Does Trumpism Mark the End of Democracy?
Nowadays, it is difficult to draw a rational trajectory projection for the West’s economic and geopolitical development. In fact, it is more realistic to ponder over its potential stepping back instead of developing. The signs pushing for such a thinking come abundantly both from the U.S. and the EU. In the last decade for America, the only positive trend in development indicators confronting inflation is the one related to the households’ indebtedness growth while the GDP growth lags behind the inflationary rates. The income growth rates are almost at a balance with inflation. The EU has had slightly above zero cumulative GDP growth after 2008, and even if we do not analyse other development indicators, it says enough about the economic shape of Europe. Both the US and the EU major economies suffer high government debt burdens or a fluctuating recession as the case with Germany is. In the investment volume sizes, the West also lags significantly behind China.
Geopolitically, the Western countries cannot reach a collective strategy for global priorities assertion; neither can they boast with a military success against Russia in Ukraine, which economically appears to be a dwarf in front of the U.S. and the EU economic potential.
The West’s economic share in the global economy is on a permanent decline. It seems that the state orchestrated Chinese economy beats down globally the ‘invisible hand of the market’ of the Western economic paradigm. It is true that even the Chinese state managing of the national economy is far from being perfect.
Recently, the tariffs announced by US President Donald Trump have become a central topic around the world. Everyone is affected, directly or indirectly, by them. This makes the apparent contradiction in the actions and declarations of the US President and his government rather confusing. Especially when it is clear that the democratic world is not prepared for a big military war, and that is why America tries to racketeer China and the EU by trade wars in an effort to get the maximum benefits for itself from its own geopolitical decline.
Trump describes the tariffs as a powerful tool that will pour huge funds into the United States Treasury. The country needs this, given the huge debt that the federal government is servicing and one of Trump's most important promises before the election - that he would cut taxes. Trump also describes the tariffs as a tool that will achieve something else essential - the reindustrialization of the United States. The theory is that after the tariffs make imports into the US unprofitable, foreign companies will have to move their production to American territory.
Many economists dispute both of Trump's theories.
If the tariffs need to protect the US market, they should be high enough to stop large chunks of imports. But if there were no imports, then there would not be revenue from the tariffs, either. The opposite assumption presumes that the tariffs will not be protectionist and, therefore, will not support the intended reindustrialization. No one could have both – high tariffs and high revenue from them – in parallel. After all, it is a matter of simple logic.
An obvious problem with possible reindustrialization is that such a process requires stability and long-term prospects. The opposite is true for the Trump administration, which has been changing positions within days. Besides, the only certain period of Trump as president in power is 4 years. Quite few investments in manufacturing can rely on a sufficiently attractive return, if any, for this term.
Then it is highly questionable whether, after the long and expensive process of planning, obtaining permits, building, training workers, meeting high wage requirements, and a host of regulatory requirements such as environmental protection, a U.S.-built plant will not produce output at a significantly higher price than imported goods, even after charging 104% interest (which is the declared rate for China as of April 9). Currently, the rate is higher.
But the big contradiction is not that. It lies in the mixed signals from Trump and his administration about whether the newly introduced “tariffs on everything” regime is just a negotiating tactic with (some say blackmail of) trading partners.
U.S. Commerce Secretary Howard Lutnick said on Tuesday, April 8: “I don’t think there’s any chance Trump will back down.” And Trump's economic adviser, Peter Navarro, said on FOX: "This is not the way to negotiate." That would mean that Donald Trump is determined to keep the tariffs in place and that other countries should plan accordingly. But just a day later, Trump told reporters on Air Force One, en route to another golf weekend in Florida, that "it depends a lot" on whether he will use the tariffs as a negotiating tool with countries, and that "tariffs give us a lot of leverage in negotiations, they always have." This would mean that the tariffs are not in place, but only a tool to pressure the other party in possible negotiations. But hours later, Trump contradicted himself with an angry post on social media, saying that "tariffs are here forever" and writing in capital letters: "MY POLICIES WILL NEVER CHANGE." This leaves the impression that not only are potential investors who would reindustrialize the US in the dark about what the policy is and what to plan for, but even Trump and his government are not aware. Finally, Trump postponed most of his tariffs, imposing some 90 days in which are envisaged negotiations with concerned parties. It means that he continues to play his trump card – racketeering – this time putting China and the EU in a vacuum if they try to negotiate some terms and conditions for mutual trade approaching. Thus, perhaps Trump hopes that China will pour its manufacturing surpluses in Europe at a shorter perspective if they cannot be placed within the U.S. and the approaching endeavours would be undermined. If necessary, he may quite graciously prolong the initial 90 days for the same purpose.
