The Post: The challenge Trump’s tariffs pose for the progressive left

Read the original article in the Post

The list of victims of Donald Trump’s incipient trade war grows with every passing second.

Global prosperity, the Chinese economy, American consumers, even the approval ratings of the man himself: all have been hit. Trump’s popularity is tanking, his billionaire backers are revolting (in the active as well as passive sense), and young voters seeking economic stability are fleeing him in droves.

Such chaos understandably elicits schadenfreude among the Donald’s opponents. But this trade war also has the potential to harm the progressive cause – by succeeding, or, to an even greater extent, by failing.

To unfold this apparent paradox, one has to understand the modern American Right, where the political energy has long since shifted away from a purely “neoliberal” – that is, market-led – approach. It embraces instead pro-statist positions that sound weirdly left-wing. State action to protect local manufacturing, and domestic production more generally, is in; untrammelled free trade is out.

What’s driving this shift? Thinking along similar lines to Trump, albeit with slightly more sophistication, American conservatives have clocked the decimation of local communities as steady, high-paying manufacturing jobs have gone offshore, to countries like China with vastly lower labour costs (and, indeed, rampant modern slavery).

Such is their newly rediscovered love of 1950s-style community that some conservatives have even come to embrace trade unions, a key post-WWII force for limiting working hours and – consequently – freeing up time for communal life.

The prospect of more pandemics, and greater armed conflict, has also led conservatives to question whether America should rely so much on foreigners for vital supply chains, and whether – therefore – the nation wouldn’t be more secure making those things at home.

In another world, then, the Trump tariffs, by hammering foreign firms and encouraging manufacturers to shift Stateside, could strengthen both national security and local communities, cementing his appeal among voters abandoned by the left.

But this is not the world that Trump is creating, as economists have been explaining ad nauseam. Because the tariffs change with the president’s passing moods, no sensible foreign firm will invest the billions of dollars needed to relocate production to Pennsylvania or Vermont. No-one builds on shifting sands. Nor would American consumers enjoy the resulting sticker shock: an iPhone built in Chicago might cost twice as much as one built in Shenzhen.

It could, in fact, be the failure of Trump’s trade war that harms the left. Not in an immediate sense: currently the tariffs are a gift to the Democrats. The damage, rather, could be to a recently re-energised intellectual cause among progressives: industrial policy.

In the last decade or so, global thinkers have challenged the 1980s orthodoxy that governments mustn’t attempt to meaningfully shape their economies. Attempting to do so, market fundamentalists have long argued, would simply result in a disastrous attempt to “pick winners”, wasting resources and leaving countries poorer.

But, in an important 2023 paper, “The new economics of industrial policy”, the brilliant Harvard economist Dani Rodrik and his co-authors show just how much the tide has turned on that worldview. The debate about the “East Asian” miracle has been settled, they argue: recent research confirms the view that the astonishing post-WWII acceleration of the Taiwanese, South Korean and other economies was driven by activist governments.

As influential economists like Mariana Mazzucato have argued, well-functioning national governments, with their long time horizons and mandate to pursue the public good, can sometimes see or exploit opportunities that individual firms cannot. Mazzucato has shown, for instance, that the iPhone’s 12 key technologies – lithium-ion batteries, touchscreens, GPS and so on – were all developed or funded by blue-skies public-sector researchers.

National “missions” – America’s drive to put a man on the moon, or Germany’s 1990s push for renewable energy – can also mobilise public and private investment behind new technologies, driving innovation and job growth.

As Rodrik’s paper points out, innovation often depends on clustering – cutting-edge firms locating themselves close to each other – which governments can encourage in various ways. Economies can also get caught in a situation where, for instance, a potential exporting opportunity requires a particular piece of local infrastructure, but no firm will provide either element without the certainty that the other will also be provided.

Governments, Rodrik and co argue, can step in to provide that certainty, pushing the economy onto “a superior equilibrium”. Tariffs can even have their place as a strictly temporary measure, sheltering infant industries until they are ready to complete globally.

Doing industrial policy well is, of course, supremely difficult, requiring thoughtful strategy, total transparency about government-business linkages, and disciplined leadership. But this is not – to state the blindingly obvious – the way that Trump does things.

His erratic, vengeance-based approach to trade and economic development will, in precisely the way that conservative economists predicted, create all manner of problems. And, along the way, tarnish the reputation of a policy that should have much to offer progressives – and indeed the world.