Two years after Trump’s outlandish election promises, economist Brian O’Boyle analyses the realities of Trump’s economic doctrine for American capitalism, his economic rivals and ordinary Americans.
Donald Trump has promised he will “Make America Great Again”. In what has been a deeply reactionary presidency, he has also deployed slogans such as ‘Build the Wall’ and ‘Drain the Swamp’ to suggest that hard working Americans have had a raw deal from the rest of the world. One strand of Trump’s right-wing populism implies that US living standards are being depressed by migrant workers who drive down wages and take jobs off American families. The other strand suggests that Washington insiders have facilitated this process through lax border security and by allowing US jobs to move to Mexico and South East Asia. Trump has a long history of moving his own manufacturing jobs overseas, but this hasn’t stopped him cynically playing on the fears of American workers in a bid to win, and hold onto, Presidential Office. Holding power has always been Trump’s primary objective and the strange admixture that is ‘Trumponomics’ must be understood in this context. There are three strands to his economic doctrine – a promised infrastructural programme, tax cuts for the richest Americans and, increasingly, protectionism aimed at Germany and China. Let’s look at each of these in turn.
The Three Strands of Trumponomics
Prior to the presidential election, Trump promised a major Keynesian-style stimulus package to reinvigorate the economy. US infrastructure is badly out of date and Trump used the idea of a modern ‘New Deal’ to earmark a trillion dollars for infrastructural spending during his first term of office. Cities like Pittsburgh and Detroit have been devastated by years of under-investment and Trump calculated that federal spending would be popular in swing states like Pennsylvania and Michigan. This duly proved to be the case, but as with so many of the claims made on his way to power, Trump’s infrastructural programme has yet to materialise. In February, the White House announced a drastically scaled back plan with $200 billion of federal spending expected to stimulate up to $1.3 billion elsewhere, but even this has been put off until after the midterm elections in November.
The second strand in Trump’s economic plan is the most substantial tax reform for a generation. Fulfilling one of his primary campaign pledges, Trump’s White House has slashed corporation taxes from 35% to 21% and reduced the rate on repatriated profits (profits transferred from a foreign country back to its home country) to 15.5% – just 8% if the profits are reinvested in the States. This is a massive windfall for US multinationals like Apple and Google which hold up to $3 trillion in unrepatriated profits in tax havens like Ireland. The plan also temporarily repealed inheritance taxes and scrapped the alternative minimum tax (AMT), which is designed to prevent the super-rich from avoiding their taxes by using complicated regulatory loopholes. The total cost of these measures is estimated to add $2 trillion to the national debt in the biggest transfer to the super-rich since Ronald Reagan.
The final strand of Trumponomics is a version of nationalist protectionism. After World War Two, the American ruling classes used their economic and political dominance to establish a set of free trade organisations (the World Bank, the International Monetary Fund and the World Trade Organisation) that suited their interests. These Bretton Woods Organisations have disproportionately benefited American capitalism ever since, but this has not prevented the relative decline of the US economy as major rivals have caught up over time. Since the 1950’s the American Empire has successfully relied on the soft power they achieve through economic liberalism and their control of harder power via NATO. In the neoliberal era, a central part of this strategy has also been the movement of American capital into Europe, and latterly, Southeast Asia and China. This has helped to keep American firms profitable and competitive, but Trump’s right wing populism blames this for the loss of American jobs and argues that the organisations of US capitalism no longer serve its interests. Having sacked most of the free traders in his cabinet, Trump is now engaged in a high stakes game of economic protectionism. In March of this year, the White House announced a 25% tariff on all steel imports and a 10% tariff on aluminium. In April, they followed this up with a 25% tariff on 1,333 categories of Chinese goods and in July they extended this to $200 billion worth of Chinese exports. These are designed to target the two great manufacturing and exporting giants – Germany and China – creating real fears among the global elites of an all-out trade war.
