As Donald Trump assumes office as the 45th president of the United States, widespread pessimism about the impact of his presidency abounds. The Donald has not backed off from (what appeared at the time) to be his most extravagant campaign promises. He has ramped up his rhetoric against China and Mexico as at the root of the decline of American manufacturing. He has announced that he will re-negotiate NAFTA and, if America does not get what it wants, will abandon it. The U.S. will not enter the Trans Pacific Partnership (TPP) trade agreement. The era of pursing free trade agreements with the rest of the world is gone, at least for now. Instead, we can expect his administration to slap tariffs on products manufactured abroad by U.S. companies and re-exported to the U.S., particularly in those sectors where it appears that companies have changed production location for the sake of reducing the cost of labor. Many commentators recalling the prelude to the Great Depression of the early 1930s, have raised fears about a decent into the protectionist policies of the past, a sharp deterioration of economic growth, and the onset of a severe recession. Others have opined that companies will simply seek other ways of reducing costs (and maintaining profits) such as through the use of robot technology. In general, most political observers place a great deal of blame on Trump himself for stirring up anti-trade public sentiments. Others focus on the racist/anti-immigrant and misogynist predispositions of Trump supporters, arguing that he has fostered these attitudes and rendered them legitimate.
Exclusion, Wealth Concentration, and the Rise of Trump
However, it is much more useful to query the underlying structural changes that have laid the ground for Trump’s appeal. First, we need to start with the blind ideological adherence on the part of the established political classes of most countries to problematic economic theory—the notion that free markets will produce prosperity for all. Within-country inequality has risen almost everywhere. Clearly, the benefits of economic globalization have not been distributed equally. Contrary to Trump, the era of economic globalization has benefitted America—corporate America: US corporate profits climbed between the late 1980s and 2015. Importantly, this wealth has become heavily concentrated within the corporate sector as a declining group of US-based companies garner most of the profits. These highly profitable companies have inordinate political influence and are able to shape policy to serve their own interests. Meanwhile wages stagnated and precarious employment rose.
Unemployment and precarious employment create fear and insecurity among those affected by them. At their worst, when they impact entire communities, the result can be a profound sense of hopelessness. Combined with growing levels of inequality, these developments create anger and the search for scapegoats. What is surprising is not the rise to power of Donald Trump, but why the Trump phenomenon did not occur sooner than it did. This political lag can perhaps be explained by the strong faith the American public has had in the ability of its political system to address its needs. Many Americans placed faith in the Obama administration, but after two terms in office, may have concluded that this hope was misplaced.
The Lesson: The Need for Fair and Inclusive Trade Deals
Of course, trade liberalization in itself has not created increased concentrations in wealth and its associated political fallout—but the nature of trade negotiations and the type agreements that have become the norm over the last 30 years, have. These deals involved the privileging of corporate interests, which had a seat at the table and the opportunity to shape outcome, and the exclusion of societal interests including labor, civil society, and environmental groups. Critics strongly opposed the exclusionary and secretive process by which the Trans Pacific Partnership (TPP) trade agreement was negotiated. Labor and environmental groups did not participate in the NAFTA negotiation process and were only able to secure labor and environmental side-agreements, neither of which has been particularly effective. Had Mexican peasants been consulted when NAFTA was being negotiated, we may have avoided the decimation of that country’s small and communal corn farming sector and the massive migration northward that has helped to fuel support for Trump. However, the Mexican government was an authoritarian one at the time of the NAFTA deal—the possible implications of this fact appear to have been lost on the U.S. and Canadian negotiators at the time. At a minimum, procedural inclusion of a wider cross-section of public interests in trade negotiations fosters public confidence that societal interests are being incorporated into the discussions.
The involvement of a greater cross-section of the public in the negotiation of trade deals would no doubt have produced a much more protracted negotiation process and one in which trade and investment liberalization proceeded more slowly than some would have liked. However, deals negotiated in a consultative way probably would have been more attuned to the interests and fears of those likely to have been most adversely affected. We would be in a much better place today had this been the process by which past trade deals were made.
Let us hope that the trauma of the Trump era of defensive protectionism will be short-lived and that our political leaders will emerge chastened and much wiser. Let us hope that they will approach trade deals with the certain knowledge that both the process of negotiation and the deals themselves must be fair and inclusive.