world trade has grown slower than world output for the first extended period since World War 2, and global capital flows have slowed, too. Even that, however, does not necessarily signify a solid trend of "deglobalisation". Global trade is mostly in raw materials and (increasingly) manufactured and semi-manufactured goods. In most economies "services" dominate output (about 80% in the USA), while in global trade they are an increasing part but still only 21% (UNCTAD 2015). In an era where manufacturing employment is declining not just in the old industrial countries, but in Brazil, South Korea, China, etc., the relative decline of manufacturing value-added can outstrip the relative increase in trading of services for a while without this signifying a general turn inwards and away from world markets. The world's governments have been unable to reach comprehensive new global trade agreements since 1994. The "Doha round" of WTO negotiations has produced nothing but the relatively slight "Bali Package" of 2013. The US-European TTIP, and the US-Asian TPP, looked unlikely to get concluded even before Trump's victory. And yet: further trade agreements would always be harder to reach once tariffs on most trade had been reduced to single-figure percentages (latest average applied tariffs on WTO figures: USA 3.5%, Japan 4.0%, EU 5.1%, China 9.9%: in 1931 the average applied tariff in the USA was 35%). About 80% of world trade is now transfers within the supply chains of multinational corporations: they show no wish to do other than keep those chains expanding. Long-entrenched, deeply-embedded interests sustain the world-market-oriented order, with all its inequities and instabilities and horrors and also with all its erratic dynamism.

And yet, and yet... Donald Trump, as John Weeks puts it, represents not so much a rejection of neoliberalism as a climax of its drive to remove restraints on the abuses of capital (Weeks 2016). Trump says he favours free trade, he objects only to poorly negotiated trade agreements, and that, if left free to swagger and threaten, he, with his "art of the deal", can do better. But what does this bluster mean?

Trump has been specific about imposing high tariffs on the USA's main trade partners, Mexico and China; less specific, but threatening, about US withdrawal from the WTO. Even if more mainstream Republicans in Congress are horrified, he has much wider legal scope to impose tariffs and disrupt trade than presidents Obama and George W Bush had to push through tariff-reduction deals (Noland et al 2016). Possibly Trump's administration could produce what has been called an "aborted trade war", in which Trump's first protectionist measures produce such backlash and disruption that he quickly retreats, something like an enlarged version of Reagan's initial protectionist lurch. Possibly it could produce a still-largely-globalised world in which the USA is an exceptional rogue state, a counterpart to China, which, though the world's largest exporter, still has large (mostly non-tariff) barriers to trade.

Those limited outcomes, however, presuppose a controlled reaction by other states, in other words by a world system of states in which the keystone for decades, the USA, has gone rogue. The EU's difficulties in dealing expeditiously even with its own internal problems make it unlikely that it could become an alternative keystone. They presuppose that the Trump precedent does not snowball; yet his victory has given a boost to the Front National and Marine Le Pen in France. In April-May 2017 Le Pen will almost certainly enter the run-off vote for the French presidency, and current opinion polls are close enough that she could win. She promises a referendum to take France out of the EU, and in June 2016 polling showed 61% of the French (a greater percentage than of British: Pew Research 2016) had an "unfavourable" view of the EU. If France withdraws from the EU, nothing like the current EU's level of capitalist integration can survive: only some loose trade area, and maybe a much-reduced tighter eurozone.

A global slump, and ugly, regressive politics almost everywhere, would ensue, and probably strengthen the protectionist trends. And suppose that weighty "globalist" interests do deter or limit Trump, and Le Pen fails to win in May 2017. Even then a new crisis (which is likely to come soon for other reasons, independent of Trump or Le Pen) would find a political establishment whose repertoire of anti-crisis measures has been exhausted and discredited, and thus vulnerable to new and more aggressive right-wing surges.

The USA has always been an exception within the capitalist world order it has promoted and keystoned. Because of the USA's size, its relatively small (though increasing, from 10% in 1970 to 25% now) ratio of trade to GDP, and its status as home to so many multinationals, Alden remarks that: "The United States has not historically worried much about how to make itself an attractive location for investment geared towards exports" (in Card 2011, p.12), though most other governments have worried greatly and increasingly about that. Brexit sentiment in Britain has been mostly about immigration, not trade: most Brexit voters (according to surveys) and Brexit leaders (according to their statements) want the UK to stay very open to trade, only they dislike immigration more than they like trade. In the USA it has been different. There is much anti-immigrant sentiment there, but it is not overwhelming nor even necessarily increasing: as of 2016, 61% supported a path to citizenship for illegal immigrants, and that percentage had been stable for some years (Jones et al 2016). Skepticism about trade has been on the rise since the 1990s, both in public opinion and in Congress. Both George W Bush and Obama had to battle and cajole Congress for trade deals. The "fast-track" authority of the presidency to do trade deals, in effect from 1975, lapsed in 1994, was restored from 2002 to 2007 and then lapsed again; was restored in June 2015, but to little effect. By September 2010, in a poll 53% said free trade agreements "hurt" the USA, and only 17% that they "helped", where in 1999 there had been a majority for "helped" (Card et al 2011 p.28). The USA has simultaneously been the keystone of a relatively free-trade world-market system, and often the most reckless and narrow-minded about the necessary capitalist give-and-take. This contradiction could now become deadly.

Reliance on the system remaining stable, or on a mild dose of kindliness and generosity to rally a sufficient alternative to the new surge of the right, is foolish. Only an assertive, energetic, sharp-policy'd mobilisation by the left can do that.

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