Trumponomics as a Response to a Failing Globalization

Ever since Donald Trump put his hand on the Bible to swear an Oath of Affirmation, he has been harshly criticized for every step he takes. While a rational criticism is a basis of every democracy, American left has gone unprecedentedly hysterical in its reaction to the Trump administration’s policies. Thus, Trump’s economic plan is usually labeled a “disaster,” a “chaos,” or even an “Armageddon.” At the best, positive results of the working policies are attributed to the Obama’s legacy. But all of them fail to objectively analyze and explain the global trends of the American and the world economy that dictate new and adequate approaches that would make America thrive in the given global context. The pace of globalization is slowing down as it reaches its natural limits, and the central goal of the Trump administration now is to secure America’s global leadership. The core value of foreign and domestic policies has once again become American national interests. Globalization, once considered a vital part of American global leadership, is now damages its interests and, thus, strengthens the positions of its competitors. As the Trump administration tries to counteract this negative trend, it implements a new economic plan to which we will refer as Trumponomics. The fundamental points of the plan are protectionism, America-centric foreign policy, repatriation of the national capital and manufacturing to the U.S., and acceleration of GDP growth through a new budget policy and investments into infrastructure. Naturally, this policy has its side effects, such as trade wars and growing frustration among the American allies. The questions are, what would the benefits of Trumponomics be and would they outweigh its potential disadvantages?

Ideological premises of globalization With the collapse of the Soviet Union and bipolar world order in the early 1990s, the U.S. became the only superpower. With an absence of any serious political challenges to the U.S., geopolitics has eventually transformed into geoeconomics, or a competition over markets. Globalization, as a process of interaction and integration between people, companies, and governments worldwide based on Western values of freedom, democracy, and the market economy, has become a centerpiece of American foreign policy. Two main ideologies that constituted it were neoconservatism, which assumed utilization and growth of the economic and military supremacy of the U.S.; the other was a neoliberalism that transferred control over a global economy from national to supranational financial institutions. Domestically, the U.S. has developed a postindustrial economy that focused on finances, information technologies and services, and control over the newest technologies and intellectual property. Simultaneously, a major part of the industrial manufacturing had been moved to developing countries with cheap labor and resources. A high concentration of world production and labor in Southeast Asia, as well as the accumulation of technologies, goods, and finances, have strengthened the positions of regional players and has given them leverage to influence global economic processes. The U.S., in contrast, is facing a significant trade deficit ($43.1 billion) and a national debt ($21 trillion), and while it still dominates the world economy, the trends are discouraging, since the American part in a global GDP has declined by nearly a half since 1960s. All of these indicate a crisis of the current version of globalization as it undermines positions and potential for the U.S. An economist Dani Rodrick has introduced a phenomenon of Globalization Paradox, which lays in a conflict between democracy, economic globalization, and national sovereignty. Rodrik argues that it is impossible to balance all three, and sooner or later a country that is deemed to succeed would need to sacrifice one of these principles. As soon as democracy and sovereignty are sacred for America, it will give up globalization, while China will most likely sacrifice its democracy. Thus, on the current stage, it is natural for the U.S. to rely on a “hard power” with the elements of a military pressure and economic protectionism to regain a control over a geoeconomy. Trumponomics: strategic goals, national interests, mechanisms The ideas of protectionism and a populist (in a good way) approach to international trade and immigration, that Donald Trump presented during his presidential campaign, seemed to be the most appropriate answer to the challenges of globalization. Now, despite the strong opposition of globalist part of political establishment, the Trump administration persistently implements its program that puts “America First.” The National Security Strategy identifies four national interests of the U.S. as protection of the American People, the Homeland and the American Way of life; promotion of American prosperity; preservation of peace through strength; advancement of American influence. To make an economy invincible from foreign threats, the Trump administration will try to make it as self-sufficient as possible to minimize a dependency on the swings of a global market. The highly diverse structure of the domestic economy, protectionist barriers, a high level of technological development, a strong military, energy independence, stimulation of a customer demand, and a coherent advancement into the new markets are all aimed to strengthen American global positions. The core of the Trumponomics is a reflation -- a comprehensive system of measures aimed to stimulate economy by increasing the money supply, reducing taxes, increasing domestic manufacturing, and reducing the trade deficit. The tools of the new policy include increasing government investments into infrastructure projects (up to $1 trillion), and a fiscal reform ($4.4 trillion). This reform, in turn, includes comprehensive tax cuts for individuals, households and businesses intended to increase an aggregate demand and stimulate investment activity. Finally, Trumponomics implements various protectionist measures, including higher tariffs on imports of metals and consumer goods. Obviously, there is a downside to protectionism -- trade wars that may backlash on American industry and the pace of its development. On March, 2, 2018 President Trump tweeted that “Trade wars are good, and easy to win.” In Trumponomics, even trade partners are viewed as rivals. For the world trade which constitutes 55% of global GDP, this approach may have serious consequences. In the first place, it would hurt exporter countries with a major export share of goods with high added value and that have a significant trade surplus with the U.S. (China, Japan, Germany, Mexico, Canada, Brazil, South Korea, and some EU countries). These countries, in turn, may try to retaliate and increase tariffs on American exports, too. But, in our opinion, the risk of an escalation of trade wars in 2018-2019 is low, as the American economy is tightly intertwined with the global one. It is more probable that the Trump administration will focus on non-tariff measures, such as a strict control on exports of high technologies and implementation of technical requirements for imports, as well as operations in stock markets, including dollar supply reduction. Overall, we may conclude that protectionism and repatriation of manufacturing jobs will negatively affect world trade and hurt American trade partners but, most importantly, will benefit the U.S. in the long run as it is time to reestablish a healthy pragmatism in our policies. America will gradually expand its presence on the global market, but the expenses will rise, too, primarily on a national defense that is crucial for securing a military dominance. Naturally, part of these expenses will be transferred on NATO allies and satellite countries, which is exactly what is already happening.