The emergence of “Trumponomics”

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.

The underlying logic, in the world of Donald Trump, was straightforward. As George Tyler, an Economist and Author well explained it, for him, 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, while globalization is bad when it is not about his brands and the goods he sells, but all other firms’ goods and services.

To date, Donald 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. According to Donald Trump, those damn foreigners also engage in the wholesale stealing of the American 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.

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. Donald Trump’s operating rule is clear: Do as I say, not as I do.

What will his economic policy look like? George Tyler argued that 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. The first one is taking credit, rightly or wrongly for Ford’s decision not to move part of the production of a plant in Kentucky to Mexico. The second one is throwing out the draft Trans Pacific Partnership Agreement (TPP).

The politically far bigger question, however, is what “Trumponomics” will achieve for the justifiably angry people of the “Rust Belt”. According to Michael Brenner, Professor at the University of Pittsburgh, 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.

Michael Brenner further noted that 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 United States market, i.e. the German, Japanese or Korean brands (aka the “damned” foreigners).

Why did all this come about? The answer is simple. Lower wages and the near absence of trade unions. According to Michael Brenner, on average, only 5% of the work force in those states is unionized. In addition, state governments provided massive incentives (up to USD100,000 per job). Making such enormous financial concessions distorts competition.

Thus, Donald 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 United States industrial landscape. All economists, regardless of their political stripe, agree that the majority of United States job losses are the result of technology, not imports. They also agree that this trend will only get worse. 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.

Jean-Francois Boittin, a former French Diplomat and Treasury official stated that 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.

Third, protectionism has a cost, indeed several costs. According to Jean-Francois Boittin, 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 United States’ 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 United States producers finish dead last in consumer satisfaction, way behind all imports and transplants.

Here, one of the crucial questions is who can afford economic nationalism? According to Jean-Francois Boittin, 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 United States National Football League (NFL) and American Football League (AFL) football championship teams meet each January in the “World Championship” game (Super Bowl). So much easier to be “world champions” when basically nobody else plays the game.