James Pinkerton: Globalism Hits a Brick Wall: Now, What Will Donald Trump and Hillary Clinton Do?

Wednesday, August 31, 2016 by

On the surface, it appears that Hillary Clinton and Donald Trump, for all their mutual antipathy, are united on one big issue: opposition to new trade deals.  Here’s a recent headline in The Guardian: “Trump and Clinton’s free trade retreat: a pivotal moment for the world’s economic future.”

Article by James P. Pinkerton

And the subhead continues in that vein:

Never before have both main presidential candidates broken so completely with Washington orthodoxy on globalization, even as the White House refuses to give up.  The problem, however, goes much deeper than trade deals.

In the above quote, we can note the deliberate use of the loaded word, “problem.” As in, it’s a problem that free trade is unpopular—a problem, perhaps, that the MSM can fix. Yet in the meantime, the newspaper sighed, the two biggest trade deals on the horizon, the well-known Trans Pacific Partnership (TPP), and the lesser-known Trans Atlantic Trade Investment Partnership (TTIP), aimed at further linking the U.S. and European Union (EU), are both in jeopardy.

Indeed, if TPP isn’t doing well, TTIP might be dead: Here’s an August 28 headline from the Deutsche Welle news service quoting Sigmar Gabriel, the No. 2 in the Berlin government: “Germany’s Vice Chancellor Gabriel: US-EU trade talks ‘have failed.’”

So now we must ask broader questions: What does this mean for trade treaties overall? And what are the implications for globalism?

More specifically, we can ask: Are we sure that the two main White House hopefuls, Clinton and Trump, are truly sincere in their opposition to those deals?  After all, as has been widely reported, President Obama still has plans to push TPP through to enactment in the “lame duck” session of Congress after the November elections. Of course, Obama wouldn’t seek to do that if the president-elect opposed it—or would he?

Yet on August 30, Politico reminded its Beltway readership, “How Trump or Clinton could kill Pacific trade deal.” In other words, even if Obama were to move TPP forward in his last two months in office, the 45th president could still block its implementation in 2017 and beyond. If, that is, she or he really wanted to.

Indeed, as we think about Clinton and Trump, we realize that there’s “opposition” that’s for show and there’s opposition that’s for real.

Still, given what’s been said on the presidential campaign trail this year, it seems fair to say: Globalism isn’t quite the Wave of the Future that most observers thought it was, even just a year ago. And so before we attempt to divide the true intentions of Clinton and Trump, we might first step back and consider how we got to this point.

2. The Free Trade Orthodoxy

It’s poignant that the headline, “Trump and Clinton’s free trade retreat”, lamenting the decay of free trade, appeared in The Guardian. Until recently, the newspaper was known as The Manchester Guardian, as in Manchester, England.  And Manchester is not only a big city, population 2.5 million, it is also a city with a fabled past: You see, Manchester was the cradle of the Industrial Revolution, which transformed England and the world. It was that city that helped create the free trade orthodoxy that is now crumbling.

Yes, in the 18th and 19th centuries, Manchester was the leading manufacturing city in the world, especially for textiles. It was known as “Cottonopolis.”

Indeed, back then, Manchester was so much more efficient and effective at mass production that it led the world in exports. That is, it could produce its goods at such low cost that it could send them across vast oceans and still undercut local producers on price and quality.

Over time, this economic reality congealed into a school of thought: As Manchester grew rich from exports, its business leaders easily found economists, journalists, and propagandists who would help advance their cause in the press and among the intelligentsia.

The resulting school of thought became known, in the 19th century, as “Manchester Liberalism.” And so, to this day, long after Manchester has lost its economic preeminence to rivals elsewhere in the world, the phrase “Manchester Liberalism” is a well-known in the history of economics, bespeaking ardent support for free markets and free trade.

More recently, the hub for free-trade enthusiasm has been the United States. In particular, the University of Chicago, home to the Nobel Prize-winning economist Milton Friedman, became free trade’s academic citadel; hence the “Chicago School” has displaced Manchesterism.

