As the American left continues to dissect the failures of the Harris campaign, the economic programme of Trump 2.0 is already emerging. Just before the Thanksgiving holiday, Trump brandished one of his favourite terms in the English language, threatening China, Mexico and Canada with a new round of tariffs. Much as before, Trump claims his overall agenda will stoke growth, while many analysts are predicting turmoil: from belligerent trade disputes that raise supply-chain costs to needless and punitive cuts to social spending. How much really changes, however, depends on Trump’s appetite for experimentation – and whether he is willing to roll back, as orthodox conservatives hope, the most progressive aspects of Joe Biden’s record.
Indeed, while Trump allies may crow that the election repudiated Biden’s economic stewardship, it is uncertain how many policy shifts are in store for the US and world economy. American political economy has already been altered in ways that were unthinkable in the twilight of the Obama era. The first Trump administration, though plainly favouring the rich, rejected key tenets of globalisation, particularly on matters of trade, US-China relations, and immigration. This compelled Democratic policymakers to dust off their own heterodox ideas about trade and industrial policy and take a tougher stance on monopolies. The pivot away from neoliberal orthodoxy was then cemented by top Biden officials, enjoying occasional bipartisan support even as congressional Republicans railed against clean energy subsidies.
Where this uneasy continuum goes next hinges greatly on Trump’s appointees for key economic posts. Scott Bessent and Howard Lutnick, the respective nominees to lead the Treasury Department and Commerce Department, are Wall Street men straight out of Trump’s idea of “central casting”, though both of these rival advisors endorse wielding tariffs as a form of leverage over America’s trade partners; Kevin Hassett, Trump’s pick to head the National Economic Council, is similarly meant to reassure the financial sector. Lobbyists from fossil fuel industries, meanwhile, are once again tipped to deregulate energy policy and environmental protection, and Elon Musk and other Silicon Valley players have urged Trump to curb and purge Biden’s trust-busters and labour-friendly personnel. That leaves Trump’s unexpected pick for labour secretary, Representative Lori Chavez-DeRemer, an Oregon Republican who supports legislation to make it easier for workers to unionise, the main concession to organised labour and economic populists.
Yet not every member of Trump’s inner circle is an arch libertarian or tycoon. Robert Lighthizer, an old-guard economic nationalist in the Hamiltonian tradition who served as US Trade Representative during Trump’s first term, still looms as the major proponent of “strategic decoupling” from China and restoring American manufacturing. Once described as “little-known” by the New York Times, Lighthizer is now recognised by the media and diplomatic circles as the most effective translator of Trump’s instincts about economic might. That reputation exerted considerable pull among the “New Right” during Biden’s presidency, including at the American First Policy Institute, where Lighthizer serves as a co-chair. And it accounts for why his direct line to Trump appears to be strong, despite mounting speculation that the president-elect has denied him a more prominent post due to fears it would spook Wall Street (throughout the campaign Lighthizer reportedly sought to helm the treasury, and it is still possible he will be named to a formal role before Trump’s inauguration). On top of Lutnik and Bessent’s sudden enthusiasm for tariffs, Lighthizer’s continued influence is reflected in Trump’s selection of Jamieson Greer, Lighthizer’s former chief of staff, to be the next trade ambassador.
Still, there is good deal of intrigue concerning Lighthizer’s authority over Trump’s economic priorities. This is because Lighthizer, who always dissented from the neoconservative globalism of the post-Cold War GOP, is largely responsible for resetting America’s strategic posture in the world economy. While Democrats and Republicans diverge over the proper scope and purpose of the country’s fledgling industrial strategy – whether it should be about competition with China, wage and productivity growth, climate change, or some combination thereof – it is undeniable that Lighthizer’s world-view has shaped what Jake Sullivan, Biden’s national security adviser, calls the “new Washington consensus”.
