Saturday, March 24, 2018

Trump's Tariffs: A Reimbursement to Campaign Donors

A lot of the debate surrounding Trump’s steel and aluminum tariffs misses key points.

Many who have vehemently rejected the measures have exaggerated the harms that are likely to be caused by them. The arguments mainly stem from a desire to safeguard the global economic architecture that has been pursued by decades of previous administrations, commonly referred to as "globalization."

Really, this represents one specific form of global interconnection, one that has been constructed by, and for, the interests of Western economic elites. It has been championed by US administrations because it expands US influence and control throughout the world and the primary beneficiaries are US and allied nations’ corporations. A debate that oscillates either between Trumpian nationalism or this formulation of globalization is a false dichotomy.

In terms of the effects of the tariffs, price raises are likely to be barely noticeable for consumers, while the loss of employment in other affected sectors is likely to outweigh any benefits within the steel and aluminum industries, resulting in a net loss. The main threat though lies elsewhere: that the tariffs will provoke retaliatory measures from trading partners like the EU which will harm export industries. Therefore, they “may help protect the minority of workers in the targeted industries, but at some cost to the majority in others,” as Dean Baker, co-director of the Center for Economic and Policy Research (CEPR), has commented.

But the knee-jerk opposition to anything protectionist is also misguided.

Protecting Profits, Not People

Every major advanced industrial economy rose to its position as a result of government intervention that protected its domestic industries, including the United States. The modern innovation being that the US, after building up its industries using protections, used its global influence to break-down trade barriers worldwide once its companies were in a position to dominate and profit from global competition. This is called “kicking away the ladder” that was used to get to the top.

US-directed liberalization therefore mainly benefitted Western corporate owners at the expense of the masses of working people. It led to massive increases in inequality and consolidation of profits at the top, brutal austerity measures that have shifted costs onto vulnerable populations, and a rise in legitimate anti-establishment grievances that created the conditions for populist demagogues like Trump to win office.

Some form of protectionism might help to alleviate those disaffected by the globalized economy, but Trump is going about it in the wrong way and for the wrong reasons.

While Trump routinely employs worker-friendly language, his policies have been structured specifically to increase the profits of a small group of wealthy business owners and to exacerbate the suffering and marginalization of everybody else.

The examples are far too many to list, but nearly every proposal has followed this basic template. The latest iterations include the Department of Labor (DOL) proposal that would allow employers to take worker’s tips. The administration even tried hiding just how harmful this would be by deliberately scrubbing its own estimates showing billions would be transferred to employers if the rule was approved.

Other DOL proposals seek to allow employers to self-regulate their failures to pay their workers, the predictable results of which do not have to be stated. The infrastructure plan as well was designed to transfer money from the population to investors by funding the rebuilding process through private investment, which will seek to accrue a profit by charging the population with tolls and other user fees, subordinating the rebuilding of infrastructure to the interests of private owners at the expense of the public. Or the massive upward redistribution of wealth that is the tax-cuts, mainly geared toward enriching the already very wealthy. This has been followed up by calls from opportunistic “deficit-hawks” to cut public programs that benefit working people in the name of “budget reform.” This is exactly what Trump’s 2019 budget proposes, exemplified in its “food-box” program that is designed to drastically reduce spending on assistance that helps to feed poor people. Or the current push to deregulate Wall-Street, risking another collapse that will inevitably harm the working-class poor most of all. And the list goes on, and on.

In keeping with this, the steel and aluminum tariffs are essentially a gift to the business-owners who helped to fund Trump’s campaign.

Follow the Money

Political scientists have amassed an authoritative body of research showing that elections in the US are, above all else, competitions between competing financiers. Campaign costs are very high, and the barrier to entry is more than most can afford, therefore influence over electoral outcomes “passes by default to major investor groups” who can bear these costs. Funding is forwarded to candidates from various investor blocs who then compete with each other for control over the state. Campaign funding alone is the dominant determinant of electability. In short, elections are essentially bought.

Candidates therefore must present policy platforms that attract funding from economic elites. Because of this, only the positions that can be financed are presented to voters. This funding acts as a filter which sifts out any platform that is not amenable to the interests of the dominant investors. The innovation in 2016 was that both Sanders and Trump were able to break through this filter.

