Terms of Trade: Blame Trump, but do not forget capitalism

Trump is the master of practising the (political) dark art of running with the (non-rich) hares and hunting with the (super-rich) hounds. He claims to love the poorly educated and promises increasingly bigger soaps to the super-rich. The former was thoroughly betrayed and browbeaten by the extant order and the latter so entitled that it had become too spoiled to confine itself to democratic or multilateral niceties.

The grounds for someone like Trump capturing power were laid by the economic dynamics of the same rules-based economic order. The trajectories of both the classes described above have been shaped decisively by the proponents of so-called economic freedom. The votaries of globalisation rejoiced over economic activities relocating continuously in search of greater profits by always searching for cheap labour and tax havens. This continuous campaign by capital in advanced economies, especially the US, triggered a game of musical chairs in the rest of the world where countries competed with each other to placate capital into setting up shop in their country even if it meant squeezing labour.

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Some countries exceled at it. China is the biggest example. What started from cheap sweat shops is now an economy which is not just an exporting powerhouse for foreign companies making their goods there but also a technological leader in many things which are as cutting edge as they get.

Others, like the once-upon-a-time Asian Tigers and Latin Americans foolishly opened their financial sectors and got sucked in a whirlpool of financial crises which inflicted serious long-term damage on their economies. For the proponents of so-called economic freedom, these were minor glitches in what was otherwise a glorious process of wealth creation at the global level.

In the US, the rich made more and more money, if not via profits than from stock markets. The poor lived under low growth, low inflation and cheap credit. The party would have gone on longer had the players working in the poorly regulated Wall Street not brought down the US economy and, along with it, the rest of the world, by their toxic (even if ingenious) financial innovations which created a Ponzi scheme based on sub-prime assets.

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The existing political order tried to sell rhetorical hope to the people who suffered the most in this crisis. But speeches, especially ones which call for disarming any class action and deal in metaphysical feel good, cannot solve economic problems. It was in the aftermath of this fairy tale hangover after eight years of the Obama presidency that Trump first captured power in 2016. Even when he lost (despite increasing his popularity) in 2020, he was defiant and made it look like a coup d’état to this own support base. His opponents thought that this was enough to weaken his ability to continue his political economy chutzpah without addressing the more serious class-based traction for its appeal. The chickens came home to roost in 2024 when Trump won back power with even greater support from the underclass. It supported him not just in the proverbial rust belt but even in suburbs of cities such as New York.

A larger majority in the elections has emboldened Trump’s reckless tendencies. He has unleashed an attack on some of the remaining bastions of US labour such as federal workers. He is destroying institutions and agreements, which are immensely important from a public goods perspective, not just for the US but the entire world. Even the pretense of an arm’s length distance between capital and government has been dropped. All this is being done while pretending to protect American interests by unleashing a trade war which will only inflict misery.

Misery alone, however, does not make an antidote against bad politics. Just because things will get worse materially does not mean that politics and policy will take a progressive turn on its own in the US.

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It is necessary to criticise Trump’s policies. But it is far from sufficient. What is required is an honest engagement with the question of how politics can improve the fortunes of the US underclass. Anybody who thinks this question can be answered without engaging with the global economic order today it delusional.

Economics will tell various actors to pursue efficiency to the hilt. But what implications will it have for democracy? The rust belt in the US which has seen its factory jobs being outsourced abroad wants an answer from its politicians. Advanced economies with an ageing demography would rather that cheap immigrant workers from other countries did their work but not settle in their countries. How does one solve this contradiction? For all its claims of being the global leader in innovation and knowledge creation, advanced economies such as the US, are becoming more and niche (and unequal) in terms of how the fruits of this value created are shared. Why should the poor really care about it?

Does it mean that the world will necessarily take a turn towards a Luddite and Narodnik-like approach where technological innovation is shunned to make growth more employment intensive? Or should it move to a forced tribute kind of an arrangement where every country is obliged to add to the US economy by exporting less to it or importing more from it to maintain peace even at the cost of its own economic interests. This is exactly what Trump wants. Should the rest of the world buy peace with an authoritarian but economically successful country such as China and shun the US as the global economic leader? That would be an admission that the way to solve capitalism’s problems is to weaken democracy rather than reform capitalism.

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These are depressing and defeatist scenarios and ought to be rejected. But for these things to go away, something else must come. It will be hubris to define what exactly it could be. But it will have to have one thing to succeed: an admission that Trump did not fall from heaven (or rise from hell) amid us and he is a creation of the same order which is being mourned today as something which was nothing but completely virtuous.

Trump and the madness being inflicted on the world by him, is in many ways, the opposite of the old story of the evil magician whose life was in a parrot and who would die if someone killed the bird. Trump’s political appeal depends on his opponents praising rather than criticising the proverbial parrot of current day capitalism which Trump only claims (he is perhaps the most brazenly pro-rich leader) to be killing.

Nobody is asking that the parrot be killed. But Trump’s opponents need to realise that except for a handful of rich, a large number of people in the world do not find the parrot beautiful and are likely to see the people praising it with a lot of distrust. The leaders who want to earn these people’s support and trust will do well to understand what led to this mass distrust of the parrot.

Roshan Kishore, HT’s Data and Political Economy Editor, writes a weekly column on the state of the country’s economy and its political fallout, and vice-versa