On the origins and consequences of Trump’s attempt to de-globalize the American economy, from working-class living standards to the global balance of power.
Xenophobia is on the rise. Globalization is dead. War is looming. To many, these troubles trace to Donald Trump’s unexpected victory and will end when Trump and his Republican allies are voted out. But will the “good old days” return? Yes and No.
Sure, the endorsement of hostilities towards minorities and immigrants, the misogyny and indecency associated with a particular president will recede when that president is gone. But the rage among the working class, credited with electing Trump, will remain.
Trump’s conviction that America should be de-globalized through tariffs and withdrawal from trade deals is shared by progressive Democrats like Bernie Sanders and Elizabeth Warren. Trump’s assertive stance on China and Russia is hailed by foreign policy hands across the aisle, too. In many ways, Trump is a catalyst, accelerating but not starting trends in U.S. and global capitalism that have been rising for some time. We cannot tackle the crises of our times without contemplating these trends in broader context.
Plenty of people on the left and the right agree with the judgment that “America is in decline” underlying the “Make America Great Again” slogan. While left-leaning intellectuals posit inevitable decline and suggest the U.S. facilitate a peaceful transition to a post-American world order (see, for example, the recent book The Shadows of the American Century), leaders on the right blame America’s decline on the corrupt elite and support a leader who will stand firm against foreign powers. The Trump campaign successfully linked decline discourse to job insecurity and falling living standards among the working class in the nation’s industrial heartland, thus securing votes. And the Trump administration’s early foreign policy approach has been characterized by attempts to de-globalize the U.S. economy and displays of dominance among world powers including China and Russia. Where did these policy shifts originate? What will they bring for the U.S. and the balance of global power? And will they last after Trump?
The idea that trade globalization has killed off high-paying, stable factory jobs by incentivizing manufacturing offshoring partially explains why working-class families in the rustbelt have been attracted to Trump’s “MAGA” slogan and free trade-busting rhetoric. It is also why left-wing politicians like Bernie Sanders have hailed Trump’s withdrawal from international trade deals.
Some studies, including Daron Acemoglu and colleagues’ 2015Journal of Labor Economics study, confirm that free trade in general and trade with China in particular bring significant manufacturing job losses in the U.S. But comparative analyses show that this de-industrialization effect of globalization is not universal. Whether globalization jeopardizes employment of the working class depends, the OECD reported in 2012, on the state’s industrial and employment policy. In particular, studies published by IZA Institute of Labor Economics and the University of Goettingen have found that globalization actually helps stabilize manufacturing employment in Germany. In the U.S., what makes globalization “bad for workers” is instead traced to policies weakening organized labor since the Reagan administration.
The 1970s were the peak of organized labor’s power under American capitalism. Union power generated a crisis of capitalist profits and brought about a long rise in wages that precipitated a wage-price spiral. Scholars from the OECD and U.S. Chamber of Commerce had known since the 1960s that union power was a root cause of high inflation, and even recent cross-national quantitative analysis verifies that inflation in rich capitalist democracies has been driven primarily by the power of organized labor in 1960-2009 (see my 2016 American Sociological Review piece with Daniel Thompson). The stagflationary crisis of the 1970s was more a crisis of capital than a crisis of wage earners, whose wage increase was indexed to inflation under union contracts. Inflation devalued the debts owned by many working families while eating up creditors’ interest income and badly damaging financial capital. As such, on the right, the ‘70s-era battle cry for a “war on inflation” was actually a call for reining in organized labor. New Right leader Barry Goldwater, advised in his 1964 presidential campaign by famed economist Milton Friedman, postulated in a 1970 speech that “higher and higher union wage hikes” had led to “union privilege distorting a nation’s economy” and could be blamed as the “root cause of the present price inflation.”
If a sense of insecurity and falling living standards helped elect Trump, it can be blamed on the long effort to disempower organized labor.
