America’s Political Economy: Debating the Republican Protectionist Turn

Does the shift within the Republican party towards protectionism matter? Is focusing on the political economy of trade a more illuminating way to see the new Republican administration than to focus on Trump and his endless media circus. Have we been playing the “man not the ball”? That was the question I put in a blog post a few days back.

The reactions to my post by two friends Ted Fertik and Anusar Farooqui (follow Anusar’s blog here) were deflationary (see Facebook). Anusar doubts that we are seeing the emergence of a new Republican protectionist coalition in the manner of the late 19th century: “My sense is that we are certainly not close to that kind of consensus” “the globalist-neoliberal coalition is much, much broader than “auto industry, IT, textiles, retail.” (the sectors I had singled out). “It includes Wall Street, internationally-oriented manufacturers, oil companies, and other multinationals. It is still extremely powerful and it will fight tooth and nail to preserve the finance-led, neoliberal global order. It may yet prevail. Trump might even have to give up almost entirely on his economic nationalist agenda under pressure from this coalition. We shouldn’t underestimate Rocky Balboa just cause he lost the last round.”

Ted’s deflation was even more radical, but points in a slightly different direction. Ted doesn’t think that the shift to economic nationalism within the Republican Party is surprising. It has been foreshadowed for years, for instance by Pat Buchanan. On this see Tim Shenk’s insightful long read. “My view is that what is impressive is not Trump’s effect on the electorate. What is impressive is just how tight the grip of the Chamber and capital generally has been on the Republican Party, such that up until Trump it was impossible for any Republican candidate to be taken seriously who did not espouse orthodoxy on trade, and even to a certain extent on immigration, despite the fact that the base of the Republican party is as nationalist and xenophobic as it so obviously is. That’s why so many Republican voters were elated to have Trump as a candidate — he was giving them what they had wanted for years, but that no other Republican had been willing to risk offering.” In part the Republican elite can pull this off because, according to Ted, “For decades trade has not been a top issue for more than a fraction of the U.S. electorate” As far as the business elite are concerned, “I suspect that they are actually not that worried about what Trump will be able to accomplish on trade, maybe with the exception of the auto industry, since it in particular is so heavily invested in a Mexico-based supply chain. There have been no major new trade deals in years and yet this does not seem to have been any particularly big problem for the Chamber of Commerce and its allies. … deregulation is worth far, far more to them” “If business interests within the Republicans can live with Trump’s blustering about trade, but keep him from actually starting a trade war with China, they won’t have too much to worry about.” Whatever NAFTA renegotiation happen, Ted predicts, will be no more than “scraps”.

Nikhl Singh, another regular interlocutor, is even prompted to wonder “whether free trade and globalization are essential elements of neoliberal policy).

So how do I respond?

As I indicated in my original post I am myself not certain of the significance of the shift. It is not clear that protecting manufacturing industry any longer has the economic significance that it once might have. It is not obvious, in fact, that the US has a manufacturing base that could really benefit from protection, especially since many of its leading corporations have done so well out of the opposite trend. Though some jobs may be created, the overall competitiveness of sectors like the auto industry is likely to suffer from barriers to cross border value chains. So what drives this policy change seems to be an electoral calculation resonating with an endless loop that has been running in Trump’s head since the 1980s: “Imports from ….. (fill in blank) are killing us, killing us …. the politicians are fools. The trade deals are terrible.” Repeat ad nauseam.

The reference to Bensel, whose work on gilded age political economy I highly recommend, was not intended to suggest that there is behind Trump a compact and coherent economic logic to protectionism, but rather the reverse.

What Bensel argues is that already in the 19th century tariffs mattered not principally because of their direct impact on the US economy. What he shows is that economically insignificant tariffs can have a highly significant influence on a society’s political economy, because of the political majorities they allow you to build to support policies that do matter. That is how I read Bensel sees the late 19th century. That is what we all agree may be happening in the present. To that extent, it does seem to me that we may be witnessing something analogous. The era of the comprehensive, apparently consistent policy agenda of the Washington Consensus may be over. If so it brings to an end an era that one might be tempted to trace back to the slow conversion of the New Deal administration to globalism after 1934. Today we may be entering a new era, defined by a complex pattern of “side deals”, which is how US policy was shaped between the 1870s and the mid 1930s. It is precisely the lack of consensus that may mark the similarity.

But, generally speaking I am no friend of overstretched historical analogies, which is why I made a shout out at the end for a comprehensive narrative of how we ended up where we are today that is not based on repetition of some familiar schema. I am very open to the idea that this involves some kind of postmodern involution (or “we have never been modern” if you prefer) of the type that Mike Davis seemed to be suggesting with his reference to the “cargo cult” of the factory. If this is history repeating, it is history repeating as dark comedy.

Obviously, even if Trump may make some concessions to the white working class electorate on trade in industrial goods, globalization is a complex that is far wider in its reach and its implications. Certain very powerful business interests are deeply interested in the entire complex and I would agree with Anusar that Wall Street and tech are deeply involved, as well as big oil. But it is easy to exaggerate the significance of globalization to the US economy as a whole. The significance of trade in manufacture goods, in particular, is grossly inflated in the popular imagination. I did a bunch of posts last year in which I was trying to get its measure. I will reorganize this material in legible form and post it separately over next few days. The punchline is that by the standards of Europe or Asia, the US is not a dramatically globalized economy. So, this only goes to reinforce Ted’s comments that trade really isn’t a key issue for most Americans, because it really does not affect all that many of them all that much. And one could then link this to Ted’s acute observations about how best to narrate the story of the Republican party.