And just as it made sense for Manchester Liberalism to exalt free trade and exports when Manchester and England were on top, so, too, did the Chicago School exalt free trade when the U.S. was unquestionably the top dog.

So back in the 40s and 50s, when the rest of the world was either bombed flat or still under the yoke of colonialism, it made perfect sense that the U.S., as the only intact industrial power, would celebrate industrial exports: We were Number One, and it was perfectly rational to make the most of that first-place status. And if scribblers and scholars could help make the case for this new status quo, well, bring ‘em aboard. Thus the Chicago School gained ascendancy in the late 20th century. And of course, the Chicagoans drew inspiration from a period even earlier than Manchesterism,

3. On the Origins of the Orthodoxy: Adam Smith and David Ricardo

The beginnings of an intellectually rigorous discussion of trade can be traced to 1776, when Adam Smith published his famous work, An Inquiry into the Nature and Causes of the Wealth of Nations.

One passage in that volume considers how individuals might optimize their own production and consumption:

It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy.

Smith is right, of course; everyone should always be calculating, however informally, whether or not it’s cheaper to make it at home or buy it from someone else.

We can quickly see: If each family must make its own clothes and grow its own food, it’s likely to be worse off than if it can buy its necessities from a large-scale producer. Why? Because, to be blunt about it, most of us don’t really know how to make clothes and grow food, and it’s expensive and difficult—if not downright impossible—to learn how. So we can conclude that self-sufficiency, however rustic and charming, is almost always a recipe for poverty.

Smith had a better idea: specialization. That is, people would specialize in one line of work, gain skills, earn more money, and then use that money in the marketplace, buying what they needed from other kinds of specialists.

Moreover, the even better news, in Smith’s mind, was that this kind of specialization came naturally to people—that is, if they were free to scheme out their own advancement.  As Smith argued, the ideal system would allow “every man to pursue his own interest his own way, upon the liberal plan of equality, liberty and justice.”

That is, men (and women) would do that which they did best, and then they would all come together in the free marketplace—each person being inspired to do better, thanks to, as Smith so memorably put it, the “invisible hand.” Thus Smith articulated a key insight that undergirds the whole of modern economics—and, of course, modern-day prosperity.

A few decades later, in the early 19th century, Smith’s pioneering work was expanded upon by another remarkable British economist, David Ricardo.

Ricardo’s big idea built on Smithian specialization; Ricardo called it “comparative advantage.” That is, just as each individual should do what he or she does best, so should each country.

In Ricardo’s well-known illustration, he explained that the warm and sunny climate of Portugal made that country ideal for growing the grapes needed for wine, while the factories of England made that country ideal for spinning the fibers needed for apparel and other finished fabrics.

Thus, in Ricardo’s view, we could see the makings of a beautiful economic friendship: The Portuguese would utilize their comparative advantage (climate) and export their surplus wine to England, while the English would utilize their comparative advantage (manufacturing) and export apparel to Portugal. Thus each would benefit from the exchange of efficiently-produced products, as each export paid for the other.

Furthermore, in Ricardo’s telling, if tariffs and other barriers were eliminated, then both countries, Portugal and England, would enjoy the maximum free-trading win-win.

Actually, in point of fact—and Ricardo knew this—the relationship was much more of a win for England, because manufacture is more lucrative than agriculture.  That is, a factory in Manchester could crank out garments a lot faster than a vineyard in Portugal could ferment wine.

And as we all know, the richer, stronger countries are industrial, not agricultural. Food is essential—and alcohol is pleasurable—but the real money is made in making things. After all, crops can be grown easily enough in many places, and so prices stay low. By contrast, manufacturing requires a lot of know-how and a huge upfront investment. Yet with enough powerful manufacturing, a nation is always guaranteed to be able to afford to import food.  And also, it can make military weapons, and so, if necessary, take foreign food and croplands by force.

We can also observe that Ricardo, smart fellow that he was, nevertheless was describing the economy at a certain point in time—the era of horse-drawn carriages and sailing ships. Ricardo realized that transportation was, in fact, a key business variable.  He wrote that it was possible for a company to seek economic advantage by moving a factory from one part of England to another. And yet in his view, writing from the perspective of the year 1817, it was impossible to imagine moving a factory from England to another country:

It would not follow that capital and population would necessarily move from England to Holland, or Spain, or Russia.

