Thursday, September 21, 2017

Did the World Cause Trump?

On Tuesday, President Donald Trump told the United Nations, “I will always put America first.” Trump’s speech evoked sovereignty, but mostly celebrated nationalism and implied protectionism.

Is Trump showing the world America? Or is he holding up a mirror showing the world itself?

Protectionism from 10,000 Feet

Three decades ago, political scientist David A. Lake argued against the popular idea that United States policy on international trade could be understood, as conventionally suggested, by focusing on domestic interest group behavior or party politics.

It’s the Republicans. It’s the Democrats. No, it’s the farmers, the unions. No wait, it’s …

In his book Power, Protection and Free Trade, Lake suggested that trade policy can only be understood in the context of what he called “the international economic structure.” Basically, that means the United States trade strategy is highly dependent on what other nations are doing – which ones have global economic power, which ones are important export markets, and how each acts or reacts in its own trade policy.

According to Lake, domestic interest groups and political parties either don’t vary as much as we think, or their preferences don’t carry much weight until they happen to become consistent with the strategy dictated by the international economic structure. But too often, we miss the international context and devote all our attention to the domestic tug-of-war.

Lake’s book was published in 1988 and he was trying to explain the establishment, and decline, and resurgence of protectionism in U.S. trade policy from 1887-1939.

He wasn’t talking about Donald Trump or United Steelworkers or NAFTA or Brexit or Marine Le Pen or Andrés Manuel López Obrador.

But maybe we should.

Trump As Effect – and Cause – and Effect – of Global Instability

Trump’s rhetoric since the campaign trail has been to “Make America Great Again,” in large part by making America protectionist again.

The media, which didn’t expect Trump to win, seems to offer explanations based mostly on domestic interest group issues (like the stagnation in real wages since 1979) or the platforms of political parties (like the failure of Hillary Clinton and the Democrats to grasp the importance of wage stagnation).

But these explanations don’t quite add up.

First, if real wages have been stagnant since 1979, why did it take 37 years for this to show up in the voting booth? And why in 2016 and not 2012 or 2020?

Second, if the Democrats are to blame, then what about the fact that Republicans in the White house and in Congress have mostly been as strong or stronger supporters of liberal trade policy than Democrats (and reportedly still don’t know quite what to do about this President)?

If the international economic structure is mentioned at all in this discussion, it’s mostly about (1) how the election of Trump is representative of a broadly illiberal movement springing up around the world, or (2) how Trump’s policies may affect the reputation of America abroad.

While these observations hint at the perspective Lake raised, they generally fail to note the causal links in the international economic chain – links that may have led to Trump’s election and may determine the fate of his policies.

Only rarely do pundits consider whether the election of a protectionist like Trump in 2016 – not sooner, not later – could be the likely and predictable outcome of global economic instability, increasing isolationism, and the decline of American hegemony in the international economic order.

What Happened When America Stopped Being “Great”?

Perhaps Trump’s cry to “Make America Great Again” is more useful as diagnosis than prescription.

As long as the United States was the market every other country needed to gain access to, U.S. trade policy could afford to be liberal. Any country that tried to protect its own industries from our exports could be swiftly and effectively punished with trade sanctions that kept their products out of our markets.

But if the U.S. market sags or teeters – as it did in 2008 – and emerging markets like China and India can pick up the slack for any country that shuts out the U.S. and pays a price in access, the effects may start to compound.

In this context, protectionism against U.S. exports might be expected to rise, and U.S. industries might begin to feel a hit that conventional trade sanctions can’t remedy. The hardest-hit industries might begin to demand exceptional sanctions like Section 232 steel tariffs based on national security, or strong-armed renegotiation of NAFTA.

Aftershocks of 2008

These kinds of burn-the-bridges trade policies might become much more attractive under conditions of international economic instability like those that surfaced to widespread public awareness in 2008.

As Lake wrote thirty years ago, most countries – even those that usually seek to deal – will try to insulate themselves from international economic instability through protection. This has ripple effects: “By making future interactions between opportunists less likely or predictable, instability increases the value of present returns relative to future returns, also increasing the attractiveness of protection.”

In other words, why not elect a Donald Trump in 2016 if Britain has already taken its ball and gone home (and China arguably never played by the rules anyway)?

If other important trade partners defect from the game, Trump’s tough trade rhetoric might start to be translated into policy. Also in Lake’s words: “A threat that becomes a certainty stops being a threat.”

Under this view, if Donald Trump hadn’t existed in 2016, perhaps the international economic structure would have created him.

http://lawprofessors.typepad.com/inttradelaw/2017/09/did-the-world-cause-trump.html

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