I take Ted’s comments to imply that in electoral terms Anusar’s Rocky, “the globalist-neoliberal coalition” may pack a big punch, but he has always had somewhat wobbly legs. As Ted remarks, the remarkable feat of the republican party leadership was to anchor a modernizing globalizing agenda of big business on a party whose base included large elements of backwoods religious fundamentalism, xenophobia, nationalism and racism. Such a feat is by no means unprecedented. I am not trying to construct some ideal type of “modern global capitalism”. But whenever this kind of coalition is pulled off it is always a peculiarly fragile and precarious construction with some obvious fault lines. All political coalitions presumably exhibit some kind of fault lines, but these ones are particularly glaring. For a European where protectionism has been truly anathematized since the 1960s, it has always been surprising how openly American politicians pose as trade warriors.

As Frank Trentmann and Boyd Hilton have observed about 19th century Britain, if you really want to entrench free trade you embed it in deep culture and align it with religion. You don’t rely on a bit of bipartisan hobnobbing in Congress and heavy handed lobbying to do the trick.

So I agree with Ted that what we are seeing now is the predictable end of a dangerous tightrope act. Though it is dramatic, the collapse of the Republican free trade agenda is not “surprising” and I think it poses rather more serious problems than Anusar allows.

(1) It may not be a permanent thing. But it might, as Ted concedes and as Mike Davis suggests, hand the Republicans presidential majorities on top of their truly daunting grip at the state level. And that would matter.

(2) Furthermore – and this is the point that, in my view, both Anusar and Ted both underestimate – the shift in the Republican position has already had a dramatic impact on global political economy. As Ted says the US has not done a major trade deal recently. What he does not mention is that the US was due to complete not one but two, in fact the two biggest trade deals ever: TPP and TTIP. It is not a coincidence that dropping TPP was one of Trump’s first acts and it really matters.

The Clinton team was probably going to drop TPP too. But, as I know from having interviewed some of the Clinton people, that was precisely because of the huge shift they saw on the Republican side. The Dems did not want to carry TPP on their own. Doing it without  solid Republican support would have been ruinously expensive in political terms.

In wider terms, dropping TPP matters, because it was supposed to be the substitute for head on globalization. Trade “liberalization” by way of “whole world” solutions a la WTO had stalled with the Doha round.

To have moved down a “level” to regionalism by way of TPP and TTIP was already a major setback. That we now have an administration that does not even seem to understand regionalism, that thinks that the US has bilateral trade deals with Germany rather than the EU, means we are boldly advancing into the Stone Age.

TPP had particular importance because it was supposed to be the harbinger of a new model “trade treaty”. TTIP was the next phase. That too is now dead. Whatever the power struggles in Washington, no matter how many highly placed Goldman people, with the failure of those two treaties a generation of globalist trade technocrats have suffered a shattering professional defeat. After Doha, TPP and TTIP, the jobs in trade law are in figuring out Brexit. As Schmitter is now arguing neo-functionalism may need a new iteration to account for logics of distingeration.

The failure in Washington has global implications. A lot of key regional players notably the Japanese were slowly won over to TPP. For Japan to have joined in 2013 was of major significance in the region. Tokyo made a significant political investment it has now been left for dead.

Geopolitically, TPP was supposed to be the economic stuffing behind Clinton’s “pivot”. China has already indicated that it will capitalize on America’s withdrawal and regional players have little option now but to look for deals with Beijing.

Everyone agrees that for the biggest and richest countries the costs and benefits of these deals are not huge when viewed in macroeconomic terms. But there is likewise a consensus that they do have a very large impact on key emerging market economies. TPP was expected to have a huge impact on Vietnam. Vietnam is a key piece in the Asian jigsaw puzzle. For a sense of the stakes involved see this remarkable piece

The scale of this is only beginning to unfold. We are going day by day. The G20 meeting in Baden-Baden this weekend was a test. The result was pretty astonishing with the US blocking a collective statement endorsing free trade. Here is the Washington Post’s account of what must have been a pretty head-turning experience for all involved. “Treasury Secretary Steven Mnuchin, appearing at a gathering of economic ministers and central bankers from the 20 largest economies, rebuffed multiple entreaties from German officials to include in the meeting’s joint statement language emphasizing the importance of free trade and that it should be conducted in a “rules based” manner, following existing standards and agreements. By rejecting language that would have said the United States is opposed to protectionism, the White House sent a clear signal that it would not accept existing trade norms and could pursue a more antagonistic approach with trading partners around the world. Such language has been considered ordinary and non-controversial in recent meetings of the Group of 20. “I understand what the president’s desire is and his policies and I negotiated them from here, and we couldn’t be happier with the outcome,” Mnuchin said at a news conference Saturday.” No sign here that the most important Goldman guy, Mnuchin, is deviating from the Trump script.

To Nikhl’s quetion: Is “rule based free trade” definitional of “neoliberalism”? Well, the Germans have always thought so. But, perhaps not, I’d love to hear more from Nikhl on how to parse this.

But one thing is for sure, if the association is not necessary, then we are really entering a new phase. The aura of historical continuity and legitimacy suggested by the terms “neo” and “liberal” undeniably played a role in the emergence of the movement in the 1930s and its second coming in the 1970s. As they did in liberal globalization’s reworking in the 1990s, accompanied by the new and more subtle readings of Adam Smith pioneered by people like Michael Ignatieff already in the 1980s e.g. his volume co-edited with Istvan Hont in 1983 Wealth and Virtue: The Shaping of Political Economy in the Scottish Enlightenment, Cambridge University Press, 1983. If something that can still be conceived as “neoliberalism” has a (degenerate?) fourth iteration in conjunction with brutish neo-mercantilism in the US and Theresa May’s “muscular state” in the UK that would be a rich irony indeed. Will there be ideologists capable of reading even this out of Adam Smith?

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