Stock markets are tumbling, and international relations are in tatters as America imposes steep new tariffs on friend and foe alike. It’s just another day tied to the roulette wheel that is an America governed by the Trump White House. Anyone who was still in any doubt can leave it behind — this is a radical administration determined to reshape America and the world order, and forge populism into a powerful ideology. Like many contemporary ideologies, it can be cultish and irrational. The “scientific formula” behind Trump’s tariffs are gobbledegook, the claims of exploitation questionable, the strategic logic of imposing heavy costs on allies in contested regions looks suicidally stupid.
In a world of ultra-fast media and minute-by-minute, twenty four hour reporting, floods of detail, emotion and reactivity jolt us like electricity, interrupting clear thinking and clouding our vision of the big picture. As I recently wrote, we are entering a new phase of American grand strategy, and if this process involves incompetence, casual malice and absurdity, we shouldn’t miss the deeper game. The US is rolling the dice, gambling on a new economic order shaped around domestic rather than international economics. It is an inversion, but equally a reaction to, the free trade expansion of the 1990s and 2000s, which deindustrialised much of the West, and created complex, and easily disrupted, global supply chains.
It’s a dangerous move, especially in an economy that has become dependent on not just cheap overseas consumer goods, but also industrial inputs from abroad. Yet for America at least, there is a real chance of success. Without understanding the dangers and costs of Trump’s approach, especially in its chaotic and irrational implementation, it is important not to lose sight of the longue durée of US policy, and the resources which the states can draw upon.
Trump’s tariffs, which range from 10-40 per cent, were normal by 19th century standards, a period in which America experienced massive economic and demographic growth. Much comparison has been made to the Smoot-Hawley Tariffs of the 1930s, which are often blamed for extending the great depression, but the reality is more complex. The growing inter-dependency of international trade and finance created the conditions for a worldwide economic crisis, and the Wall Street Crash was preceded by lowered tariffs and an increasing volume of international trade. The role of protectionism in the Great Depression is likewise contested, with monetarists like Friedman locating the slump with an excessive money supply, rather than tariffs.
America’s post-war lowering of tariff barriers is not all it might appear either. It occurred in the context of America becoming a global superpower, with its industries and currency given a privileged role at the heart of a world economy, and the US controlling the terms of new international institutions that governed trade and finance. When US allies threatened American economic interests, as Japan did in the 1980s, the US imposed tariffs and retaliated through the currency markets, helping to trigger Japan’s “lost decade”.
But if prior American policy was to wield tariffs like a scalpel, and use more covert forms of protectionism to ensure “free trade” worked in its favour, that has been doubly disrupted. The old, and successful strategy of Cold War soft protectionism and self-interested internationalism, gave way to a more radical neoliberal agenda, fuelled by the ideology and interests of a new economy built around digital industries, services and finance. This economy has been good for Wall Street, but has seen wages stagnate and asset prices rise to speculative new heights, freezing ordinary people out of generational wealth and homeownership.
Trump, and his populist policies, are an angry response to this situation, but he is caught between contradictory influences. On the one hand his new Silicon Valley supporters, comprising figures like Musk and Marc Andreesen, urge him to cut back the state and force open foreign markets. Meanwhile national populists like Bannon want to smash the power of digital and finance capitalism in US politics, urging an “America First” economics centred on manufacturing. Tariffs can be sold to the former camp up to a point, but it is clear that the present policy militates against those interests long term.
Whether tariffs can pay off for Trump is an open question. Even those who advocate for a more national economy may well be wondering if he is doing the cause far more harm than good at this point, by associating it with economic chaos, disruption and hostility to once trusted allies. Other levers of industrial policy go unpulled, and many manufacturers may be badly hurt in the short term. But there remains a chance that Trump could pull it off. America is a continent sized economy with vast natural and human resources. Self sufficiency is vastly more viable for America than it is for any European country, and it is large enough an economic force that many countries will simply make concessions rather than lose American trade.
For those of us who live outside of America, prospects look darker at the moment, but there is a silver lining — and it is a substantial one. For generations the US has imposed a fiscal and commercial model on the world that has worked to its benefit, and not always to that of its allies. By ripping up the terms of the world order, and reorienting its ambitions within national limits, the US is offering an opportunity, however inadvertent, to other Western countries to negotiate the terms of the post-war international settlement.
The scale of British problems must be met by equally ambitious solutions
Whilst autochthony is not a realistic model for small and medium sized European countries, trading spheres, based on mutual defence, shared beliefs and pooled economic interests are a viable model, especially with America pulling back from its prior hegemonic position. Britain, though outside the EU, stands uniquely poised to carve out a role for itself in this new world. For the first time since WW2, Canada, Australia and New Zealand are drifting outside of the American sphere. At the same time, the EUs ambitions of homogenous integration are being rethought and challenged, and Europe is moving towards a mutual defence arrangement not governed by America. An ambitious and agile British leadership could use this situation to strengthen our overseas ties, grow British trade, and create new alliances that put us back on the world stage.
A lofty dream for a declining, dysfunctional country? Perhaps, but the scale of British problems must be met by equally ambitious solutions. The world is changing, and that brings new fears — but also fresh hope.