Why this presumed immobility of capital and people? Because, from Ricardo’s early 19th-century perspective, transportation was inevitably slow and creaky; he didn’t foresee steamships and airplanes. In his day, relying on the technology of the time, it wasn’t realistic to think that factories, and their workers, could relocate from one country to another.

Moreover, in Ricardo’s era, many countries were actively hostile to industrialization, because change would upset the aristocratic rhythms of the old order. That is, industrialization could turn docile or fatalistic peasants, spread out thinly across the countryside, into angry and self-aware proletarians, concentrated in the big cities—and that was a formula for unrest, even revolution.

Indeed, it was not until the 20th century that every country—including China, a great civilization, long asleep under decadent imperial misrule—figured out that it had no choice other than to industrialize.

So we can see that the ideas of Smith and Ricardo, enduringly powerful as they have been, were nonetheless products of their time—that is, a time when England mostly had the advantages of industrialism to itself. In particular, Ricardo’s celebration of comparative advantage can be seen as an artifact of his own era, when England enjoyed a massive first-mover advantage in the industrial-export game.

Smith died in 1790, and Ricardo died in 1823; a lot has changed since then. And yet the two economists were so lucid in their writings that their work is studied and admired to this day.

Unfortunately, we can also observe that their ideas have been frozen in a kind of intellectual amber; even in the 21st century, free trade and old-fashioned comparative advantage are unquestioningly regarded as the keys to the wealth of nations—at least in the U.S.—even if they are so no longer.

4.  Nationalist Alternatives to Free Trade Orthodoxy

As we have seen, Smith and Ricardo were pushing an idea, free trade, that was advantageous to Britain.

So perhaps not surprisingly, rival countries—notably the United States and Germany—soon developed different ideas.  Leaders in Washington, D.C., and Berlin didn’t want their respective nations to be mere dependent receptacles for English goods; they wanted real independence. And so they wanted factories of their own.

In the late 18th century, Alexander Hamilton, the visionary American patriot, could see that both economic wealth and military power flowed from domestic industry.  As the nation’s first Treasury Secretary, he persuaded President George Washington and the Congress to support a system of protective tariffs and “internal improvements” (what today we would call infrastructure) to foster US manufacturing and exporting.

And in the 19th century, Germany, under the much heavier-handed leadership of Otto von Bismarck, had the same idea: Make a concerted effort to make the nation stronger.

In both countries, this industrial policymaking succeeded.  So whereas at the beginning of the 19th century, England had led the world in steel production, by the beginning of the 20th century century, the U.S. and Germany had moved well ahead. Yes, the “invisible hand” of individual self-interest is always a powerful economic force, but sometimes, the “visible hand” of national purpose, animated by patriotism, is even more powerful.

Thus by 1914, at the onset of World War One, we could see the results of the Smith/Ricardo model, on the one hand, and the Hamilton/Bismarck model, on the other.  All three countries—Britain, the US, and Germany, were rich—but only the latter two had genuine industrial mojo.  Indeed, during World War One, English weakness became glaringly apparent in the 1915 shell crisis—as in, artillery shells. It was only the massive importing of made-in-USA ammunition that saved Britain from looming defeat.

Yet as always, times change, as do economic circumstances, as do prevailing ideas.

As we have seen, at the end of World War II, the U.S. was the only  industrial power left standing. And so it made sense for America to shift from a policy of Hamiltonian protection to a policy of Smith-Ricardian export-minded free trade. Indeed, beginning in around 1945, both major political parties, Democrats and Republicans, solidly embraced the new line: The U.S. would be the factory for the world.

Yet if times, circumstances, and ideas change, they can always change again.

5. The Contemporary Crack-Up

As we have seen, in the 19th century, not every country wanted to be on the passive receiving end of England’s exports. And this was true, too, in the 20th century; Japan, notably, had its own ideas.

