American trade and foreign policy hankers for a bygone era of American military preponderance and economic dominance. As politics, it exploits the affective motivators of a mythological nostalgia. The preferred method is to push allies to increase military spending while at the same time crafting economic policies that seek to protect American industries by way of tariffs, hobbling competitors by way of assorted sanctions and prohibitions.
The intermingling of quasi-mercantilist economic policies with the affective entreaties of nostalgia creates a volatile mixture of hope and promise on one hand, with self-harm and hubris on the other. Because the diagnostic premises are questionable, the remedial actions are therefore doubtful in terms of likely effectiveness.
If all of this only had consequences confined to the shores of continental North America, we would all have less to worry about. But unless and until the United States can find peace with itself, it is unlikely to be at peace with the rest of the world. American manufacturing is seen as hollowed out. Blame is leveled at China, in particular, for “stealing the jobs.” The supposed remedy, therefore, is to stymie Chinese exports via tariffs.
Tariffs will neither “bring back the jobs” nor hamper China’s ongoing economic development. China’s GDP growth is predominantly driven by domestic demand, as opposed to net exports. Its manufacturing is nowhere near as export-dependent as many assume, Recent analysis by Rick Baldwin, professor of international economics at the IMB Business School in Lausanne, Switzerland, shows that China’s export= to-output ratio of 13 percent is close to levels evident in the mid-1990s, having peaked at 18 percent in 2004. Exports have continued to grow globally, and the U.S. market’s share of Chinese manufactured exports continues to decline. Net exports to the United States contribute around 3 percent of China’s total GDP, according to the American Enterprise Institute.
The relationship does have asymmetric elements, however. While in proportionate terms manufactured output is not highly trade-dependent, parts of the U.S. economic model are now substantially dependent on Chinese manufactured inputs overall, as Baldwin notes. This is the case for capital goods and intermediate goods, meaning that any effort to expand American manufacturing output presupposes increased imports of Chinese-made capital and intermediate goods for some time to come. Incidentally, a recent report by Pentagon consultant Govini shows the U.S. defense sector to be dependent on tens of thousands of Chinese suppliers.
The Trump tariffs of 2018, which continued under the Biden administration, did not return employment to the heartland. This is the sobering conclusion of American economist David Autor and colleagues, who observed that the “trade-war has not to date provided economic help to the U.S. heartland.”
“[I]mport tariffs on foreign goods neither raised nor lowered U.S. employment in newly protected sectors; retaliatory tariffs had clear negative employment impacts, primarily in agriculture; and these harms were only partly mitigated by compensatory US agricultural subsidies,” they concluded.
American de-industrialization is a symptom not so much of trade policy, as is often adduced, but a consequence of financialization of the political economic structure over five decades. Researchers such as Imad Moosa, Maria Ivanova, Braun and Milberg and Wilker, among many others, have shown how growth in financialization since the 1970s adversely impacts capital accumulation in American industry. The growth of the former is the direct corollary of the hollowing out of the latter. Using the IMF’s index of financial development, Moosa shows the inverse relationship between the expansion of financialization and the contraction of employment in American manufacturing.
Indeed, concerns about the decline of American manufacturing go back to the early 1980s, when people like Ira Magaziner warned of declining productivity and competitiveness. This predates the growth of Chinese industrial capability by two decades.
Financialization coincided not only with the decline in manufacturing employment — the source of many of the complaints driving the political cycle — but also enabled a massive concentration of financial wealth and economic power. The wealthiest 10 percent of Americans now own 93 percent of stock value, according to the Federal Reserve. Rising stock prices benefit the few, but reinforce the de-industrialization dynamics of capital accumulation in a highly financialized America.
According to a recent Oxfam report, the top 1 percent of American corporations own 97 percent of corporate assets in the United States. Economists Kwon, Ma and Zimmerman have shown the long-run tendency for the concentration of American capital across all industries, with manufacturing concentration dynamics taking place most obviously in the 1970s.
Financialization and concentration of ownership and market concentration have all been pivotal in the structural transformation of the American political economy. Trade impacts were, arguably, after-effects. Yet we see trade policy take center stage in American foreign economic policy, which simply does not address the chronic structural imbalances of the financialized American economy.
Trade policy, anchored by protective measures, arguably finds traction not because of economic efficacy but because of their emotive effects. They observe that, despite no beneficial economic impacts, the Trump tariffs delivered a political dividend to the Republicans. This dividend is mobilized through the politics of nostalgia.
The nostalgic turn evokes a sense of the “good old days” and animates a belief that America has been victimized — taken advantage of. The nostalgic mythologies evoke a yearning for a bygone time and provoke strong nationalist and, at times, racist sentiments, as pointed out by researchers such as Nancy Foner and sociologists Elgenius and Rydgren. They observe that the politics of nostalgia has a distinct set of mechanisms “involving the juxtaposition and unfavorable comparison between an idealized glorious past, a decaying present and the creation of a utopian future that in many ways resemble Christian narratives of fall and redemption.” Unsurprisingly, these mechanisms and features are prevalent in contemporary American political discourse.
The importance of American nostalgia and its political effects hold risks for global security and stability because a public policy anchored by a nostalgic reflex does little to address U.S. malaise through the much harder lens of economic structure and concentration of wealth.
Deflection portends ongoing tensions in the domestic body politic, with blame-shifting intensity likely to rise as problems get worse. The victim card plays well to a domestic audience intoxicated by patriotism and acts as a clarion call to all those who believe that the American Dream is now a living nightmare.
American trade policy — a la Biden and Trump-Vance — is no substitute for domestic structural rebalancing. Prevalent domestic structural imbalances are driving a foreign policy and trade policy that appeals to the affective dynamics of electoral cycles but which masks the root causes of American malaise and its spillover effects on global security, stability and prosperity.