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The Trump Era: Reflections on the Future Economy

Does Trump’s victory mark the end of neoliberalism? In this article, we will analyze Trump’s economic platform, its striking contradictions and the balance between demagoguery and reality.

Paula Bach

November 26, 2016
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Originally published in Spanish in La Izquierda Diario

Trump’s triumph reflects the beginning of a highly significant turning point for the United States and probably for the world. “The Trump era” is the cover title of the British weekly news magazine The Economist, while the Financial Times continues to lament what it senses are the last throes of globalization. Comparing the victories of Trump and Brexit to those of Thatcher and Reagan in the late 70s and early 80s, the Argentine journalist Siaba Serrate concludes that if that period marked the birth of the “neoliberal model,” Trump’s victory announces a “counter-reformation” in which the “protestants” seek to rewrite the rules of globalization.

An outsider in the White House expresses the fact that the social and political consequences of the contained and non-catastrophic yet nonetheless painful economic contraction is beginning to limit the establishment’s strategy for controlling the crisis since the collapse of Lehman Brothers. Brexit was undoubtedly a foretaste of this, but now the political expression of these economic consequences has taken over the most powerful country in the world. It is immediately important to investigate the path that will be followed by Donald Trump, at least in the near future.

Given the situation of desperation and repudiation of the political elite that allowed Trump to garner increased support from white working class sectors that traditionally vote Democrat in the Rust Belt, the declining industrial region around the Great Lakes, particularly the states of Ohio, Pennsylvania and Michigan– and even some African-American and Latino voters, as well as sectors of small and medium-sized business owners, it would be unthinkable for the new administration to back away from all of the campaign’s promises and relegate them to the realm of mere demagoguery. Between Donald Trump’s demagoguery and his government program, there will surely be a middle path that could be anticipated based on an analysis of the main contradictions in the economic and political situation.

High Tension

The main and most extended of those contradictions is the opposition between the needs of the pro-globalization economic elites and broad social sectors that have been hard-hit by their policies. This tension expresses a significant difference with regard to the 30s, when the hegemonic sectors of capital turned sharply towards protectionism. The leap towards capital globalization and the fact that, contrary to what occurred during the Great Depression, the crisis was contained but at the cost of very weak economic growth, largely explains this tension.

Trump captured the sentiment of millions with a nationalist, protectionist and xenophobic rhetoric aimed at those marginalized by globalization. He promised to re-industrialize the United States by deporting immigrants, eliminating free trade treaties, lowering taxes on corporations to encourage the repatriation of capital and increasing tariffs on Chinese and Mexican products to promote import substitution. He even insinuated that he would support minimum wage increases and spoke out against the financial system and the extraordinary stock market earnings associated with low interest rates.

However, this program is generally incompatible with the US economic elite, which overwhelmingly supported Hillary. Large US factories have been relocated to Mexico or China precisely due to the difference in wages. And in the past few years, many companies have moved from China to Mexico or Vietnam, among other destinations, because of the increase in Chinese wages. Many of the Chinese and Mexican imports on which Trump said he intends to apply a tax of 45 and 35%, respectively, are from US firms located in those countries. And a large part of the input for industries located in the United States comes from China and Mexico, as well as a significant portion of consumer goods. A tariff increase on the scale promised by Trump would not only mean a declaration of war against all these companies, but it would also lead to a sharp rise in inflation with the resulting drop in real wages and increase in production costs. In addition, sectors of medium or small producers who supported Trump do not all approve of the deportation of immigrants, as they are based in the US and tend to super-exploit undocumented foreign labor.

The Voice of Conscience (or Dr. Jekyll and Mr. Hyde)

Trump, a real estate tycoon who himself became rich off financial speculation, cannot and does not want to govern against the hegemonic sectors of US capital, including Wall Street and the naturally pro-globalization technology elite, such as Apple, Google and Facebook, among others.

In principle, the divide between Trump and the Republican establishment is beginning to close, as shown by the recent designation of Reince Priebus, Chairman of the Republican National Committee and a figure with broad support within the party, as his Chief of Staff. Meanwhile, reaffirming his “identity,” Trump appointed the racist Steve Bannon, former executive chair of the far right news outlet Breitbart, as chief strategist and advisor to the White House. At the same time, the current Republican Speaker of the House of Representatives, Paul Ryan, was unanimously reelected. After having distanced himself from Trump multiple times during the campaign, he has now said that the past is the past and that he talks to Donald “practically every day.” Accordingly, a team of insiders and outsiders is being assembled, which includes a former Goldman Sachs executive who may be appointed to serve as Treasury Secretary. The tensions resulting from the assembly of the team have not subsided and seem to be unleashing a kind of internal war inside the Republican Party.