If Japan had followed the Ricardian doctrine of comparative advantage, it would have focused on exporting rice and tuna.  Instead, by dint of hard work, ingenuity, and more than a little national strategizing, Japan grew itself into a great and prosperous industrial power. Its exports, we might note, were such high-value-adds as automobiles and electronics, not mere crops and fish.

Moreover, according to the same theory of comparative advantage, South Korea should have been exporting parasols and kimchi, and China should have settled for exporting fortune cookies and pandas.

Yet as the South Korean economist Ha-Joon Chang has chronicled, these Asian nations resolved, in their no-nonsense neo-Confucian way, to launch state-guided private industries—and the theory of comparative advantage be damned.

Yes, their efforts violated Western economic orthodoxy, but as the philosopher Kant once observed, the actual proves the possible.  Indeed, today, as we all know, the Asian tigers are among the richest and fastest-growing economies in the world.

Leading them all, of course, is China. As the economic historian Michael Lind recounted recently,

China is not only the world’s largest economy in terms of purchasing power parity (PPP), but also the world’s largest manufacturing nation—producing 52 percent of color televisions, 75 percent of mobile phones and 87 percent of the world’s personal computers.  The Chinese automobile industry is the world’s largest, twice the size of America’s. China leads the world in foreign exchange reserves.  The United States is the main trading partner for seventy-six countries.  China is the main trading partner for 124.

In particular, we might pause over one item in that impressive litany: China makes 87 percent of the world’s personal computers.

Indeed, if it’s true, as ZDNet reports, that the Chinese have built “backdoors” into almost all the electronic equipment that they sell—that is to say, the equipment that we buy—then we can assume that we face a serious military challenge, as well as a serious economic challenge.

Yes, it’s a safe bet that the People’s Liberation Army has a good handle on our defense establishment, especially now that the Pentagon has fully equipped itself with Chinese-made iPhones and iPads.

Of course, we can safely predict that Defense Department bureaucrats will always say that there’s nothing to worry about, that they have the potential hacking/sabotage matter under control (although just to be sure, the Pentagon might say, give us more money).

Yet we might note that this is the same defense establishment that couldn’t keep track of lone internal rogues such as Bradley Manning and Edward Snowden. Therefore, should we really believe that this same DOD knows how to stop the determined efforts of a nation of 1.3 billion people, seeking to hack machines—machines that they made in the first place?

Yes, the single strongest argument against the blind application of free- trade dogma is the doctrine of self defense. That is, all the wealth in the world doesn’t matter if you’re conquered.  Even Adam Smith understood that; as he wrote, “Defense . . . is of much more importance than opulence.”

Yet today we can readily see: If we are grossly dependent on China for vital wares, then we can’t be truly independent of China.  In fact, we should be downright fearful.

Still, despite these deep strategic threats, directly the result of careless importing, the Smith-Ricardo orthodoxy remains powerful, even hegemonistic—at least in the English-speaking world.

Why is this so? Yes, economists are typically seen as cold and nerdy, even bloodless, and yet, in fact, they are actual human beings.  And as such, they are susceptible to the giddy-happy feeling that comes from the hope of building a new utopia, the dream of ushering in an era of world harmony, based on untrammeled international trade.  Indeed, this woozy idealism among economists goes way back; it was the British free trader Richard Cobden who declared in 1857,

Free trade is God’s diplomacy.  There is no other certain way of uniting people in the bonds of peace.

And lo, so many wars later, many economists still believe that.

Indeed, economists today are still monolithically pro-fee trade; a recent survey of economists found that 83 percent supported eliminating all tariffs and other barriers; just 10 percent disagreed.

We might further note that others, too, in the financial and intellectual elite are fully on board the free-trade train, including most corporate officers and their lobbyists, journalists, academics, and, of course, the mostly for-hire think-tankers.

To be sure, there are always exceptions: As that Guardian article, the one lamenting the sharp decrease in support for free trade as a “problem,” noted, not all of corporate America is on board, particularly those companies in the manufacturing sector:

Ford openly opposes TPP because it fears the deal does nothing to stop Japan manipulating its currency at the expense of US rivals.

