The Formula of Trumponomics the U.S

The Formula of Trumponomics The u.S. Reverts to Neomercantilism and Protectionism to Gather Strength for a New Breakthrough Alexander V. Losev Abstract This article examines the global problem of the ongoing transformation of the U.S. policy from globalization to neomercantilism and protectionism—in particular, the reasons why one of the results of deep structural changes in the world economy is the erosion of the U.S. hegemony and the rise of political competition in the world. The author analyzes this change in the context of the transfer of management functions from the state to corporations and central banks in the post-industrial economies. The article attempts to answer two key questions: 1. Is Donald Trump right in pursuing a tough economic policy, or is there a real alternative to ‘Trumponomics’ that could strengthen the U.S. position in the growing global competition? 2. What economic policy is preferable for GDP growth and citizens’ welfare: monetary or fiscal? The author comes to the conclusion that Trump’s rise to power was not a domestic political irregularity or the result of foreign influence on American democra- Alexander V. Losev is CEO of Sputnik Assets Management, JSC. e-mail: [email protected] Sputnik Assets Management, JSC Floor 10, BTs Pollars, Bldg. B, Derbenevskaya Naberezhnaya 11, Moscow 115114, Russia E-mail: [email protected] This article is greatly expanded and revised version of the paper written for the Valdai Inter- national Discussion Club. The original copy is available at: http://ru.valdaiclub.com/a/valdai- papers/valdayskaya-zapiska-87/?sphrase_id=57934 DOI: 10.31278/1810-6374-2018-16-3-66-88 66 RUSSIA IN GLOBAL AFFAIRS The Formula of Trumponomics cy institutions, but a historical inevitability in the face of the global challenges facing the United States. Prospects of the U.S. losing economic leadership are discussed, together with domestic and foreign policies aimed to prevent that. The study was based on the analysis of macroeconomic data of the United States and major regions of the world, as well as on the analysis of monetary and economic cycles. The dynamics of GDP growth and its nominal values, as well as the dynamics of industrial production in the United States and in the macro-regions of the world were considered with GDP and GNP compared on a component basis. Keywords: Trumponomics, neomercantilism, globalization, soft power, hard power, national interests. rumponomics’ is a popular term coined to describe the economic policy of the donald Trump administration, based on fiscal reflation and rigid neomercantilism, aimed at ‘Tdeveloping industry and infrastructure, and supported by the return of corporate capital and an active “peace through strength” foreign policy. THE “GOLDEN AGE” OF GLOBALIZATION AND ITS COMPLETION BY 2016 With the establishment of the united States’ absolute leadership in the early 1990s, globalization became the main idea of the american elites. an integration process was launched to transform the structure of national economies and political relations between countries into geo-economy. The world, with few exceptions, did not challenge the u.S. leadership and took for granted the american rules of the game and the system of global labor specialization. It agreed to a reduction of national sovereignty in favor of u.S.-controlled international organizations and institutions such as the Imf, the World Bank, the WTo, and the exchange Stabilization fund, to the transnationalization of financial markets, to the role of the u.S. federal Reserve as the issuer of a world reserve currency, the dollar, to the rules of international trade, and unequal distribution of revenues. VOL. 16 • No. 3 • JULY – SEPTEMBER • 2018 67 Alexander V. Losev each country that played by these rules derived benefits from globalization. It was globalization that ensured fast economic growth for most regions of the world and their accelerated technological development. The united States, as befits the leader, became the main beneficiary. The decades-long expansion of international trade earned it an additional one trillion dollars a year (hufbauer and Jung, 2016). however, the absence of serious political challenges to the u.S. leadership, economic globalization and the financialization of markets have resulted in geopolitics degenerating into geo-economics. Central banks have begun to influence economic processes, including the lives and incomes of citizens, corporations, budgets and economic cycles in their own and other countries, much more than democratically elect- ed politicians and parliaments do, as stated in The Economist under the headline “The Wars of Independence” (anon, 2017). Whereas ten years ago the u.S. and the eu were the main contrib- utors to global GdP, jointly accounting for 54 percent of it, now this figure has decreased to 45 percent. Simultaneously, the asian mega- region (South and Southeast