I know what you are thinking: “Another article about Trump and the end of the world as we know it”, but let me write seriously about US political economy (if such thing is still possible). Despite many spectacular ideas that have been said during these campaign year, there is one that remains puzzling because of its historical implications, his ideas on free trade. Let’s first look at what free trade has meant to the US. As early as 1854 in Japan the ideology of free trade was used to end the Japanese Shogunate when Commodore Mathew Perry set foot on Japanese soil. A few years later the US were also involved in the liberalization of Chinese ports that ultimately brought down the Quinn dynasty with their involvement in the Opium Wars.
Then, shortly after the end of the American Civil War, the Gilded Age of the US started. This economic boom was promoted by liberal practices all across the country, such practices were the result of a 20 year rule of the Republican Party (or Grand Old Party) after the Confederate defeat in the Civil War. These practices remained more or less in place until the Progressive Era started, but were not radically changed until the 12 year presidency of Franklin D. Roosevelt (FDR). This period saw not only a rapid industrialization but a fast accumulation of capital in the head of the so called Robber Barons, prominent industrials that managed to amass huge fortunes and basically control the political and economic fate of the country.
However, the Great Depression ended this period of sustained prosperity, only with the policies of the New Deal, FDR managed to give a radical stimulus to the country in the depth of the Great Depression. This success prompted the golden age of Keynesian Economics that lead to the Bretton Woods agreement and more importantly to the Marshall Plan for the reconstruction of Europe. In strict sense, the reconstruction of Europe was just a way to keep the markets for US exports functioning regularly and avoid another recession. And it worked fantastically, it allowed Western world to enter an era of spectacular growth. However, this doctrine lead to bigger controls of the economy than in the past.
By the 1980s, these controls prompted the Reagan administration to implement the ideology of Neoliberalism (again with the GOP), and free trade was again a main concern of the administration, alongside with tax cuts and fiscal austerity. These type of policies have been accused of hampering the US economy by creating phenomena like the outsourcing of services to third world nations and the movement of production outside the country. Also, the Free Trade Agreements (FTA) reduced the ability to impose tariffs and made foreign products cheaper.
This process continued with little variations until the Great Recession of 2007, even Democrat president Bill Clinton promoted the neoliberalist agenda. And is here, with the crisis that everything starts to get puzzling. Prior to the crisis, the Democrats were the party that guarded the interests of the working class and the GOP was the party in charge of promoting liberalization. Yet, after the crisis, the Obama administration and the Democrat party has been repeatedly accused of corporate welfare, especially to Wall Street companies.
And here, Mr. Trump jumped and promised to get the jobs and economic welfare back to the US, he proposed to end or renegotiate the FTAs already in place and severely criticized Transatlantic Trade and Investment Pact (TTIP) and the Trans-Pacific Partnership (TPP). This is basically a shift in the roles of both parties, yet, this is not the first time this occurs, before being the defender of immigrants and minorities, the Democrats were the party that promoted slavery. Nevertheless, it is noteworthy that Trump’s speeches about Neoliberalism resembles more the ones gave by leftist leaders like Nicolas Maduro (Venezuela), Evo Morales(Bolivia) or even Cristina Kirchner (Argentina), than the speeches of any known Republican leader. Furthermore, not only in these countries, but all around the third world, FTAs have been blamed for the stagnation of the economies and a loss of sovereignty.
In general, the policies of these populist governments (although loved by the population) have remained largely unsuccessful in changing the structural deficiencies of their economies. Yet, some might argue that repealing neoliberal policies can lead to outstanding growth like the case of Bolivia, however, once adjusted by inflation, the Bolivian miracle disappears. Additionally, even if in the long term these policies were to turn out effective, in the short and medium term will represent massive restructuring cost for US companies that have piled up debt for the last 8 years and might not be able to withstand the shock.
Moreover, the most immediate effect of bringing the capital of companies wanting to supply the US market back to US territory will be a significant influx of capital that would accelerate the economy, precisely what Mrs. Yellen and her colleagues at the FED have been waiting for before hiking interest rates. However, if the influx is massive as it would be based on the determination of the elected president, the economy might overheat, causing price bubbles without real wage increases and no improvement in economic welfare. If done progressively, the measure might have a chance to work, but soft paced solutions are not what Mr. Trump is famous for nor is what his voters want. Additionally, if the cases of Japan, China and Spain (among others) have showed us something is that autarky in the middle of an interconnected world is not the key to economic prosperity. Only when these countries opened their borders could they join the industrialized nations.
Therefore, we are forced to see the paradox of a president of the party of laissez faire, carry on policies against free trade in the country that earned most of its power through free trade with the rest of the world. It is unclear how far is Mr. Trump going to go with his policies, but as can be seen they have little economic fundament and are the weirdest political turns in US political alignments since the abolition of slavery. Only time will tell if we are calling him crazy like people called FDR or he is in fact crazy.
Autarky: State in which a country is completely isolated from the rest of the world, and is self-sufficient in economic terms. For more information click here.
Neoliberalism: Economic doctrine in which the private sector is given more preeminence over the public sector. It also involves traditional economic policies like tax cuts. For more information click here.
Free Trade Agreement: Treaty which guarantees that commerce over the frontiers of two or more countries is carried out without tariffs (taxes). For more information click here.
Corporate Welfare: State policy that implies giving subsidies, tax cuts and in general facilitating the business for big corporate conglomerates. For more information click here.
Transatlantic Trade and Investment Partnership (TTIP): Free trade agreement between the US and the EU currently in negotiations. For more information click here.
Trans-Pacific Partnership (TPP): Free trade agreement between the US and several countries with coasts on the Pacific Ocean currently in negotiations. For more information click here.
Laissez Faire: Classical economic theory in which free trade is posed as the key to economic prosperity as opposed to the evils of state interventionism. For more information click here.