Indeed, we might note that the same Guardian story included an even more cautionary note, asserting that support for free trade, overall, is remarkably rickety:

Some suggest a “bicycle theory” of trade deals: that the international bandwagon has to keep rolling forward or else it all wobbles and falls down.

So what has happened? How could virtually the entire elite be united in enthusiasm for free trade, and yet, even so, the free trade juggernaut is no steadier than a mere two-wheeled bike?  Moreover, free traders will ask: Why aren’t the leaders leading? More to the point, why aren’t the followers following?

To answer those questions, we might start by noting the four-decade phenomenon of wage stagnation—that’s taken a toll on support for free trade. But of course, it’s in the heartland that wages have been stagnating; by contrast, incomes for the bicoastal elites have been soaring.

We might also note that some expert predictions have been way off, thus undermining confidence in their expertise. Remember, this spring, when all the experts were saying that the United Kingdom would fall into recession, or worse, if it voted to leave the EU? Well, just the other day came this New York Post headline: “Brexit actually boosting the UK economy.”

Thus from the Wall Street-ish perspective of the urban chattering classes, things are going well—so what’s the problem?

Yet the folks on Main Street have known a different story.  They have seen, with their own eyes, what has happened to them, and no fusillade of op-eds or think-tank monographs will persuade them to change their mind.

So we can see that there’s been a standoff: Wall Street vs. Main Street; nor is this the first time this has happened.

However, because the two parties have been so united on the issues of trade and globalization—the “Uniparty,” it’s sometimes called—the folks in the boonies have had no political alternative.  And as they say, the only power you have in this world is the power of an alternative. And so, lacking an alternative, the working/middle class has just had to accept its fate.

Indeed, it has been a bitter fate, particularly bitter in the former industrial heartland.  In a 2013 paper, the Economic Policy Institute (EPI) came to some startling conclusions:

Growing trade with less-developed countries lowered wages in 2011 by 5.5 percent—or by roughly $1,800—for a full-time, full-year worker earning the average wage for workers without a four-year college degree.

The paper added, “One-third of this total effect is due to growing trade with just China.”

Continuing, EPI found that even as trade with low-wage countries  caused a decrease in the incomes for lower-end workers, it had caused an increase in the incomes of high-end workers—so no wonder the high-end thinks globalism in great.

To be sure, some in the elite are bothered by what’s been happening.  Peggy Noonan, writing earlier this year in The Wall Street Journal—a piece that must have raised the hackles of her doctrinaire colleagues—put the matter succinctly: There’s a wide, and widening, gap between the “protected” and the “unprotected”:

The protected make public policy.  The unprotected live in it.  The unprotected are starting to push back, powerfully.

Of course, Noonan was alluding to the Trump candidacy—and also to the candidacy of Sen. Bernie Sanders. Those two insurgents, in different parties, have been propelled by the pushing from all the unprotected folks across America.

We might pause to note that free traders have arguments which undoubtedly deserve a fuller airing. Okay. However, we can still see the limits. For example, the familiar gambit of outsourcing jobs to China, or Mexico—or 50 other countries—and calling that “free trade” is now socially unacceptable, and politically unsustainable.

Still, the broader vision of planetary freedom, including the free flow of peoples and their ideas, is always enormously appealing.  The United States, as well as the world, undoubtedly benefits from competition, from social and economic mobility—and yes, from new blood.

As Stuart Anderson, executive director of the National Foundation for American Policy, notes, “77 percent of the full-time graduate students in electrical engineering and 71 percent in computer science at U.S. universities are international students.” That’s a statistic that should give every American pause to ask: Why aren’t we producing more engineers here at home?

Moreover, Reuters reported in 2012 that 44 percent of all Silicon Valley startups were founded by at least one immigrant, and a 2016 study found that more than half of all billion-dollar startups were founded by immigrants. No doubt some will challenge the methodology of these studies, and that’s fine; it’s an important national debate in which all Americans might engage.