As the nation moved into the 1980s, Paul Volcker’s Federal Reserve, backed by Reagan, finally tamed inflation through a radical tightening of the money supply. A recent investigation into Fed minutes by Michael A. McCarthy for Jacobin finds that bringing down employment and the bargaining power of organized labor as a way to terminate the wage-price spiral was a conscious consideration behind the Fed’s aggressive credit tightening campaign. But monetary contraction is only one of the many means the Reagan administration leveraged to restore capital’s power over labor. In 1981, Reagan spearheaded the crackdown on unions by firing 11,000 striking air traffic controllers and outlawing their unions (McCartin’s 2011 Collision Course is a great read on the topic). The federal government began to deregulate employment relations, and leaders brought liberalizing world trade onto the agenda as a way to bring in competition from low wage countries’ labor. These were all tactical moves within the grand strategy to disempower organized labor.
Dismantling union power as a remedy for high inflation was sanitized and depoliticized, called just a “technocratic move” by central bankers optimizing the operation of the free market by adjusting monetary supply under Milton Friedman’s theory (which had guided the Fed’s aggressive tightening under Volcker). From the 1980s on, inflation remained low in the U.S., even in times of great monetary and fiscal expansion. Still, weak inflation is a manifestation of weak labor and weak wage growth. Chronic low inflation would go on to encourage lax monetary and fiscal policies in the 2000s. As the political strength of capital combined with labor weakness, the flood of easy money no longer fueled wage growth but financial and real estate bubbles, bringing an era of job insecurity, rising income inequality, financial volatility, and unsustainable household debt, particularly after the bursting bubbles in 2008 (see Conrad Jacober’s entries on consumerism, financialization, and household debt in The American Middle Class: An Economic Encyclopedia of Progress and Poverty).
So if a sense of insecurity and falling living standards helped elect Trump, it cannot be blamed on globalization, but on the long effort to disempower organized labor. Mediated by this disempowerment, globalization has accelerated the exodus of manufacturing jobs to low-wage countries, rather than expanding, as in Germany, export-oriented manufacturing, industrial upgrading, and worker retraining. Even if the Trump administration’s de-globalization policy proves to be more than just empty rhetoric, it is unlikely to elevate the living standards of the working class.
Balance of trade in goods of top 10 surplus and deficit countries as of 2016 (in billion current USD)
Source: World Bank
Currency composition of allocated official foreign exchange reserves around the world as of 2017 Q4.
Source: IMF
If Trump’s efforts to de-globalize the American economy will not improve the standing of the working class, what will it do? One possibility is almost a cliché: with the U.S. retreating from globalization, other countries, most notably China, will come to lead globalization. That is, globalization will go on without the U.S. But the reality is that expansion of global free trade since the 1980s has been largely driven by American consumerism. Globalization will be hard to move forward without American consumerism and markets open to the world. It will be a long time before any other major economies could take the place of the U.S. in leading globalization.
For decades, the U.S. has been running the largest trade deficit with the world, while many other major economies like Germany, China, and Japan have been running trade surpluses. Opening its own markets for foreign manufactured exports in exchange for its trade partners’ openness to American capital, the U.S. birthed the global supply chain network, the bedrock of globalization over some 30 years. Export-oriented economies imported raw materials and components from around the world, turned them into final consumer products, and sent those products to the U.S. for consumption (“the consumer of last resort” in the global economy). Lowering tariffs on imports from other economies was among America’s main tools for drawing other countries into global free trade. As the figure above shows, in 2016, the three largest economies behind the U.S.— China, Japan, and Germany—all participated in the global economy as net-exporters or “surplus economies,” meaning their productive capacity outmatched consumption. Economist Michael Pettis, in The Great Rebalancing, argues convincingly that these imbalances between production and consumption are rooted in these nations’ deep-seated institutional structures, biased toward saving and investment over consumption and bolstered by heavy value-added taxes.
The U.S. is unique among advanced capitalist economies in that its tax system promotes consumption and represses savings.
The gigantic American trade deficit is likewise rooted in the historical-institutional setting of our nation’s political economy. The U.S. is unique among advanced capitalist economies, political sociologist Monica Prasad writes in The Land of Too Much, in that its tax system promotes consumption and represses savings by foregoing federal-level sales tax and offering myriad tax deductions for specific kinds of consumption. This unique fiscal structure originated in the late-19th century, when Midwestern farmers and others experienced an agricultural productivity boom that fomented an overproduction crisis; the Federal government then instituted consumption encouraging policies to alleviate the price strain in agricultural markets.
