Debate: Trumping the old order: a toast to ‘new-wage’ America...

Prince Oguguo argues the motion, “The impact reflected by Trump is here to stay.” Grenoble Ecole de Management, Author provided

Like many US presidents before him, Donald Trump has promised to redefine the economy he now leads.

The first article in this debate series, “Fake news meets fact in an Oxford-style debate revival”, expounded the rationale for debates as a vehicle for practical wisdom in general and this series in particular. The present article is the second in the series, and argues for the motion that “The impact reflected by Trump is here to stay”.

Like many US presidents before him, Donald Trump has promised to redefine the economy he now leads. Unlike many presidents before him, he is prone to quick decisions based on gut instinct versus following the advice of policy experts and reading through long briefings. In over a year in the Oval Office, President Trump has demonstrated that his tough talk on trade is not just rhetoric, and that his commitment to bringing back manufacturing jobs, whatever form it takes, is not a passing fancy.

Redefining America’s role in global trade

“The economy is very sick. We’re losing our jobs to China, to Japan, to every country. We’re making horrible trade deals. We are losing jobs in this country. Hundreds and hundreds of thousands of jobs are being lost.” (Donald Trump)

Global trade’s era of rapid liberalisation may not be dead, but the US will no longer set the pace as the world watches China consolidate its power at home and abroad. Whereas the principles of free trade underpinning the liberal era were previously adopted as dogma by both major US political parties, President Trump’s “America first” rhetoric and recent introduction of tariffs on steel notably renege on the implicit consensus around what he has termed “radical globalisation”. Trump’s anti-liberal stance doesn’t just extend to notorious partners like China, but close allies like Canada, Mexico and the European Union. While it is difficult to say whether the threat of sanctions will lead to more beneficial trade agreements for all parties or an economically crippling trade war, we know that once established, new trade routes are difficult to reverse or even predict.

For example, imposing tariffs on coffee imports might lead to lower coffee consumption. It could also lead to greater imports from a third country or could cause some American farmers to divert resources from other produces to increase local coffee output, thus reducing the supply and driving up the price of those previously prioritised crops. In the case of greater imports from a third country, local firms may have to invest in new or adapted equipment to deal with a different strain of produce, logistics infrastructure would need to be developed, and a new cadre of lawyers and managers who are familiar with rules, local languages and contextual differences in this third country would have to be hired or groomed. Although it is not yet clear yet that introducing tariffs on goods is a politically sustainable tactic, Trump’s assault on NAFTA and other trade agreements is likely to have consequences for US trade that should he succeed, will far outlive his presidency, for good or bad.

Remodelling America’s domestic economy

“I’m going to outline a plan for American economic revival – it is a bold, ambitious, forward-looking plan to massively increase jobs, wages, incomes and opportunities for the people of our country.” (Donald Trump)

Much of President Trump’s talk and policy actions have favoured a return to the heyday of American manufacturing in areas such as natural gas, coal and steel while seeking to reverse much of the progress made in the development of green or clean energies. Although government policy is crucial in determining the fate of capital-intensive industries like renewables, President Trump is decisively shifting the American economy back toward fossil fuels.

Beyond the energy sector, President Trump’s tax policy is directly affecting households and corporations. Many policy analysts argue that this will set off a transfer of wealth from the poorest to the richest Americans while also encouraging corporations to repatriate profits that have been long held overseas as a tax evasion measure. Taken together, the policies of this administration are expected to have a significant impact on the incomes of shareholders and households for as long as the tax law is in place.

The morning after, a Trump Hangover will remain

Announcing his run for the presidency, Trump claimed “I will be the greatest jobs president God ever created.” The goal of creating jobs for American workers has been emphasised throughout his campaign and presidency. A closer look at US labour statistics, however, reveals something more puzzling. The unemployment rate in the United States has not exceeded 5% since 2016, an excellent level for any large economy; certainly not a figure that one would associate with large-scale anxiety and grievance.