The pioneer of this research, Thomas Ferguson, has released a new study paper that systematically breaks down the 2016 elections, shedding important new light on this historical phenomenon. Astonishingly, Bernie Sanders was able to establish a genuine grass-roots movement that collectively amassed enough money through small donations from average citizens to seriously contend with the Wall-Street backed Clinton campaign. Clinton only won the Democratic primaries as a result of the DNC manipulations that stemmed this tide of genuine democracy.

In Trump’s case, he was able to act and talk the way he did because he was a billionaire who could fund his own campaign and was therefore not beholden to the traditional Republican investors. “To many spectators,” Ferguson writes, “the truncated range” of discussion amongst the establishment Republican candidates sounded “as though everyone on stage in the debates was in the iron grip of some powerful force blocking normal human speech. This, of course, was because they were.” Trump’s ability to break this spell by opening his wallet was like “throwing open a tomb that had been sealed for ages,” electrifying many Americans who harbored grievances with the status-quo.

But the research points to an influx of corporate funding as being the deciding factor that secured Trump’s victory.

Initially, Trump’s corporate-funding came from traditional Republican donors. Big Pharma, tobacco, oil, and “mining, especially coal mining”—making the push to revitalize coal easy to understand. “Money from executives at the big banks also began streaming in,” though the decisive “torrent” came from private equity and hedge funds. Combined with “oil, chemicals, mining and a handful of other industries,” large private equity firms likely accounted for a “giant wave of dark money” that rushed into the Trump campaign in the final weeks. Deregulation, therefore, has been a top priority of the administration.

The rest came from companies located within the old industrial states that have been gutted by globalization, “from firms in steel, rubber, machinery, and other industries whose impulses to protection figured to benefit from” Trump’s nationalistic rhetoric.

It is not surprising then that Trump has constructed his protectionism to benefit these industries. The likely result of the tariffs, according to Michael Hudson, professor of economics at Peking University in Beijing, will be to enable “the steel and aluminum companies to use their increased profits for share buybacks and to pay dividends,” which is how most of the proceeds from the tax cuts appear to have been utilized so far.

As well, the steel and aluminum companies will be reliant on the tariffs staying in place to maintain their newfound profits, therefore securing their support and funding for Trump’s reelection campaign.

No Alternatives?

But the hodgepodge mixture of investors that make up the Trump coalition are, in Ferguson’s words, “extremely unstable.” They have little in common besides “their intense dislike of existing forms of American government.” “The world of private equity,” for instance, “intent on gaining access to the gigantic, rapidly growing securities markets of China and the rest of Asia,” are “likely to coexist only fitfully with American industries struggling to cope with world overcapacity in steel and other products or facing twenty-first century mercantilist state targeting.” The debate within the administration between “nationalism” and “globalism” is representative of these contradictions.

These, however, are not the only options available.

An alternate possibility, as proposed by the economist Dean Baker, is to formulate a trade policy that embraces globalization in an inclusive way that reduces inequality. His recommendation is to subsidize job creation to help aid domestic industries that have been harmed by trade, therefore helping those who have been most harmed by globalization: the industrial workers. He also advocates eliminating protections for highly paid professions (like doctors) as well as those of government-granted pharmaceutical patents (both of which drastically inflate medical costs). This would help to mitigate the upward redistribution of wealth, while also drastically reducing bloated medical costs that are a major burden to Americans.

Another economist, professor Richard D. Wolff, emphasizes domestic changes that would have an international effect. As Wolff suggests, if domestic enterprises were organized democratically, they would be much less likely to engage in the kind of harmful economic activity that is prevalent today.

For example, if the decisions within the firm were made by democratic vote among all who worked there, rather than by a small group of profit-seeking owners at the top, how likely would they be to decide to shut down their factories, destroy their own jobs, and move production abroad to take advantage of cheap labor?

Indeed, the options are plenty, and not very hard to imagine. Not once the constraints of the current doctrinal orthodoxies are thrown aside, and once policies are crafted with the interests of people in mind, not profit.


Steven Chovanec is an independent journalist and analyst based in Chicago, Illinois. He has a bachelor’s degree in International Studies and Sociology from Roosevelt University, and has written for numerous outlets such as The Hill, TeleSUR, Truthout, MintPress News, Consortium News, Insurge-Intelligence, and others. Follow him on Twitter @stevechovanec.

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