Wednesday, March 07, 2018

Our politics, turned upside down.

If there was any doubt that Donald Trump has turned our politics upside down, that question has been settled. According to the Quinnipiac University Poll released this week, American voters oppose Trump's proposed tariffs on steel and aluminum by a 50% to 31% margin, and nearly two-thirds disagree with his assessment that a trade war would be good for the country. But it is the partisan breakdown of those numbers that show that our politics have truly disappeared down the rabbit hole. According to the poll, 58% of Republicans support Trump's tariffs, while 73% of Democrats oppose them, and 67% of Republicans agree with the President that a trade war would be good for the country and could be easily won, while 90% of Democrats disagree. These results are literally the opposite of what, in the world before Trump, one would have expected.

Dating back to the post-World War II years, free trade was a defining principle of the Republican Party. Democrats have long been split between free traders and protectionists, but not so the GOP. When Richard Nixon and Ronald Reagan broadened the GOP coalition to bring white southern and working class Democrats into the fold – former members of Franklin Roosevelt's New Deal coalition who had been weaned on big government and protectionist sentiments – the party acquiesced to the interests of those voters and tacked hard to the right on social issues, but the Wall Street and Main Street business Republicans who had long represented the core of the GOP gave no ground on their core economic principles, including their commitment to free trade and free markets.

GOP support of free trade was historically coupled with its pull-up-the-bootstraps stance with respect to individuals in the job market. In his famous 47% comments to a group of hedge fund managers during the 2012 presidential campaign, Republican nominee Mitt Romney denigrated Americans "who believe that they are victims" and lean on the government to solve their problems rather than packing their bags when times were tough and moving to where the jobs are. Four years after Romney's defeat, however, working class Americans hunkered down in dying rural communities – former Democrats who had morphed into the activist base of the GOP – eagerly embraced Donald Trump, as he rejected Romney's traditional GOP message and told those voters instead that they should sit tight and he would bring their jobs back.

Now that Donald Trump is proposing to deliver on his promises – showing himself as more Huey Long than Mitt Romney – business Republicans who fell in lockstep with him in return for massive tax cuts are protesting what in their view is Trump's abandoning of a core principle of Republicanism. But there is no reason they should be surprised; Donald Trump ran against the Republican Party as much as he ran as part of it, and the peasants with pitchforks who carried him to the White House are surely as deserving of their payday as those GOP elites who cashed their checks last Christmas. But if the Quinnipiac numbers are correct, we may be seeing more than just payback for delivering votes on election day. Donald Trump may have completely flipped the script as he competes his overhaul of the GOP, leaving old guard, free trade, free market Republicans on the outside looking in. 


Donald Trump is correct. The world has taken advantage of American foreign and trade policies in the decades since World War II and the Cold War. But that was the point. The global economic order that America championed in the wake of the Second World War was built around opening up our own markets to international competition to allow nations across the world to lift much of their citizenry out of extreme poverty. It was not a charitable undertaking on our part. After the world had suffered through two world wars, after the treaty ending the First World War pushed the German people into a degree of privation that led to the rise of Hitler, and after the Second World War left much of Europe and Japan in ruins, it was clear that a different path was going to be necessary if we were going to avoid a third world war.

Coming of age in the 1960s and 70s, when 50% or more of the people across the globe lived in extreme poverty, it was hard to imagine – as illustrated here – that in our lifetime that the percent of the world population living in extreme poverty would decline to below 10%, as it did by 2015. As it turned out, a billion or more prisoners of starvation across the globe were lifted out of extreme poverty – with hundreds of millions entering the middle class in countries where none existed before – as much as anything by an economic vision championed by the GOP and resisted by protectionists within the Democratic Party. In the decades following the Second World War, first Europe and Japan, then India and East Asia and China, and ultimately Africa have seen improvements in standards of living across a variety of metrics to an extent that once was unimaginable. 


Donald Trump's most loyal supporters – former steelworkers and others who were forced along the way to compete with low cost workers and government subsidized industries across the world – see Trump as their champion. Many old school Democrats, such as Ohio Senator Sherrod Brown, similarly celebrated Trump's proposed tariffs. “This welcome welcome action," Brown exclaimed "is long overdue for shuttered steel plants across Ohio and steelworkers who live in fear that their jobs will be the next victims of Chinese cheating.” 


