Protectionism in the USA: start of a trend?

Donald Trump looks unlikely to win the Presidency. But the surge in support for the billionaire, and other populist politicians, should serve as a wake-up call to political elites. Philip Whiteley reports 

The firebrand populist Donald Trump, the Republican candidate, is unlikely to become President. Recent revelations about his attitudes to women appear to have sunk his fading chances. But his political rise demonstrates the growing appeal of angry populism in the west, and have raised fears that the USA is moving away from free trade.

His Democrat opponent, Hillary Clinton, is widely distrusted, having been affected by controversies of use of personal email account as Secretary of State, and accepting Wall Street donations. The misdemeanours of her husband still hang over her, however unfairly.

More tellingly, however, she has shifted her position on the Trans-Pacific Partnership, a free-trade agreement for the Pacific Rim that has been drafted, having called it the ‘gold standard’ in 2012. Candidate Trump, an unapologetic protectionist, has claimed that her u-turn was a direct result of pressure from his campaign.

And indeed Candidate Clinton’s comment in Ohio in August 2016 does sound Trumpesque: ‘I will stop any trade deal that kills jobs or holds down wages — including the Trans-Pacific Partnership,’ she said.29642491604_1fb1d55857_o

Trump would, of course, go much further. He would not only fail to ratify the Trans Pacific Partnership, a free trade deal, but even withdraw the USA from the North American Free Trade Agreement. He would impose a huge 45% tariff on Chinese imports, and 35% on Mexican goods to create an incentive to produce in the USA.

Key to understanding the rise of populism is that it does have its roots in real economic grievances. If Trump does fail in his bid for the White House, it’s likely there will be a strong campaign by a candidate with a similar platform before long. His protectionism appals legislators and international business-people, but a lecture on free trade rings hollow from an establishment that bailed out its friends in Wall Street, passing the cost on to American households and businesses, none of whom get a cent in subsidies should their entrepreneurial endeavours not work out.

Candidate Clinton’s closeness to Wall Street was a campaign theme for her left-wing rival for the Democrat Presidential candidacy, Bernie Sanders. His attack ads in early 2016 slammed Clinton for accepting over $200,000 from Goldman Sachs for a speech. ‘Nothing will change until we elect candidates who reject Wall Street money,’ he said.

When Candidate Trump slams Washington for being corrupt, it is a point of view that large numbers of US citizens agree with, across the political spectrum.2336591426_6504e72017_o

Protectionism, however, has a poor track record in addressing stagnant wage growth for the lower and middle classes. Trump is naïve in assuming that there are such things as ‘American’ products, or ‘Chinese’ products in a world of global sourcing. Moreover, cost is only part of the issue. The economic world is characterized by clusters of expertise, and much outsourcing is on the basis of higher quality, so repatriating activities is not always feasible. Almost all economists predict that his protectionist policies would prompt a trade war, collapse of economic activity and an all-out recession, such as occurred in the 1930s.

This does not mean that support for the populists will die away. The harnessing of discontented voters by Sanders and Trump has been significant. Sanders, who also opposes the Trans-Pacific Partnership, won 23 primaries and caucuses, and 43% pledged delegates, compared with Candidate Clinton’s 55%, without any big-company campaign finance.

And there are nods to the Sanders core supporters in other aspects of Clinton’s policy proposals, which appear distinctly to the left of Obama. She would invest in infrastructure, encourage worker involvement in companies and the living wage, and increase taxes on the wealthy. She may emerge victorious, but both Trump and Sanders will credibly be able to claim that they effectively drafted parts of her manifesto.

Her approach is a blend of Washington-as-normal, European social democracy with a dash of US populism thrown in; probably all as a result of opportunism, rather than a grand plan. The financial crash and the squeeze in incomes in Middle America has profoundly altered what is acceptable as the ‘centre ground’ of politics since the free market days of Reagan, the Bushes and Clinton.

Assuming Clinton prevails, the elite will have to hope that the unconventional policy mix works. Otherwise, the grievances that the new populists tap into are unlikely to disappear. Four years of her presidency is likely to fuel the anger of Trump’s core supporters. A major security or financial event, like 9/11 or the banking crash, could up-end normal projections.

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