Executive Vice President Matt Duss and Senior Non Resident Fellow Trevor Sutton analyze America’s economic policy, emphasizing that Neoliberalism might have failed—but Trumpism is no alternative.
It has become accepted wisdom that U.S. President Donald Trump’s populist message has been effective because it has criticized a failed economic ideology of neoliberalism. In both administrations, Trump has rejected some long-standing bipartisan orthodoxies about the relationship between the state and markets, such as the belief that economic integration and lowering of trade barriers are unquestionably in the national interest, or that the government should exercise restraint in addressing trade imbalances and managing currency exchange rates.
It is not hard to understand why such economic heresies resonate. Globalization has been a major factor in industrial decline, loss of livelihoods, and downward pressure on wages in the United States. But we should not mistake Trump’s rejection of orthodoxies for any concern for ordinary Americans. He aspires to personal control, not economic justice.
The impacts of globalization were not hard to foresee: The multilateral trade system built during and expanded in the wake of the Cold War was designed primarily to reduce barriers to trade. Other concerns that might be significantly influenced or aggravated by economic integration—for example, inequality, labor rights, and environmental protection—were viewed as matters that national governments could address through their domestic systems or on an ad hoc basis through free trade agreements.
The belief that the deregulatory pressures and labor dislocation produced by globalization could be offset through domestic policies and free trade agreements looks naive in hindsight. In practice, the rules of the trade system constrained national governments’ ability to slow deindustrialization and offshoring of jobs and provided inadequate tools to respond to weak enforcement of labor and environmental standards by trading partners.
These shortcomings enabled a shift in manufacturing activity away from advanced economies into emerging markets, which amplified the disruptive effects of automation on industrial workforces. For many workers, especially those in countries that lack a strong commitment to redistribution like the United States, the shift to a service economy has meant lower wages and increased precarity.
Trump’s fondness for tariffs and bold promises to revive manufacturing may tap into legitimate grievances about globalization but should not be mistaken for genuine economic populism. Trade liberalization has not been the only driver of inequality and insecurity in the United States. Deregulation of financial markets, regressive changes to the tax code, spiraling health care costs, and reductions in pension benefits have also played an important role in bringing Americans to their current plight.
Far from seeking to reverse these trends, Trump is accelerating them by dismantling the administrative state, privatizing or outright eliminating core state functions, pushing tax cuts that favor the rich, and attacking labor rights.
What Trump is actually doing is not fighting for ordinary Americans but asserting personalized rule over markets for political showmanship and performative retribution, producing disruption but not progress. His announcement earlier this month of massively increased tariffs, followed by a suspension of those tariffs, after which he claimed credit for a “historic” market rally after it partially recovered from the dip, is a perfect example. As Rep. Ryan Zinke, who served as secretary of the interior during Trump’s first term, observed succinctly, “Tariffs are a tool the president enjoys because it’s personal power.”
This is not a return to the regulated capitalism that drove middle-class growth, innovation, and industrial expansion in the mid-20th century. Instead, it’s a regression to a much older form of government, one in which the head of state surrounds himself with cronies and abuses his powers to tax, spend, and tariff to dole out favors. In other words, a spoils system.
Far from offering a “post-neoliberal” agenda, Trump is reproducing the worst aspects of that order and combining it with the worst aspects of an older one. We must reject and prevent a recurrence of Trump’s predatory capitalism, but the answer is not a reversion to market fundamentalism. The goal should be a system that empowers ordinary citizens and serves the common good, not the whims of one man or a handful of oligarchs and corporate overlords, and one that looks to the sustainable future rather than seeking to recreate a gilded past based on plunder.
Creating such a system will require far more comprehensive and strategic changes in policy than antagonistic and erratic tariffs. Many of the key reforms that will be needed are inward-facing, such as a more progressive and simpler tax code, an expanded welfare state, and stronger labor protections, especially those that can address the challenges we will soon face with rapid automation. But these internal measures will only succeed if we reform the external economic and geopolitical environment so markets are not insulated from democratic control and wealth cannot buy impunity.
This shift in the external environment will require a corresponding shift in U.S. foreign and international economic policy. A post-neoliberal economic agenda that works for all Americans should, at a minimum, reflect the following four goals: a fairer trade system that gives states more flexibility in balancing the interests of trading partners with national priorities; an industrial policy that emphasizes good-quality jobs and economic mobility—including in the services sector—at least as much as strategic competition and national security; international coordination to stop regulatory arbitrage and tax avoidance; and a new approach to U.S. foreign assistance and diplomacy focused on equitable distribution of global goods and building worker power.
This agenda will only succeed if Americans can relax the grip of oligarchs and their old guard allies on our institutions. This will not be an easy task and will require perseverance in achieving long overdue reforms, such as amending the federal bribery statute to better reflect commonsense understandings of corruption (which successive Supreme Court decisions have essentially defined out of existence), imposing stricter ethics rules on U.S. officials, and importantly, reforming our country’s campaign finance rules, which have created a political system that is more responsive to a small group of economic elites than to the needs of the majority.
There is no question that the old neoliberal theology that dominated U.S. economic policymaking for decades has failed American working people, steadily siphoning the fruit of their labor disproportionately upward to an elite with the power and influence to game the system. Some amount of creative destruction was long overdue. But we shouldn’t be fooled by Trump’s approach, which simply reproduces the worst aspects of the old order while doing nothing for working people. We need a new economic model that truly puts them at the center.
Read in Foreign Policy.