Contradictions and Complications
Trump is often depicted as erratic and impetuous but there is a logic to his economics that merges narrow self-interest with a unique understanding of American capitalism. The core of his strategy is to improve the competitiveness of US corporations whilst offering them incentives to reinvest more at home. This explains the class bias of his tax reforms as well as the various incentives offered to US multinationals operating abroad. Running alongside this strategy for the 1%, is a version of economic nationalism that aims to tie the interests of American workers to Trump’s strategy to make American capitalism great again. These are common themes running through each of his policies but there are tensions and contradictions that he still has to navigate.
In terms of taxation, Trump is completely in line with the traditional rulers of US capitalism – slashing their business costs and arguing for the failed logic of ‘Trickle Down Economics’. According to the Institute on Taxation and Economic Policy for example, the richest 5% of Americans will receive 61% of the benefits of Trump’s tax breaks by the end of the decade. Meanwhile, the bottom 60% are due to receive just 14% of the total relief or just a third of that flowing to the top 1%. This explains why Trump’s tax cuts have been enthusiastically supported by the Republicans – the traditional party of US big business.
While Trump may argue that when businesses are allowed to keep more of their profits, they hire more workers and engage in investment but as the costs of his tax breaks become apparent, he risks alienating some of the white working class base he currently relies on. The bill passed last November dismantles Obama’s key healthcare initiative with up to 13 million Americans set to lose their existing cover. There is also a 27% cut to SNAP (food stamps) and a 20% cut to Section 8 Housing Assistance for the poor. Trump has made much of his role as defender of the little man on Capitol Hill, but when his own administration is responsible for massive handouts to the rich and cuts for the poor, the contradictions are not hard for most people to see.
On the flip side, Trump’s protectionism is likely to be popular with blue collar workers tired of losing manufacturing jobs overseas, however deeply unpopular it is with sections of the American establishment. When he knew that Trump was serious about economic nationalism, Gary Cohn, the ex-president of Goldman Sachs and Director of the National Economic Council, resigned from his government post in protest. More than a thousand mainstream economists have also penned an open letter imploring Trump to stay away from the kind of policies that prolonged the Great Depression in the 1930’s and helped to precipitate global conflict.
Yet the conflictual nature of the capitalist system is precisely why Trump favours protectionism in the first place. In his mind, economic relations are a zero sum game with one side winning and the other side losing any round of negotiations. Trump sees the trade deficit as evidence that the US is losing to its major rivals and he wants to use the might of the US to bully his opponents into submission. Superficially, the deficit economy in a trade war has the advantage since it is denying its markets to the exports of a surplus economy. But this misses the crucial point that in an interconnected global economy, many of the tariffs that Trump is imposing will hurt US companies buying inputs from foreign suppliers. Moreover, as Michael Roberts points out, “what Trump forgets is that now in world capitalism, it is not so much trade, or even services that matters; it is capital flows.
Therefore, any full trade war would seriously threaten US foreign investment just at a time when China is expanding its “overseas flows”. American companies doing business in China are particularly vulnerable, but for all of this there is still a logic in what Trump is doing geopolitically. Since World War Two, the US economy has lost ground to its major rivals with China in particular becoming a growing threat. Analysts fully expect China to overtake the US economy over the next 20 years with all of the geopolitical implications that this entails. Trump fears this eventuality but like the rest of the US ruling class he is relatively powerless to deal with it through conventional means.
Before Trump, the previous strategy involved building alliances with the rest of the West while using the global free trade organisations to support corporate America at home and abroad. While much of this strategy remains, Trump wants to use the might of the US Empire to force his rivals, including China, into weaker positions. Trade Wars often emerge when there are underlying weaknesses in global capitalism as individual countries look to beggar their neighbours in a bid to benefit themselves. This explains Trumps protectionist inclinations, but the strategy is unlikely to realign the relative power in the global system in any serious way.
Chinese capitalism will power past the US due to its vast pool of human labour power, with little the Americans can do beyond all out warfare. Even this is not guaranteed to be successful and in the meantime Trumponomics is best understood as a symptom of an American capitalism desperate to hold on to its global position, but unable to reclaim its heyday in the 1950’s.
The strategy also risks angering the workers Trump needs for his re-election in 2020 and leads to tensions within his own ruling class – without resolving the China question. All the while, political tensions will continue to increase as the crisis of neoliberal capitalism gathers pace.