We can say, with admiration, that Silicon Valley is the latest Manchester; as such, it’s a powerful magnet for the best and the brightest from overseas, and from a purely dollars-and-cents point of view, there’s a lot to be said for welcoming them.

So yes, it would be nice if we could retain this international mobility that benefits the U.S.—but only if the economic benefits can be broadly shared, and patriotic assimilation of immigrants can be truly achieved, such that all Americans can feel good about welcoming newcomers.

The further enrichment of Silicon Valley won’t do much good for the country unless those riches are somehow widely shared.  In fact, amidst the ongoing outsourcing of mass-production jobs, total employment in such boomtowns as San Francisco and San Jose has barely budged. That is, new software billionaires are being minted every day, but their workforces tend to be tiny—or located overseas. If that past pattern is the future pattern, well, something will have to give.

We can say: If America is to be one nation—something Mitt “47 percent” Romney never worried about, although it cost him in the end—then we will have to figure out a way to turn the genius of the few into good jobs for the many. The goal isn’t socialism, or anything like that; instead, the goal is the widespread distribution of private property, facilitated, by conscious national economic development, as I argued at the tail end of this piece.

If we can’t, or won’t, find a way to expand private ownership nationwide, then the populist upsurges of the Trump and Sanders campaigns will be remembered as mere overtures to a starkly divergent future.

6.  Clinton and Trump Say They Are Trade Hawks: But Are They Sincere?

So now we come to a mega-question for 2016: How should we judge the sincerity of the two major-party candidates, Clinton or Trump, when they affirm their opposition to TPP? And how do we assess their attitude toward globalization, including immigration, overall?

The future is, of course, unknown, but we can make a couple of points.

First, it is true that many have questioned the sincerity of Hillary’s new anti-TPP stance, especially given the presence of such prominent free-traders as vice presidential nominee Tim Kaine and presidential transition-planning chief Ken Salazar. Moreover, there’s also Hillary’s own decades-long association with open-borders immigration policies, as well as past support for such trade bills as NAFTA, PNTR, and, of course, TPP. And oh yes, there’s the Clinton Foundation, that global laundromat for every overseas fortune; most of those billionaires are globalists par excellence—would a President Hillary really cross them?

Second, since there’s still no way to see inside another person’s mind, the best we can do is look for external clues—by which we mean, external pressures. And so we might ask a basic question: Would the 45th president, whoever she or he is, feel compelled by those external pressures to keep their stated commitment to the voters? Or would they feel that they owe more to their elite friends, allies, and benefactors?

As we have seen, Clinton has long chosen to surround herself with free traders and globalists. Moreover, she has raised money from virtually every bicoastal billionaire in America.

So we must wonder: Will a new President Clinton really betray her own class—all thoseDavos Men and Davos Women—for the sake of middle-class folks she has never met, except maybe on a rope line? Would Clinton 45, who has spent her life courting the powerful, really stick her neck out for unnamed strangers—who never gave a dime to the Clinton Foundation?

Okay, so what to make of Trump? He, too, is a fat-cat—even more of fat-cat, in fact, than Clinton. And yet for more than a year now, he has based his campaign on opposition to globalism in all its forms; it’s been the basis of his campaign—indeed, the basis of his base. And his campaign policy advisers are emphatic. According to Politico, as recently as August 30, Trump trade adviser Peter Navarro reiterated Trump’s opposition to TPP, declaring,

Any deal must increase the GDP growth rate, reduce the trade deficit, and strengthen the manufacturing base.

So, were Trump to win the White House, he would come in with a much more solid anti-globalist mandate.

Thus we can ask: Would a President Trump really cross his own populist-nationalist base by going over to the other side—to the globalists who voted, and donated, against him? If he did—if he repudiated his central platform plank—he would implode his presidency, the way that Bush 41 imploded his presidency in 1990 when he went back on his “read my lips, no new taxes” pledge.

Surely Trump remembers that moment of political calamity well, and so surely, whatever mistakes he might make, he won’t make that one.

To be sure, the future is unknowable. However, as we have seen, the past, both recent and historical, is rich with valuable clues.

Read more at: breitbart.com

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