By James H. Nolt
During recent weeks I have been discussing with friends and colleagues what to expect from a Trump presidency. As regular readers of this blog know, I have been calling Trump a nationalist since the start of his campaign because it consistently fits his rhetoric going back at least to 1988, his first half-hearted run for president. Yet many of those I talk with insist that Trump’s words are not to be taken seriously. Perhaps his “America first” slogan is mere pandering and his jawboning of specific corporations to bring jobs back to America is grandstanding for public relations effect, not serious policy.
Trump is so adept at pandering, it is tempting to think that is all he is about. He wants fame and the adulation of the crowds, surely, but are all his policy proclamations hollow? Few would argue that he is likely to do what most Republicans want to do, including slashing taxes on corporations and the richest Americans and also eliminating many regulations on business. Such moves would satisfy many business leaders across the spectrum, though it is doubtful that such measures alone would jump start the economy.
There are two thorny issues, however, that divide Trump campaign rhetoric from mainstream Republicans and their internationalist business constituents: the value of the dollar and trade protectionism. As I argued in my previous blog, Trump’s campaign rhetoric and his own personal experience as a debtor suggest that Trump favors a weaker dollar. Throughout his career, Trump has brandished protectionism as a threat to induce American companies to manufacture more in the home market rather than exporting from low-wage countries like Mexico and China (his favorite examples). Much of the Republican business establishment and allied politicians have strongly opposed these Trump promises, preferring unfettered free trade and a strong dollar.
Powerful internationalist businesses in the U.S. include most large financial companies, big oil, the entertainment industry, software companies, pharmaceuticals, aerospace (e.g., Boeing), various multinational companies including the famous companies in retailing (such as Walmart), food processing, electronics and electrical machinery, farm equipment, medical equipment, beauty and home products (think Proctor & Gamble), soft drinks, fast food, meat packing, and most agricultural enterprises. Trump voters may think America is not great, but in fact large segments of American business are great at competing globally, even as they move many jobs abroad. The view from American corporate boardrooms is a lot more optimistic than the view from Main Street in the heartland.
Most big businesses are internationally competitive and therefore favor a more open commercial system that allows them to compete globally with the fewest restrictions. Internationalism is not just an ideology or state of mind, but an objective business circumstance. Internationalists almost always favor freer trade, but they are not always enthusiastic about a strong home currency. Exporters tied to the home territory may prefer a weaker currency to lower the foreign price of their products, improving their trade competitiveness.
However, peculiarities of U.S. political economy lead nearly all U.S. internationalists to favor a strong dollar. Most financial interests and wealthy investors prefer a strong dollar because as creditors they hold the vast majority of their wealth in dollar-denominated debts (such as bonds, bills, or loans). Devaluing the dollar means reducing their wealth. That is a heavy price for them to pay to make U.S. exports more competitive on the world market.
Another giant industry in the U.S. for more than a century is oil. The dominant oil companies have operated globally since the late 19th century. Oil is also peculiar because most oil contracts worldwide are priced in U.S. dollars, regardless of nationality of the buyer and seller, therefore lowering the value of the dollar would not help American oil companies compete better, but would lower the relative value of all the oil they own. Interestingly, a strong dollar is typically associated with low oil prices (as now), whereas a weak dollar often accompanies high oil prices. Thus, the price of oil tends to be less volatile in major non-dollar currencies than in dollars.
Very few of the internationalist industries listed above are confined to the U.S. They manufacture and procure inputs from a global supply chain. Any impediments to trade will add to their costs. Furthermore, since they manufacture in many countries, a strong dollar does not necessarily erode their competitiveness, but it may induce them to source more of their product from countries with weaker currencies and thus lower relative costs.
Genuine protectionist industries are harder to find, so the business constituency for an economic nationalist Trump is limited. Because freer and freer trade has characterized the postwar globalization, those American industries that did require protection to survive, notably apparel, have largely disappeared or moved offshore. Others, such as steel, tires, chemicals, consumer appliances, and vehicles, still struggle with foreign competition, sometimes relocating abroad and sometimes gaining some measure of relief from foreign competition using anti-dumping suits and other protectionist measures.
Broad protectionist measures, including both tariffs and a weak dollar, sufficient to force companies to return millions of jobs to the U.S., would drive a deep wedge between internationalist firms that have been dominant in American politics since World War II and the weakened remnant of the protectionist bloc, which would be enthusiastic supporters of a protectionist Trump. However, if Trump is a sincere populist as his campaign rhetoric promised, then jobs would also be a real priority, even if American business internationalists pay a heavy price to bring the jobs back home.
Most of my critics cannot believe that Trump cares two hoots about voters. I am inclined to agree, except that I do think he wants to be seen as a “winner,” and he did promise 4 percent growth and massive job growth. My critics also argue that Trump is such a savvy panderer that with smoke and mirrors he can label a sluggish economy facing further job flight as a grand success and voters will believe him. I think voters, at least those on the margin who can swing elections, are not so ignorant. Many who voted for Obama and his promise of change deserted Obama’s chosen successor to vote for change under Trump. If the swamp in Washington delivers nothing like what Trump promised, then at least that critical margin will shift again. The Republicans could lose in 2018 and Trump himself could lose in 2020.
Trump seems not to want to stand out as a loser. I think this factor, rather than any love for the working class, motivates him to try and deliver on his jobs promises. Yet he cannot do that without a major change in direction. The dollar has strengthened during 2016 and will likely further strengthen in 2017. This is one of the biggest factors eroding America’s industrial competitiveness. Trump either follows the path of least resistance in Washington, delivering for the rich, but not for Main Street, or he doubles down on his campaign rhetoric and uses all the tools of his office in a major effort to curb globalization.
I think there is a pretty good chance my critics are right, that Trump will be content with grandstanding on a few high visibility cases while otherwise doing little to jeopardize globalization, a strong dollar, and the continuing exodus of American jobs. But on balance I think he means to do more to try to use the powers of the presidency to shift policy toward a weaker dollar and some return of manufacturing jobs to the U.S., though likely not enough to meet his growth target.
I will have more to say next week about the evidence for this in his personnel nominations and about the lines of conflict in American politics if Trump really does push for trade protectionism and a weaker dollar.
James H. Nolt is a senior fellow at World Policy Institute and an adjunct associate professor at New York University.
[Photo courtesy of Gage Skidmore]