Probing further, the picture is far starker. In real terms, the wage of the average American worker has hardly budged (0.2% growth annually) between 1973 and today despite significant growth in real consumption expenditure. The average American worker expects a better standard of living than his or her parents, but earns just about the same in real wages. It is this collision of expectation and reality that has so many Americans feeling left behind.

On even further examination, one finds that although economic output has been growing in real terms the share of total national income paid to workers has been falling. Three megatrends are perhaps the biggest culprits in this great decoupling of income and growth, largely by shifting the locus of power in employment toward capital and away from labour. They are globalisation, regulatory changes, and automation.

“It is our corrupt political establishment that is the greatest power behind the efforts at radical globalisation and the disenfranchisement of working people.” (Donald Trump)

Globalisation, the international integration of economies through interconnected trade, data, and capital flows, means developing and managing global supply chains as well as cross-border investing is much easier than ever. The implications of these are obvious. Trade and indeed much of business is built on the premise of buying low and selling high. Unfortunately, economies like the US that have high purchasing power also tend to have high labour costs. President Trump’s “America first” and “Make America Great Again” concepts are a direct rejection of the sort of globalisation that he and many Americans blame for the loss of jobs and industry. Yet although it is possible to reverse or stem some of the advances made in recent decades, others are largely irreversible. Short of banning the Internet and other digital platforms, for example, it is difficult to see how attacking globalisation will lead to a reversal in the trend to outsource service jobs.

The discord between capital and labour is further exacerbated by advances made in brain and brawnautomation in the past few decades. Herein lies the second reason for the great decoupling. Mechanical and intellectual automation are changing the nature of work irreversibly. Whether this leads to a calamity of massive poverty due to large-scale unemployment or a Utopian world without work is still up for debate. What is sure is that in the meantime is that advances in brain and brawn automation are currently driving a trend toward slower jobs growth and have caused a crisis in job prospects for many in the labour market who now need to be retrained on a massive scale. Looking to the future, automation has been identified as a major driver of the trend toward job polarisation – the disappearance of middle-skill jobs in favour of low or high-skill jobs. Even then, automation is estimated to overtake, by around 2030, many of those polarised jobs, too.

Workers have traditionally mitigated their exposure to the vicissitudes of capitalism by banding together to aggregate some of their own power. However, in the US, union memberships have declined from highs of about 25% in the late 1940s to about 10% today. Perhaps in realisation of the shifting balance of power, 60 % of Americans now view labour unions favorably, up from about 40% in 2009. The decline in union membership is however, not simply down to cultural perceptions of unions. It is structural.

Experts blame this trend on anti-union legislations backed by business lobbies like the National Association of Manufacturers. So-called right-to-work laws make it easy for workers to get the benefits of a union without paying to support the union. This creates a prisoner’s dilemma and a race to the bottom. Although a study by the non-profit Economic Policy Institute found that a third of wage stagnation can be explained by the decline in collective bargaining, these trends do not seem likely to reverse soon. Many states have gone beyond making right-to-work laws and integrated them into their constitutions. At the federal level, President Trump signed an executive order in May 2018 creating such rules as a limit on the time government employees can spend on union activities and charging union members rent for using federal government office spaces. Furthermore, the US Supreme Court is expected to extend right-to-work to public sector workers by ruling on a case before it before the end of this year. It looks like collective bargaining is not coming back anytime soon.

For good or bad, the trends that have set into motion the rise of Trump and those that he will drive forward are and will continue to reshape the US. It is only by acknowledging the long-term nature of his influence on all our lives that we can justify any substantial effort to influence his policies one way or the other. Beyond President Trump, we must also acknowledge the reality that the factors that made Trump’s emergence possible are here to stay, and will be around longer than just the ‘morning after’. It is only by recognising the long-term impact of Trump’s footprint on America that we can properly confront the challenges they present and prepare the American worker for a new economic age… and future slice of the pie.

The next article in this series, “The ephemerality of Trump: Reflections on the day after”, will argue against the motion “The impact reflected by Trump is here to stay”.

Prince C. Oguguo, Doctoral Researcher, Management of Technology and Strategy, Grenoble École de Management (GEM)

This article was originally published on The Conversation. Read the original article.

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