From Rustbelt Ressentiment to Global Trade Realpolitik / by Michael Motala

From Rustbelt Ressentiment to Global Trade Realpolitik

A deeply divided and pessimistic American electorate delivered Donald Trump’s victory in the electoral college, portending an era of global economic relations dominated byrealpolitik.[I]  

It is the first time in US history that a losing candidate has commanded a lead of two million in the popular vote, amounting to a near supermajority of the nation’s economic stock. According to research from the Brookings Institution, Hillary Clinton’s voters reflected an outsize 64% of aggregate GDP, compared to Trump’s mere 36%.

Striking the right balance between the electorate’s disparate economic and demographic interests in the nation’s foreign policy will be a tough challenge for the next White House administration. Living up to Trump’s promise to abandon the Transpacific Partnership would be contrary to America’s economic and foreign policy interests—reflecting those of the economic and popular majority. It would also risk upsetting the delicate geopolitical balance in East Asia, while ceding market power to China. The alternative, a failure to deliver growth and manufacturing jobs, would be seen as a betrayal of Trump’s base that would thrust America into an even deeper political crisis with global ramifications.

A Tale of Two Americas (above). The Brookings Info-graphic showing the economic imbalance underpinning Trump’s electoral victory.[II]  

A Tale of Two Americas (above). The Brookings Info-graphic showing the economic imbalance underpinning Trump’s electoral victory.[II]  

Regional Distribution of Votes by County (above). The Washington Post/Associated Press graphic illustrating the regional distribution of Trump voters by county.[III]

What is the Transpacific Partnership (TPP), and why was it so salient during the last election?

The TPP is an agreement to liberalize trade and promote regional economic integration. Concluded in October 2015, the agreement binds Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, and Vietnam.[IV]  According to the Council of Economic Advisers, the US exported $680 billion dollars of goods and $184 billion dollars worth of services to the member countries in 2015. Implementing TPP would lift growth rates and contribute to rising living standards.

The result of the electoral vote highlights a dissonance between knowledge about TPP’s aggregate economic benefits, and the loss of manufacturing jobs under prior preferentail trade deals like NAFTA. Surveys show that the Presidential candidates were campaigning on different points in two different Americas with vastly different concerns. Trump’s protectionist, and the salience of TPP, catered to the rustbelt’s disaffection and pessimism.

The Pew Research Center’s post-election survey found that 71% of Trump’s voters perceived across-the-board decline in the economy since 2008, while in stark contrast 67% of Clinton voters saw an improvement.[V]

Overall, the survey highlighted voters’ anxieties about little progress made on jobs, security, immigration and crime since 2008.  

While the Democrats relied on core ethnic and demographic constituencies like blacks, women, Latinos, and LGBT, strategists and the Washington elite were out of touch with the concerns of voters who have disproportionate influence in the College of Electors.

The Republicans, on the other hand, used a red herring tactic with economic issues like TPP. Campaigning on protectionism in the face of TPP’s benefits to the US economy struck a chord with the hollowed out middle class. The Trump campaign capitalized on resentment over the uneven distribution costs and benefits of globalization, tipping the balance in states most affected the financial crisis and the hollowing out of manufacturing jobs.

Shortly after the election, the President-elect vowed he would scrap the TPP on the first day of his Presidency. Given the litany of provocations since releasing this pledge, it is plausible Trump will make good on the hardline stance on China.

Just what are the implications for Trump’s voters and the world economy?

The Peterson Institute for International Economics released a report in September 2016 assessing the Presidential candidates’ platforms. [VI] On trade, it found that Trump would devastate viable American businesses and their vicinities. Peterson also found that the failure of TPP would weaken strategic alliances in Asia, cede regional power to China, and erode the East Asian geopolitical balance.

According to a more recent report released by the Council of Economic Advisers, the cost of not passing TPP would be substantially larger than the foregone benefits. In the absence of TPP, echoing the Peterson Institute, the Council warns that countries will move forward in negotiating their own trade agreements that exclude the US. In fact, Beijing is working hard to implement its own Regional Comprehensive Partnership. Without a substitute preferential trade agreement, the US would suffer a global competitive disadvantage.

One in twelve US jobs depends on trade.[VII] With over 45 percent of current US exports are destined for TPP countries, alternative preferential trade arrangements would create crippling trade diversions and economic inefficiencies. 

The very disaffected voters who put Trump into the White House would see a further decline in their standard of living and levels of output. In a world forever changed by the populist fervor behind Brexit and Trump, it could lead to a political calamity and stoke deeper divisions between rural and urban America.

There is, of course, a chance that the wildcard President-elect will not live up to his promises.  

Trump pivoted on Obamacare, going from a vow to scrap the deal on the campaign trail to a promise for reform soon after he was elected. Perhaps it is too soon to assess the President-elect’s China policy. Trump’s Twitter provocations may be a strategic tool to gain leverage in future negotiations on trade.  Moreover, Trump’s remarks at a December 14th meeting with technology leaders suggests an interest in sustained global trade, although it is unclear under what terms and if any have been contemplated.

“We’re gonna do fair trade deals. We’re going to make it a lot easier for you to trade across borders because of a lot of restrictions, a lot of problems that I think you’ll see,” remarked the President-elect.

“If you have any ideas on that, that would be great because there are a lot of border restrictions …” he added. [VIII]

Instead of scrapping the TPP, President Trump should focus his foreign policy on addressing legitimate issues in the world trade order, and the failures of Obama’s Asia pivot to shore up American leadership. Addressing the deficiencies in the World Trade Organization’s Dispute Settlement process, for example, would allow for a more efficient resolution of legitimate industry concerns arising from global trade.

---

Sparring with Stephen A. Douglas in his failed campaign for US Senate in 1858, Abraham Lincoln declared “a house divided itself cannot stand,” in what become one of the most-cited speeches in American political memory.

Touring the events of 2016, it is apparent President Lincoln’s warning has acquired transatlantic resonance. Both Brexit and Trump share a common cause: deep economic disaffection, which has in turn strained the relationship between high-output and low-output regions. Absent the redistribution of the benefits of globalization, divided domestic politics in the Anglo-American world will culminate in the unmaking of the current global economic order governed by the United States of America.

[I] https://www.brookings.edu/blog/the-avenue/2016/11/29/another-clinton-trump-divide-high-output-america-vs-low-output-america/

[II] https://www.brookings.edu/blog/the-avenue/2016/11/29/another-clinton-trump-divide-high-output-america-vs-low-output-america/

[III] https://www.washingtonpost.com/news/wonk/wp/2016/11/22/donald-trump-lost-most-of-the-american-economy-in-this-election/?utm_term=.18f25ecbc1d7

[IV] https://ustr.gov/about-us/policy-offices/press-office/press-releases/2015/october/summary-trans-pacific-partnership

[V] http://www.people-press.org/2016/11/10/a-divided-and-pessimistic-electorate/

[VI] https://piie.com/system/files/documents/piieb16-6.pdf

[VII] http://trade.gov/publications/pdfs/exports-support-american-jobs.pdf

[VIII] http://www.wsj.com/articles/transcript-trumps-introductory-remarks-with-tech-executives-1481754651