Trump's economic nationalism

The stock markets greeted Donald Trump's election as the 45th President of the United States with enthusiasm. It was the first time since the end of 1999, the time of the dot-com bubble, that all leading stock indices – namely the Dow Jones, the Standard & Poor's 500, the Nasdaq, and the Russell 2000 – simultaneously surged (cf. Landon 2016, p. A1). The reason was that entrepreneur Trump had adhered to the neoliberal market dogma and promised to reduce regulations and lower taxes. Additionally, he announced enormous government investment programs: further spending on the already generously funded military with over $580 billion annually and over $1 trillion for civilian infrastructure such as roads, bridges, airports, schools, and hospitals. Trump will try by all means to revive the American domestic economy: by supporting both the supply side, i.e., entrepreneurs, and the demand side through government investment programs and especially by stimulating consumption through tax cuts. Tax cuts initially mean a loss of revenue for the state, which, according to the supply-side theorists' idea, can expect that this will kick-start the economy and generate more tax revenues through growth. However, lowering nominal tax rates for companies could turn out to be a fallacy: when taking into account the tax base, tax breaks, and loopholes, American companies do not pay as high taxes – even in international comparison – as the nominal tax rates suggest at first glance. It remains to be seen whether lowering corporate tax rates really boosts investments. Because entrepreneurs only invest when they actually expect demand. Where should the additional consumption of an economy – which is driven two-thirds by demand – come from, if much less purchasing power can unfold due to unequal income and wealth distribution compared to more egalitarian countries? It is questionable whether demand-effective effects will be achieved if the income and capital taxes of the rich are further reduced. With the equally planned abolition of the inheritance tax, inequality would be exacerbated even more. If Trump's economic plans, reminiscent of Ronald Reagan's "voodoo economics," are implemented, then, as in the 1980s, public debt would noticeably increase again. According to calculations by the Tax Policy Center, operated by two renowned think tanks, the Brookings Institution and the Urban Institute, the plan would cause tax revenue losses of over $6.2 trillion in the next decade. If interest expenses are also included, the total debt would increase by $7.2 trillion within the next ten years and by $20.9 trillion by 2036 (cf. Nunns et al. 2016). Furthermore, the already out-of-control American total debt is increasing. Since the economic and financial crisis of 2007/08, it has doubled to $19 trillion (not including the debt of states and municipalities). The federally financed state debt held by the public already amounts to three-quarters (74%) of the GDP. In historical comparison – for example, with the average (39%) of the past 50 years – it is already worrisome (cf. Congressional Budget Office 2016, p. 6). The debt burden will increase significantly in the future, especially when the demographic time bomb explodes the social security funds: when the entry of more and more baby boomers into retirement overwhelms Social Security, Medicaid, and Medicare. President Trump, like his predecessors in the White House, will avoid touching these programs, which are often vital for older people (especially active voter groups). However, without cuts in the legal social entitlements of an increasingly larger cohort of elderly people, the Congressional Budget Office's forecasts (2016, p. 9) predict a debt of 86% of GDP in ten years and 141% of GDP by 2046! This would far exceed the historical peak of 106% of GDP reached during World War II. The agency warns that such a large debt burden poses "substantial risks" to the country, threatens a financial collapse, and could ultimately paralyze the state's ability to act. America's debt was not a major problem for a long time, as long as foreign countries were willing to provide the US with loans again from the currency reserves earned from export surpluses, so that the land of unlimited possibilities could live beyond its means. For a long time, primarily China and Japan financed the American dream of unlimited consumption on credit and acquired American government bonds – currently valued at $1.2 trillion each (cf. Labonte and Nagel 2016, p. 1–2). However, this already sparse external financing of the world power's debt burden would be further restricted if Trump were to implement his trade policy ideas, especially his protectionist campaign pledge. With the announced termination of existing (NAFTA) and planned free trade agreements such as the Trans-Pacific Partnership (TPP), he would also abandon the American-dominated world economic order that has served American interests since World War II. The Obama administration actually wanted to finalize the Trans-Pacific