The outcome of that war will lead to clearer definitions, but what we know for now about the team – which, despite obvious differences, brings to mind the platypus that ended up leading Brexit- seems to indicate that Trump will govern for the ruling classes without completely forgetting all of his campaign promises. The outsiders of the establishment – who are often insiders of the economic elite – seem to be functioning as a kind of voice of conscience for the political elites in “strange” times, forcing them to form mixed cabinets. This synthesis seems to rule out both the implementation of the “maximum program” as well as the idea that all of the campaign promises were mere demagoguery. It is essential, therefore, to anticipate some elements of what could be the “program of action.”


Trump’s actual program will likely aim to address a combination of elements that characterize the US’s current situation. This includes new political phenomena, such as greater power on the right, partly as a result of Sanders’ subordination to the Democratic Party, with a re-emergence of social movements, yet few working class struggles. There is also economic stagnation without a catastrophic crisis, resulting in an average 2.2% growth in US GDP over the past eight years, greater than that of Europe or Japan, but significantly inferior to its historical average of over 3%. Unemployment rates for the economically active population improved from 10% in 2009 to 4.9% this year, but new jobs are of a lower quality, often part-time, with structural unemployment continuing as a result of offshoring and technological change. Families hit by the 2008 crisis with debts equal to 130% of their income still face restricted credit access. This last factor limited the possibility of a consumer boom similar to the one that took place in the 90s or 2000s, despite low interest rates. The combination of these elements laid bare the extraordinary rise in inequality and the jobs lost in previous decades.

The neo-Keynesian segment of the Democratic or pro-Democrat economic establishment, including Lawrence Summers, Paul Krugman, Martin Wolf, the IMF and the hegemonic sector of the Fed itself has been indicating for a while now the need to gradually trade current monetary expansion policies for fiscal policies, promoting public works and spending on infrastructure. And apparently they are not alone; according to a study of the National Association for Business Economics –clearly a stakeholder in this matter, 43% of “experts” believe that U.S. government spending is too restrictive compared to 29% who had the same opinion a year ago. The country needs “roads, bridges, sewage, water. You name it, we are lagging,” stated the chairman of the investment firm Cumberland Advisors, who estimated that the United States needs between three and four billion dollars of spending in infrastructure. In addition, the extremely low interest rates have been maintained for so long that they are becoming detrimental to bank profits, neutralizing monetary policy as a tool against recessions, and fueling potentially explosive financial tensions.

The neo-Keynesian program – advising capital with strong global ties – insists on the need to at least partially contain the thirst for profit of multinationals, allowing the recovery of a certain sense of “power” by the sectors that have most suffered due to globalization. These guidelines, in addition to prioritizing fiscal policy over monetary policy, are aimed at saving globalization by making a few urgent changes so that nothing will change in the end.

In general, it is a tepid strategy considering the emerging scenario. However, in the current “intermediate” situation, Trump’s program is likely to promote, from a right-wing perspective – i.e. with strong xenophobic, racist, repressive and anti-union elements, as well as sharp tax cuts – key aspects of the neo-Keynesian program.

“Deeply Ironic”

Martin Wolf indicated a few days ago that “it would be deeply ironic if Mr. Trump carried out, with Republican support in Congress, precisely the sort of Keynesian fiscal stimulus congressional Republicans adamantly opposed when reasonably suggested by the administration of Barack Obama in 2009.” It actually is not that ironic; one of the members of Trump’s economic team indicated that “we can close the wealth gap in America by replacing emergency-level interest rates with fiscal stimulus.” The advisor added that now that they have the House of Representatives and the Senate, it is more likely that the fiscal plan would be approved by Congress.

There is little doubt that the Trump administration will implement significant tax cuts. What is being discussed is an approximate reduction of 15 to 20 percentage points for corporations, a single repatriation tax of 10% for profit made abroad and the total elimination of federal taxes on inheritance and gifts. According to one of Trump’s economic advisors, a tax reduction of 15 percentage points would constitute approximately 600 billion dollars, entailing a tax revenue drop amounting to about 4% of the GDP, as indicated by The Economist. The advisor also states that Trump proposes a 1 trillion dollar infrastructure plan, although others say it would be 550 billion, funded by a combination of debt and association of public and private capital. In any case, it is double or much more than double what Hillary promised. They probably expect at least part of that amount taken from tax dollars to be used for the construction of infrastructure, which could include policies to expand gas, oil and carbon production, create new gas pipelines and open public land to new mine drilling, also indicated by The Economist. And it is in no way unthinkable that the state will guarantee a minimum profit for that purpose.

