The American economy has shown a mixed performance over the past quarter-century since the end of the Cold War. On the one hand, economic growth has continued, albeit at a rate that was less than the preceding quarter-century (roughly the 1960s through the 1980s). On the other hand, economic inequality soared, jobs were shed in manufacturing, and America divided into two economies—a prosperous one for those with four-year college degrees or more and a stagnant or declining economy for those with less education. I have described this divided economy in two recent books, The Price of Civilization (2012)1 and Building the New American Economy (2017).2
Trump’s America First policy is partly about economic statecraft. It is based on Trump’s belief that the United States has been duped by its trading counterparts, such as China, Germany, and Mexico. Trump’s misunderstanding is primitive, as he interprets America’s trade deficit with these countries as proof that these countries are subjecting the United States to unfair trade practices. In fact, the U.S. trade deficit is a sign of America’s extraordinarily low saving rate, which is itself partly due to excessive military spending and tax cuts that have boosted the federal budget deficit and led to negative rates of government saving.
Trump’s economic policies are like his personality, impulsive and shortsighted, and likely to damage the working-class constituency he professes to support. Trump’s fiscal policies will cause a soaring budget deficit that will eventually weaken America’s fiscal standing and undermine the government’s ability to invest in the future, including vital investments in science and technology. Trump’s trade policies will not bring home millions of manufacturing jobs and might instead cause a trade war in which the United States itself will be among the losers. China’s economic statecraft, on the other hand, based on regional integration (One Belt, One Road) and large, long-term investments in cutting-edge technologies, is very likely to boost China’s global competitiveness as well as its environmental sustainability.
Trump’s protectionism plays to his political base: white, less-educated workers who have lost jobs or wages as the result of globalization. But protectionism is the wrong way to address the real needs of such workers. Much better would be a combination of new job training, expanded wage subsidies through the Earned Income Tax Credit, and other forms of redistribution from the rich to the poor. As I have recently discussed those better alternatives elsewhere,3 I will not repeat the arguments here.
Trump’s nationalism is very poorly timed, as the world needs more global and regional cooperation, not less. The major problems that afflict us—global warming and other environmental threats, the need to upgrade energy infrastructure, rapid shifts in the labor market resulting from artificial intelligence and robotics—argue for solutions that require global and regional cooperation and policies that cannot be implemented by any one country alone, even the United States with its vast economy.