Given the “mandate” Trump has claimed via his popular vote victory, it is possible the next iteration of “America First” populism may be both more radical and disciplined – regardless of Lighthizer’s ultimate role. There is a difference, however, between the jawboning tactics that Bessent and Lutnik tolerate to advance US market access and the “common good” conservatism which Lighthizer and his allies espouse. Pro-manufacturing organisations, America’s ailing steel companies, and industrial labour leaders have Lighthizer’s ear, and he is one of the rare Trump advisors to enjoy some stature with House Democrats. Despite plans to frustrate as much of Trump’s agenda as possible, some Democrats may look to Lighthizer or his disciple Greer to negotiate, much as they did during the overhaul of Nafta. The prospect of an ad-hoc partnership is not as surreal as one might suspect. In the 1970s and 1980s, union-aligned Democrats, mostly from the US Northeast and Midwest, turned sharply protectionist, and an aversion to more globalisation still animates part of the Democrats’ House caucus. Protectionists like Lighthizer and this wing of the Democratic Party roughly speak the same language when it comes to saving American industry, though they often differ on the details of how to get there.
The limits of that fragile consensus will soon be tested by Trump’s cabinet and their appetite for other interventions besides tariffs. Trump, far from being a conventional strongman, is a vainglorious but minor oligarch dependent on richer ones. The far shallower populism of his 2024 campaign reflected their sway. Lighthizer’s rhetoric, by contrast, harks back to the economic grievances Trump originally tapped into. Remarkably for a Republican, Lighthizer has frequently lamented “a growth in income and wealth inequality that is alien to America”. Yet Lighthizer himself has little to recommend besides tariffs and cutting red tape that might stifle plant investment, and the odds of congressional Republicans seizing the political moment and moving “left” on economics are remote in the extreme. In fact, Trump may create economic headwinds that Republican doctrine remains deeply unequipped to solve, stopping reindustrialisation in its tracks.
For one thing, most economists are unanimous that a new round of tariffs and hard-nosed bilateralism – along with Trump’s desire to weaken the Federal Reserve’s control of monetary policy – will rattle markets and eventually sap domestic and global growth. A series of one-off reciprocal agreements could involve consultation with Congress, thereby potentially boosting country-to-country sectoral labour standards, or it could create an unwieldy and unaccountable patchwork system in which affected industries swarm the executive branch for special favours. There are also broad concerns that Trump’s aggressive “supply-side” agenda is fiscally irresponsible and ill-suited for today’s on-demand, parcel-and-services consumerism. Many have warned that the combination of higher tariffs, new and extended tax cuts, and deficit-spending Trump intends to enact will prove disruptive and inflationary – that it will raise prices and boost demand with no sufficient expansion of domestic supply chains and manufacturing employment.
Congressional Republicans doggedly committed to spending cuts to healthcare, education, and food assistance programs are bound to make this policy mix more of a muddle. If they succeed, low-income families are bound to suffer one way or another. Their purchasing power disproportionately goes toward imports. Any prolonged, significant drop due to exploding credit card debt, higher monthly bills, and passed-on tariff costs – say, the equivalent or more of inflation’s 2022 peak – will eventually depress demand from middle-income countries in South Asia, Southeast Asia, and Latin America, with likely knock-on effects for their respective export-based growth models. The prospect of mass deportation, still hard to fathom, would also assuredly wreak havoc. While Republicans have adapted the old trade union argument that mass immigration is a form of wage arbitrage, their draconian solution to slash the labour force is a strange way to revive the family wage in lieu of the more positive labour policies they have routinely rejected.
What might the American economy look like if all of the above comes to pass? Ironically, the result could resemble an anachronistic, lumbering state capitalism, with various haphazard policies to juice growth – alongside subsidies to farming and other globally sensitive sectors – eventually cancelling each other out. It would be different from the neoliberal model insofar that the economy would, on one level, be much more regulated than before, but also radically deregulated, depending on which bankers, tech barons, and energy firms maintain Trump’s favour. Should Trump try to have it both ways and stabilise household purchasing power, comparison to the corporatism of mid-century Brazil might prove surprisingly apt. But a hybrid economy of “re-domesticised” heavy industry and speculative bubbles in cryptocurrencies and other tech subsectors would do vanishingly little to recreate the shared prosperity and long-term development Lighthizer and his allies professedly seek.