Apart from the racketeering, there are at least three factors with fundamental economic nature that make the American reindustrialization prospect dubious at the horizon of any tariff hikes. First, Americans spend more than they earn, and it makes the growing trade deficit of the US economy chronic. If the inflation perched on the tariffs should curb the propensity for consumption, it will need long-term tariffs. But the long-term tariffs will make themselves the chronic inflation instead of the high consumption propensity. The latter will end up as high interest rates and low investments in the economy. No reindustrialization is possible without massive investments. Second, the reindustrialization is promoted by the US political elite as a chance for the opening of new well-paid jobs, which is a cock-and-bull story. America has a weak manufacturing industry, namely because it has one of the most expensive workforces worldwide. It needs reindustrialization for its national defence and to decrease its dependence on imports. In other words, the U.S. should improve their global economic competitiveness by developing its manufacturing productivity, and this development can realistically happen by robotization, automation and AI introduction, but certainly not by hiring costly human resources. Especially in an ambience of high inflation. Third, the enormous US government budget deficit stimulates the country’s trade deficit. The budget deficit is the key for the generous dollars printing and the overconsumption. It can be shrunk by both cost cuts and tax levies ramping up. The most important factor in the situation is that all that should be done radically and quickly. To evade the investment drawbacks related to the tax hikes, the government should increase its subsidies for several priority sectors and the re-shoring of low productive businesses to suitable locations (e.g., from China to Eastern Europe). The tax increase will enable higher subsidizing. Besides, the government should augment the tax levy on the incomes from bank loans for consumption and eventually cancel its tax levy on incomes from investment bank loans.
The tax hike will bring lower inflationary cost for the society than the tariffs hikes. It will have a beneficial effect on the investments and the manufacturing growth without closing the US market for significant imports. The open market is the best guarantee for each national democracy’s existence. Therefore, if America learns the lesson that the state orchestrated economy can beat the invisible hand of the market, i.e, the primitive human greed, if used effectively, it still has chances to produce together with the EU, Japan, South Korea and Canada a collective response to the global challenges coming from China and Russia. One thing, however, is certain: with or without tariffs, Western societies realistically should expect austerities. Their current economic model is simply unproductive, and its change is necessary. They should expect another extra, too – a multipolar world fractured by controversies. The best they can do in it is to struggle for dynamic balance maintaining, hopefully without transforming the due austerities into a sustainably lower standard of living. The complex tariff hikes are a direct way to this lower standard as well as to lower economic competitiveness. World democracy can be asserted only through a sustainable global competitiveness of democratic countries. Trump’s alternative to this competitiveness is the quick parceling of the world as per the interests of the big geopolitical players for the time being because he is aware that the West is losing the competition against China and Russia. And he sees the West without the EU after it is not a homogeneous political organization. No wonder that is so if all kinds of spoils can be divided more easily by splitting them into three than into four chunks. Then, as fewer are the spoils beneficiaries, the lower the need for democracy would be. It is the same story about the same reduced need if:
- we compare American oligarchs’ servile attitude to Trump with the one of their Russian counterparts towards Putin;
- the US courts judicial capacity over Trump’s crimes based on his judges appointments in the courts, while comparing the US courts with banana republics’ courts; or
- the chosen chaotic introduction of tariffs and its favouring some insiders, that make use of the US capital markets indexes fluctuation around the tariffs.