The Trump administration has faced few impediments on implementing its trade agenda. To be fair, that’s because it hasn’t done that much as of yet. The one concrete action is that Trump withdrew from the Trans Pacific Partnership, leading to … hosannas from Senate Democrats. Not much else has happened on this front beyond a lot of rhetoric about tariffs and border adjustment taxes.
Still, there are reasons to believe that Stephen Bannon’s ambitious brand of economic nationalism will face fewer political barriers than his homeland security measures. On the security side of the ledger, Bannon has had to confront opposition from the courts, corporate America, the public, and even Cabinet officials within Trump’s administration. When it comes to trade, however, Trump has the power to implement trade barriers and not much in the way of opposition. You have to squint hard to any real opposition from Trump’s prospective cabinet. The loudest Democrats are just as protectionist-sounding as Trump. And while the public is not as protectionist as pundits believe, the loudest parts of the public are certainly enthusiastic about the idea of eliminating foreign competition.
That leaves corporate America, which is pretty split on this issue. Bannon’s economic formula is simple. He wants massive domestic deregulation, corporate tax cuts, infrastructure and defense spending, and high protectionist barriers to importing goods, services, and people. Other countries will respond with measures that hurt American exports as well, but I don’t think this bothers Trump’s White House team one little bit. When Peter Navarro talks about deglobalizing America’s manufacturing supply chain, you know you’re in for an administration that wants to radically reshape the American economy.
If implemented, what would be the political and economic effects of this agenda? To use the language of political economy, Bannon’s economic nationalism is an effort to reward non-tradable sectors at the expense of tradable sectors. Infrastructure spending, deregulation, and protectionism will benefit sectors like, say, housing, or coal and oil. Trade and immigration barriers will hurt sectors like tech, commercial aviation, and higher education. Within manufacturing, less competitive firms might receive a boost as well. Other sectors, like agriculture, will face severely mixed effects.
There’s an interesting pattern at work here. This kind of economic nationalism boosts the parts of the country that went for Trump in the 2016 election. In theory, boosting domestic energy and manufacturing helps Appalachia, Texas, and the industrial Midwest. The areas of the country that would be hard hit from such policies are on both coasts — i.e., the places that really did not like Donald Trump. Fans of William Riker’s “minimum winning coalition” could argue that Trump’s foreign economic policies might be designed to cement the fragile coalition that got him elected.
Of course, this assumes that the primary effects of Bannon’s economic nationalism are distributional in nature. Indeed, the behavior of financial markets to date suggested that the pluses of corporate tax cuts and fiscal pump-priming would outweigh and symbolic efforts at protectionism. But it’s beginning to dawn on some observers that maybe the Trump administration is actually serious about erecting all of these economic barriers to the outside world. We’re already seeing Silicon Valley planning to relocate foreign workers to Canada. If there are more immigration restrictions to come — and it seems like that is the case — then the United States economy could start feeling the negative effects of a massive brain drain.
If Bannon’s brand of economic nationalism just results in a redistribution of economic growth within the United States, then it could accelerate economic populism’s hold on the most important states in the electoral college. If it triggers a severe downturn, however, then all the clever political economy in the world won’t save Trump.