That prospect should be of cold comfort to Democrats, not least because of the social-democratic principles they claim to uphold. But by now they should also beware of Trump’s extraordinary luck. As with nearly everything else, Trump has defied gravity on certain economic laws, and the worst-case scenario – at least with regard to wages, growth, and popular social benefits – may not come to pass. Although tariffs did aggravate farmers and manufacturers with extended supply chains, the “trade war” didn’t affect Trump’s political support in the greater Midwest. Lighthizer’s team, meanwhile, clearly believed tariffs were required medicine lest America’s industrial base and innovative capacity in actual hardware shrink further. If the intended effects were middling – a number of pro-free trade economists insist tariffs cost jobs and growth – Biden’s own Trade Representative, Katherine Tai, didn’t heed the objections of the liberal establishment. On the contrary, tariffs and other trade controls were expanded under Biden, leaving Lighthizer both vindicated and willing to write in his 2023 book that he was “pleasantly surprised” by the administration.
Perhaps more frustrating for senior coastal Democrats is that the tariffs didn’t appreciably dampen consumer sentiment during Trump’s first term. Wages for the poorest workers, as a few progressive economists hesitantly suggested, finally appeared to be rising in 2018 and 2019. While Democrats were keen to claim credit – arguing that either Trump was benefiting unfairly from the recovery Barack Obama oversaw or that workers were feeling the effects of local higher minimum wage hikes in blue districts – they were also ambivalent about what it meant for liberal expertise. A host of Trump’s economic decisions were indeed regressive, but tariffs weren’t demonstrably inflicting the punishment at the checkout line that the party’s neoliberal wing warned of.
When the pandemic struck and supply-side constraints fuelled the worst inflation since 1980, some economists, including former Obama official Larry Summers, recommended eliminating tariffs to ease financial pain. But that would have unravelled the logic behind Biden’s more assertive industrial strategy. Absent more daring capital controls, Biden, like Lighthizer, needed some way of channelling large-scale plant investment back into the domestic market. Again, Lighthizer’s advocacy was quietly validated. The “industrial policy left”, as well as some prominent anti-monopolists, came to echo his belief that the trade deficit with China was a downward spiral toward dependency which would leave America dangerously vulnerable to future global economic shocks.
The question now becomes whether Trump’s team will up the ante to reorder global trade or pursue easy, mostly symbolic wins. Trump’s true believers are convinced that the mere threat of higher tariffs will bring China and other countries to the bargaining table. Ironically, this tribute-seeking pantomime may relieve internationalists, multinationals, and international US-asset holders if the results essentially keep most existing supply-chains intact and the dollar strong. Such limited revisionism could cool tensions with China – at least temporarily. Meanwhile, those on the American left who had hoped for progress toward balanced trade that supported multilateral action on climate will be forced into a position of hoping China and the EU will take the lead.
Both scenarios are premised on wishful thinking. Trump has shown no signs of going soft on tariffs, as last week’s threats showed. Meanwhile, the EU and China suffer from structural demand issues and have their own trade disputes. More disruptive measures could also be in the offing: during the campaign Trump’s inner circle actively discussed trying to devalue the dollar to boost exports and close the trade deficit. Although the elevation of Lutnick and Bessent signal a preference for maintaining a strong dollar, that could quickly change if Trump fails to extract notable concessions in his trade disputes. And it could create an opening for Lighthizer to assume a Kissinger-esque remit over government support for industry. A year from now we may be studying the ramifications for consumption and the welfare state, in America and beyond.
[See also: Aleppo is just the beginning]
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