Despite predictions of restraint, U.S. President Donald Trump seems to relish the prospect of fulfilling his campaign promises and initiating “America First” protectionist policies. Given that this goes against the advice of U.S. business and finance elites, a key question emerges: What is Trump's rationale in expanding the trade skirmishes? What, ultimately, is his end game? Is he seeking a grand bargain to restructure the global trading system? Or is protectionism an end in and of itself?
Pundits and analysts have proffered a variety of explanations for what motivates Trump. These explanations are not likely to be exclusive and will overlap in creating a fuller picture of what motivates Trump's international economic strategy.
The first and most common explanation is Trump the “dealmaker.” To enhance his negotiating position, Trump is willing to bluster, upping the ante with punitive trade measures. But, in the end, his bark is worse than his bite. Once economic pain really sets in, Trump the businessman and pragmatist will seek to arrive at mutually beneficial trade deals or some fudge that de-escalates the threat of all-out economic war.
Financial markets and economic elites are most enamored by this rationale. Trump's transactional and mercurial nature, his ability to change on the fly and contradict himself, certainly supports this view. However, with threats and retaliatory measures escalating, many are having second thoughts about where, in fact, the president is heading.
The second most common explanation is that Trump is pandering to his political base. Trump the “consummate politician” perceived correctly during the 2016 campaign that trade was a potent issue to rally voters. New polling shows that these voters continue to support the president, even if tit-for-tat measures could spell economic trouble, most obviously for heartland agricultural interests.
In this view, Trump is staying true to what he said during the campaign, and since neither financial markets nor consumer confidence has been dented in any substantial manner so far, his base is standing by him. According to a recent Washington Post-Schar School poll, Trump's support in the 15 states most likely to be hurt by retaliatory tariffs stands at 57 percent, though most disapprove of how he is handling international trade.
The third explanation is more nefarious and basically proffered by Trump's fiercest critics. Trump is a classical “crony capitalist.” By utilizing punitive tariffs, the U.S. president is jolting the business community and international trade partners. This uncertainty enhances the president's discretionary power. It forces company CEOs and national leaders to pander to Trump's whims, an opportunity he can exploit to further enrich his family business.
This explanation was put forward as news broke in mid-May that a major real estate development in which Trump has a direct financial interest was being supported by a state-owned Chinese bank. The project in Indonesia, called Lido City, secured a $500 million loan from the Metallurgical Corporation of China. Nevertheless, perhaps to prove his critics wrong, Trump continued with punitive tariffs on China in July and is now threatening a full-out trade war with the world's second largest economy.
The fourth explanation is the most damning: Trump suffers from psychological pathologies, including extreme narcissism. As a result, he is consumed by a complete urge to be constantly at the center of U.S. media attention, and trade wars are a nice way to capture news headlines. This explanation of Trump the self-absorbed “showman,” however, says too little about why he remains so captivated by protectionist policies. It provides no indication as to what the end game might be, except to raise the possibility that this is all a narcissist attempt to wreck economic havoc for the sake of economic havoc.
The fifth and final explanation is the least commonly put forward. It stands in clear contradistinction to the first explanation as Trump the “dealmaker” and businessman. It sees Trump as an “ideologue,” a man with a set and inflexible ideational prism through which to understand the world. This prism might best be characterized as neo-isolationist, though it includes antecedents from other ideologies, as well as a heavy dose of economic mercantilism.
Exactly because Trump has built a successful real estate business, hails from New York City, and wrote “The Art of the Deal,” few seem to take his pronouncements on international economics reaching back into the 1970s and 80s very seriously. But Trump has a clear ideological stance that finds deep resonance in American history and has a growing pedigree in the Republican Party, especially its Tea Party wing.
Neo-isolationism is mistrustful of all international entanglements, especially multilateral ones with defined rules and norms that no one single country can easily overturn. In economics, it seeks a high degree of economic autarky in which key domestic industries, such as steel and aluminum, are protected. At present, its rationale also implies concerted efforts to bolster America's global technological leadership.
This vision, if followed to its logical conclusion, would result in a rehash of import substitution industrialization: the United States would become self-sufficient in all industries and export surplus goods, such as agricultural commodities and high-tech inputs with strong global demand. As a result, such policies would radically reduce the U.S. trade deficit, perhaps even putting the country in surplus with the rest of the world.
Even though a conversion to greater economic autarky is likely to cause wrenching economic dislocation, it would be worthwhile in the end. The United States remains the biggest and most innovative economy, and thus should have sufficient leverage to pull off this transition. Protecting against imports of key industrial and consumer goods, above all if these are imported from a potential competitor, such as China, could remake the United States into both the most powerful and most independent economy on earth.
Since the ideology of neo-isolationism has its own fixed internal logic, policy-decisions can disregard immediate economic effects and unintended consequences. Trump the “ideologue” forces the observer to take seriously his threats to withdraw from the World Trade Organization and to upend the global rules of international trade.
Although few have seriously entertained this possibility, it is gaining some traction among observers as Trump is in the process of imposing nearly all the trade protections that have gotten as far as an official review. And it is absolutely possible, indeed likely, that Trump will at times be the “dealmaker” and “consummate politician,” while at other times relish his role as “showman” and “ideologue.”
Despite this lack of clarity on motives, we now know that Trump was not just bluffing on tariffs. He looks absolutely willing to continue to create substantial economic uncertainty. In fact, up to now, must of the negative effects of protectionist policies have emanated less from the implementation of tariffs (not many have actually taken effect) and more from disruptions caused by increasing the unknown for business. Once a trade war starts in full, unintended consequences are likely to multiply.
While Trump, as any human being, has many sides to him, his ideological inclinations need to be taken more seriously. They force us to entertain the prospect that he is willing to sacrifice the American economy for his distinct “America First” principles based on neo-isolationism and neo-mercantilism.