Partnership (TPP), which would have excluded the rival China, with its Asian partners earlier. But President Obama was blocked by Congress – primarily by his Democratic party colleagues. With Trump's withdrawal from the TPP, the US would bid farewell as the dominant trade order power in Asia. In contrast, China could then demonstrate its leadership and advance its free trade initiative, the Regional Comprehensive Economic Partnership (RCEP), which excludes the US. China is weakening the American economic model in other ways as well. Beijing is no longer willing to finance the debts of the struggling world power to the same extent as before. China's authorities are rather trying to free themselves from the dollar trap, to focus their economy more on domestic consumption, and to diversify China's export markets. With its Belt and Road Initiative, China aims to connect its economy with neighboring countries in the region, West Asia, Africa, and Europe through land and sea routes. While China finances infrastructure projects worldwide and opens up new markets, it can emancipate itself from its main customer, the US, to whom it had lent large sums of money so that the US could buy Chinese products. If foreign investors, especially the main financier China, are no longer willing to finance the world power's financial behavior and the US does not make efforts to reduce the national debt but instead wants to increase it further, there is only one all too obvious solution: "quantitative easing." Buying more time by printing more money – and thus devaluing the demands of foreign creditors. The behavior of the US Federal Reserve will continue to determine the fortunes of the American and global economy. The Federal Reserve will be cautious not to rush the long-promised normalization of its monetary policy. The markets, as seen at the end of 2015 when the Federal Funds Rate – the interest rate at which banks can borrow money – was raised only slightly to 0 to 0.5%, would react nervously to panic like drug addicts facing cold turkey. At the beginning of 2016, the stocks of several banks on Wall Street plummeted; within a few trading days, many stock prices had evaporated the gains made throughout the previous year (cf. Neate 2016). On the other hand, the central bank's injections continue to create euphoria in the markets. The current stock prices are artificially inflated. Those who take the market values of the still overvalued US companies at face value ignore the fact that stock prices have been driven upward not least thanks to the flood of money from the US central bank and that the values could turn out to be another illusion. In the worst case, the bubble will burst – with unpredictable consequences. In the best case, the air will slowly escape, stock prices will decline more slowly, and align more closely with real economic conditions. Unlike the renewed attempt at Reaganomics, which is likely to only fuel market fantasies, Trump's infrastructure program could indeed boost the real economy. However, this will be politically more challenging than many expect. Due to the misconception that there are parties in the US as we understand them, many journalists and analysts expect that the Republican Trump can now "rule with an iron fist" because he also has majorities of Republicans in both chambers of Congress. However, there is no party discipline in the US political system. US parties are merely election clubs. And even this minimal function has now been relinquished to interest groups and wealthy individuals due to the Supreme Court's approval of unlimited campaign donations. The Republican Party could not even prevent, as much as it would have liked to, Trump from running in its name and winning. With the help of alternative organizations, grassroots organizations of the Christian Right, and the far-right Alt-Right movement, Trump was able to upset the Republican Party establishment during his campaign. While he has brought Reince Priebus, the head of the party, into the White House as chief of staff to try to get his party allies in line when it comes to passing the president's state infrastructure measures through Congress, which has budgetary authority. However, in case fiscally conservative, sometimes anti-state representatives and senators do not budge despite the sugar-coated tax cuts, the political whip awaits them. If the president does not receive support in political horse-trading (referred to as "horsetrading" in the US), he will use the "bully pulpit." President Theodore Roosevelt (1901–1909) coined the term "bully pulpit" to describe the platform provided by the presidency to influence public opinion. The president's unique position as the only nationally elected politician can be used to mobilize the voter base of Congress members for his agenda through the mass media, so that the majority of representatives and senators follow his policies. For this, he needs his chief strategist Stephen Bannon, who, as the CEO of the far-right Breitbart News network, mobilized troops during Trump's