Even as the American fiscal system promotes consumerism, the status of the U.S. dollar as the top global reserve and international transaction currency since the 1950s allows—and demands—that the U.S. run large account deficits with other countries. The dollar’s dominance remains unchallenged today; even the euro ranks a distant second, as seen in the pie chart on p. 43.
This global dollar standard and the demand for U.S. dollars throughout the world economy give the U.S. the exclusive privilege to borrow internationally in its own currency at low interest rates. Yet to maintain the dollar’s grip of the world economy, America has to supply the world with sufficient liquidity. This has meant a massive monetary outflow—essentially, chronic and enormous U.S. deficits are not only tolerated but desirable.
The U.S. has become the leader of globalization by consuming beyond its means over several decades; if the world is to continue advancing globalization without the U.S., other economies will need to boost their consumption. Consumption has been rising in China, but increases in production capacity always outpace it, so China and other major economies would have to painfully rebalance their economies, converting export-led growth to consumption-based growth with fundamental and politically difficult redistributive reform. Otherwise, the world’s economy will be left with a lot of large exporting countries and not enough importers. Because the circuit of global trade would simply fall apart in such a scenario, we can expect that a de-globalized U.S. will result in a more fragmented global economy.
We are witnessing the emerging clash of three empires: the U.S., China, and Russia.
For more than three decades, an integrating global economy has held both new and old great powers together and contained their mutual animosity. One plausible consequence of a fracturing global economy is the intensification of conflicts among world powers. Consider that, when globalization was advancing in full force in the first decade of the 21st century, the U.S. was at war in Afghanistan and Iraq. Many believed the U.S. was transforming itself into a universal global empire in the absence of competing empires after the collapse of the Soviet Union. International politics monographs and articles with the words “empire” or “imperialism” in their titles rose markedly in the early 2000s. A unitary empire only needs to defend the universal order against the rebels in the provinces or “barbarians” at the empire’s fringe.
But just as the U.S. was preoccupied in its imperial adventure in West Asia, regional powers, most notably Russia and China, started to tighten their grips on their respective spheres of influence, checking American power. Vladimir Putin’s Russia bullied and annexed territories from former Soviet republics that embraced the West like Georgia and Ukraine. China militarized international shipping lanes in the South China Sea despite competing territorial claims from its neighbors (many of whom have been American allies). Further, China’s recently announced “Belt and Road Initiative” manifests Beijing’s intention of expanding its sphere of influence deep into Central Eurasia and the Indian Ocean.
In the last 15 years, the rapid integration of the global economy and the perceived urgency of recovery from 2008’s global financial crisis have prevented the George W. Bush and Barack Obama administrations from taking hardline approaches to bellicose powers. The inauguration of the G-20 Summit in 2008, in particular, aimed at inviting rising powers into a new multilateral order governing the global economy, despite signs that America’s military and foreign policy establishment had begun to grow impatient with challenges from Russia and China.
In the age of Trump, the American response to Russia and China is unchecked by globalism. The U.S. Department of Defense stipulated in the January 2018 National Defense Strategy that its priority would shift from the War on Terror to countering China and Russia, two “revisionist” powers that allegedly coerced neighboring countries and challenged American global primacy. The unilateralism in the George W. Bush era prioritized military action against small “failed states” and insurgents in the developing world, but this white paper presages preparation for war with large regional powers. We are witnessing, in short, the emerging clash of three empires: the U.S., China, and Russia.
This shift is hardly an aberrant move initiated by Trump, as it clearly deviates from the isolationist rhetoric and alleged affinity with Putin’s Russia of his campaign. In fact, in February 2018, two senior foreign policy officials from the Obama era admitted in Foreign Affairs that the longstanding conciliatory approach the U.S. has taken toward China was wrong and expressed support for the new administration’s more confrontational tendency. And critics of the Trump White House’s relationship with Russia worry only that the president is too soft on Moscow, not that he is too tough. The country’s rising assertiveness against China and Russia reflects a changing, bipartisan consensus among political elites.