It turns out, however, reports of the death of the steel industry have been greatly exaggerated, as the data paints a more ambiguous picture than simply one about an American industry suffering at the hands of the perfidious Chinese. As the graph here illustrates, the tonnage of steel produced in the United States has remained roughly unchanged over the past three decades, even as employment in the steel industry has declined by roughly two-thirds. This suggests that it is the jobs that have disappeared, not the industry, and that investment in advanced technologies has been the primary culprit leading to the loss of jobs rather than competition from China. 

While Trump – and more notably Steve Bannon, before he disappeared from the administration – has consistently pointed the finger of blame at China, Chinese imports are barely a factor with respect to domestic steel consumption and import competition. Canada and Mexico, our partners in the increasingly integrated North American market, are two of the five largest sources of steel imported into the United States, along with Brazil, South Korea and – interestingly – Russia. Of the top ten, China is 11th, with less than a 2% share of imports. This is not to say that China has not been the primary culprit in the evisceration of U.S. manufacturing; it has been. Our trade deficit with China eclipses our trade imbalances with literally all of our other trading partners combined. But even if China is the problem, it is not apparent how Trump's proposed steel tariffs are a solution.

The picture that the data paints with respect to the impact of technology on steel production and employment is illustrative of the entire manufacturing sector. As this graph from the St. Louis Federal Reserve Bank illustrates, industrial production – shown in the blue line – has risen steadily since the 1970s, with periodic dips during economic recessions, even as manufacturing employment – the red line – has declined from a peak of over 19 million workers, to below 13 million currently. The simple truth is that the world of manufacturing has changed, and all of the MAGA hats and #MAGA tweets are not going to restore the bygone era of people's imagination. Trump's tariffs may give American steel a competitive advantage in the domestic market, but trends in automation and robotics suggest that employment impacts will be far less than economic nationalists imagine. As was the case with his tax cuts, Trump may sell the proposed tariffs on the basis of restoring lost jobs for his working class supporters, but the economic benefits will likely flow to the company CEOs, directors and investors.

Donald Trump conceded as much last July, during a visit a county in upstate New York that he had won with nearly 57% of the vote eight months earlier. Straying off message in the face of the harsh realities on the ground in an economically ravaged community, Trump told workers there the truth: Sitting tight and waiting for the jobs to return was an fool's errand. Companies in other regions of the country were grappling with chronic labor shortages, he said, and people should pack up their belongings and move to where the jobs are. "It's OK," he said. "Don't worry about your house." Trump knows that he has been peddling false hopes with his promises to return the nation to its manufacturing heyday, but so far, it has worked for him.

Free trade and the elevation of a billion people out of extreme poverty in the decades since World War II is as much a defining Republican victory as the fall of the Iron Curtain. But the days when the GOP was a party with a global vision of security through economic cooperation is swiftly disappearing into the fog of memory. Long-time Republicans swallowed hard over the years as one GOP President after another walked back the party's traditional embrace of civil rights, and its moderation on social issues, as the price of building a winning electoral coalition. Now, the final old time pillar of Republicanism is crumbling.

Over the course of the primary campaign, and now as President, Donald Trump pushed the Party of Lincoln into uncharted territory, first with his demonizing of immigrants, then his coddling of neo-Nazis, and now with his full-throated embrace of a trade war. Economic nationalism may not sit well with traditional Wall Street and business Republicans as the new mantra of the GOP – and indeed it offers no solutions to the working class voters that have fallen under Trump's spell – but according to the Quinnipiac Poll, the rest of the party is getting on board. Those traditional Republicans – bought off for thirty pieces of silver – looked away time and again as Donald Trump exploited the worst angels of our nature. It is a little late for them to start complaining now.

Follow David Paul on Twitter @dpaul. He is working on a book, with a working title of "FedExit: Why Federalism is Not Just For Racists Anymore."

Artwork by Jay Duret. Check out his political cartooning at www.jayduret.com. Follow him on Twitter @jayduret or Instagram at @joefaces.

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