With a good dose of common sense, Martin Wolf states that “together (…) Mr. Trump’s populism and the Republicans’ tax-cutting mania might open up large and permanent increases in fiscal deficits.” The Economist suggests that what could likely be expected from Trump is something in between Ronald Reagan (low taxes, lax regulation and free market) and a more nationalist, populist and even statist project including matters of law, order, identity and cultural tradition in the style of demagogic European politicians. It is important to remember that Reagan combined sharp tax cuts with accelerated defense spending and this is why many are speaking of a “Ronald Reaganesque” turn in US fiscal policy. As the British weekly also points out, although many Republicans would prefer the neoliberal option, Ryan thanked Trump for providing sufficient electoral ties to create the first unified Republican government since 2007. If Mr. Ryan and his fellow congressional leaders are to survive this new order, they will have to embrace some unfamiliar positions, concludes The Economist.

The policy of “normalization” of interest rates, also a neo-Keynesian recommendation, is expected to occupy a prominent position, or at least a trend, in the “Trump era.” This will be needed due both to the factors indicated above and to the greater entry of capitals required to fund what will apparently be an increasing debt and a possible rise in inflation linked to changes in tariffs, which will surely be more moderate than those promised during the campaign. The tariff policy will certainly have significant repercussions in the global scenario, particularly in Latin America.

In addition, most of the population is opposed to unrestrained financial speculation, largely associated with the monetary policies of the past few years. Trump’s demagoguery included the promise to reinstate the Glass Steagall Act that separated commercial banking from financial banking from its implementation by Roosevelt in 1933 until its repeal by Clinton in 1999. As Wolf also points out, it is unclear whether the Dodd Frank Act, soft legislation passed after the Lehman Brothers crisis and detested by financial institutions, “would be replaced by a more effective alternative or by a return to the pre-crisis free-for-all.” Although it is likely that not even Trump himself knows this, the matter will become clearer as the cabinet disputes are resolved. However, Wolf states (somewhat regretfully) that “on financial regulation, unlike on trade, Mr. Trump’s populism might protect the U.S. from the worst deregulatory instincts of congressional Republicans rather than the reverse.”


Regarding trade agreements, a significant rollback of the North American Free Trade Agreement (NAFTA) is quite unthinkable. Although some changes cannot be ruled out, a rise in tariffs of the magnitude promised by Trump seems highly unlikely. This would constitute a violent assault on U.S. companies located in Mexico, with unimaginable consequences on prices and employment within the U.S. The Transatlantic Partnership (TTIP) never actually came into existence and it is likely that Trump will back out of the Trans-Pacific Partnership (TPP).

Since the TPP is a “weapon” designed to isolate China, it would not be far-fetched to speculate that the withdrawal could be used as an instrument of negotiation with the Asian giant. The agreement’s elimination could, for example, be traded for a selective change in some tariffs and even the possible demand of an increased openness of China to U.S. capital. Since China began to leave behind its role as a capital recipient and has presented itself increasingly as a competitor for global areas of accumulation, it has emerged increasingly as a factor that also calls into question the legitimacy of the U.S. status quo. At least during the first phase, an approach in which the United States attempts to improve its relative position with regard to China by resorting to instruments of negotiation cannot be ruled out. It is important to take into account, among other things, the U.S.’s dependence on Chinese funds. (China is the number one holder of Treasury bonds). This issue becomes even more relevant with the prospect of greater State debt.

In this article we have addressed the economic aspects of a matter that will not only have international consequences, but is also part of an extensive series of still undefined political and geopolitical issues that may alter the scenario in the upcoming period.

There are, however, still more questions than answers. But if one thing is fairly certain it is the impossibility – at least in current conditions – of recreating a process of structural reindustrialization in the United States with the reemergence of the “American Dream.” Not even Roosevelt’s New Deal –which, unlike Trump’s incoherent plan, included multiple progressive aspects – achieved a sufficient rise in spending to forcefully propel the economy forward, the growth of which was ultimately associated with the arming of the United States for its entry into World War II. Even Robert Gordon, whom we have mentioned multiple times, suggests in “The Rise and Fall of American Growth” that the post-War boom would have also been unthinkable without the war as a driving force.

What Trump’s triumph has shown, if further evidence was needed, is that the process of globalization (largely that of capital exports and the import of cheap labor) characteristic of the neoliberal “revolution” functioned as a powerful instrument of division in the ranks of labor. The structural unemployment, increasing job insecurity and the decline in the standard of living of broad sectors of the working class in the central countries is correlated with the external and internal super-exploitation of foreign labor and the capitalist class’s perverse use of technological advances. While the former emerges today as the main weapon wielded by the xenophobic right, and used by the traditional political elites, to incite hatred in the form of protectionist nationalism in core countries, the latter reemerges as a permanent threat under the form of the “humanization of machines” or robotics.

It is urgent for the working class and poor to confront these multiple forms of deceit and struggle to attain their most powerful weapon: the unity of their ranks. This also includes the battle to put the great achievement of humanity as a whole represented in the progress of science and technology at the service of the large majority of the population.

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Paula Bach

Paula is an economist from Buenos Aires and a member of the Party of Socialist Workers (PTS).

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