China and Russia are not likely to dial back their regional and global ambitions, as their expansionary drive is deeply rooted in their domestic political economies. China’s ambition in projecting its political and military powers overseas follows the classic path of “spheres of influence” making as outlined in Vladimir Lenin’s Imperialism, The Highest Stage of Capitalism(1917): domestic economic crisis in capitalist countries will drive profit-seeking export of capital, in turn drawing the home state to project power and protect the circuit of capital accumulation overseas.
In contrast, the resurgence of Russia’s global imperial reach in Eastern Europe and the Middle East, as shown in its successful encroachment of Georgia and Ukraine and its effective protection of Syria’s Assad government, is driven less by economic imperatives than by what Max Weber, quoted in his discussion of imperialism in From Max Weber: Essays in Sociology, called “sentiments of prestige” (the will to status and honor) and the new tax bases of the state elite. Russia is a major gas and oil exporter with few obvious economic interests in the Middle East beyond arms sales; its flexing of muscle there is more a nationalist, territorialist quest for a return to past glory as a serious contender to the U.S. global empire. Given the lackluster Russian economy, only seeking nationalist glory can provide Putin a source of legitimacy.
Under Trump, the world is dangerous. But this is not because Trump himself is a dangerous person. Rather, many destabilizing long-term trends in global capitalism are accelerating and converging at this particular juncture of world history. U.S. de-globalization will not end the plight of the working class or the war on organized labor. Whether working class grievances will be further exploited by White nationalism or channeled by a new social-democratic and labor movement into progressive reforms is uncertain.
Still, globalization cannot march on if the U.S. truly withdraws from free trade. No alternative world power is ready to take its place any time soon. The subsequent fragmentation of the global economy will lay bare the intensifying inter-imperial rivalry among the U.S., China, Russia, and their respective allies. The questions we will need to ask and answer through action are whether these interlocking trends will accelerate toward major world conflict, whether the trends will continue beyond Trump, and whether there are moderating forces that might effectively temper inter-imperial conflict.
| Daron, Acemoglu, Autor, David, Dorn, David, Hanson, Gordon, Price, Brendan. 2015. “Import Competition and the Great U.S. Employment Sag of the 2000s,” Journal of Labor Economics 34(S1):141-198. A quantitative study showing how manufacturing offshoring and China’s imports drag down American manufacturing employment. Google Scholar | |
| Hung, Ho-fung, Thompson, Daniel. 2016. “Money Supply, Class Power, and Inflation: Monetarism Reassessed,” American Sociological Review 81(3):447-466. Shows how inflation rates in OECD countries from the 1960s to the 2000s were determined mostly by ups and downs of the power of organized labor vis-à-vis capital. Google Scholar, SAGE Journals, ISI | |
| Lurweg, Maren, Westermeier, Andreas. 2010. “Jobs Gained and Lost through Trade: The Case of Germany,” Center for European, Governance and Economic Development Research Discussion Papers 95, University of Goettingen, Department of Economics. Demonstrates that globalization does not lead to decline of manufacturing jobs in Germany, instead helping retain many of those jobs. Google Scholar | |
| Pettis, Michael. 2013. The Great Rebalancing Trade, Conflict, and the Perilous Road Ahead for the World Economy. Princeton, NJ: Princeton University Press. An analysis showing that the source of global economic imbalance and institutional root of underconsumption in export-oriented economies requires difficult reforms. Google Scholar | |
| Prasad, Monica. 2012. The Land of Too Much: American Abundance and the Paradox of Poverty. Cambridge, MA: Harvard University Press. A socio-historical analysis of how and why U.S. political economy uniquely favors consumption compared to most other advanced capitalist economies. Google Scholar |
Ho-Fung Hung is a sociologist at Johns Hopkins University. He is the author of The China Boom: Why China Will Not Rule the World. He is currently researching on the political economy of U.S.-China relations since the end of the Cold War.