asia) is ahead of the u.S. by 5.7 percent and ahead of the eu by 8.3 percent in terms of nominal GdP. The share of the Indo-Pacific region in global GdP is 30 percent, while that of the eu and the united States is 46 percent. at the same time, China’s nominal GdP increased from $3.5 trillion to $12.3 trillion between 2007 and 2017, that is, 3.5 times over ten years. Statistics show that the breakthrough occurred in 2016, when east asian countries, in particular China, “the world’s factory,” became a new beneficiary of globalization (The World Bank, 2017). The united States suddenly realized that a time was coming when a continuation of current geo-economic processes would weaken american leadership and lead to a further growth of the asia-Pacific region. The u.S. faced a growing trade deficit ($566 billion in 2017) and an increase in public debt to $21 trillion. THE EROSION OF SOFT POWER The soft power of the u.S. and the attractiveness of democratic values in the world have been devalued by the liberalism of world trade, 68 RUSSIA IN GLOBAL AFFAIRS The Formula of Trumponomics the transnationalism of financial elites, and the emergence of groups of supranational actors from among major corporations, investment funds and banks, as well as by changes in the direction of capital and resource flows. The ultra-high concentration of world production and labor resources in Southeast asia and the accumulation of material values, technologies and financial reserves there have allowed China to claim full participation in the management of the global economy and globalization processes. The hitherto unshakable Paxa mericana has begun to erode. as Im- manuel Wallerstein wrote in his analysis of world systems and the situ- ation in the contemporary world, “The period from 1990 to 2025/2050 will most likely be short on peace, short on stability, and short on legitimacy. In part, this is because of the decline of the united States as the hegemonic power of the world-system” (Wallerstein, 1995). COMPONENTS OF NEOMERCANTILISM China is one of the most important actors in the new rivalry for world leadership. Therefore, it would be appropriate to quote the famous Chinese treatise The Art of War by Sun Tzu: “disorder arises from order, cowardice arises from courage, weakness arises from strength. order and disorder are a matter of organization, courage and cowardice are a matter of momentum, strength and weakness are a matter of formation” (Sun Tzu, 1991). In the current geo-economic processes, three components of the formula of “the great matter of the state”—quantity, power, and form— will determine the final result. Quantity is an emphasis on the growth of national welfare, the return of capital and its concentration in the home country, as well as the development of the domestic market to the detriment of allies and trading partners. Power is military/political, financial and technological domina- tion. Form is the structure of the national economy, borders and barri- ers established around it, as well as a system of incentives, and expansion to foreign markets. VOL. 16 • No. 3 • JULY – SEPTEMBER • 2018 69 Alexander V. Losev all strategies of the united States and its competitors—major powers or state associations—will inevitably be built along these three lines, formulated by the great strategist of ancient China. DONALD TRUMP AS A RESPONSE TO THE DEMAND FOR A NEW ECONOMIC POLICY By the time of the 2016 presidential election, it had become clear that the u.S. would soon have to scale down its soft power policy and reduce the funding of allies due to a growing budget deficit, and that the promotion of democracy had led to the so-called “Imperial overstretch” (Imperiale Überdehnung) (münkler, 2005). Washington needs to place emphasis on hard power, with elements of military pressure, and on protectionism in order to slow down globalization, which helps China grow, and restore the manageability of geo-economic processes. economist dani Rodrik in 1999 introduced the notion of the ‘Glo- balization Paradox’ and argued that there is a conflict between democracy, economic globalization, and national sovereignty. Rodrik insists that these three political goals cannot coexist at the level of nation state (Rodrik, 2011). he argues that we cannot have “deep economic integration” (he uses the term ‘hyper-globalization’), national sovereignty (nation state), and democratic politics all at once (Rodrik, 2011: 200–201). We can have at most two out of three. Since democracy cannot be compromised, and he rejects the “global governance” option, he proposes a return to national sovereignty. he considers that global standards and regulations are not just impractical; they are undesir- able. The democratic legitimacy constraint ensures that global governance will result in the lowest common denominator, a regime of weak and ineffectual rules (Rodrik, 2011: 204).

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