Trump and the inequalities of globalization

President Trump’s strategy of protectionist tariffs based on trade deficits rather than competitiveness will severely impair America’s efforts to remain the sole superpower.

As India begins quiet negotiations with the United States for a trade deal, the elephant in the room is the political economy of Donald Trump. It is convenient to attribute President Trump’s new course in foreign policy, including humiliating foreign leaders at the Oval office, entirely to personal traits. The President himself may not mind this perception. It adds to the unpredictability that apparently forms a critical part of his art of the deal. Outside the purview of the everyday politics of the United States, though, there is search for patterns in his actions. The patterns that emerge will mould the response of the rest of the world to the actions of the president of the United States. And the patterns are beginning to suggest that President Trump’s politics – both domestic and global – is best understood as one of taking the methods of real estate negotiations to the new inequalities of globalization.

Societal inequalities have traditionally been understood in terms of differences within individual societies. Social inequalities are usually perceived through differences between ethnic and other groups in society. Economic inequalities, other than interpersonal differences, are largely viewed in terms of relations between classes. The specific concepts of class do vary across theories focused on the workplace, like capital and labour, to those focused on levels of income, like the middle class or the top one percent. Diverse as these analyses are, they have tended over many decades to converge on the basic concepts of the Right and the Left. The Right tended to focus on the higher end of the economic hierarchy with an implicit argument that everyone was free to get there. The Left represented the interests of those at the lower end of the economic hierarchy, often arguing that the entry barriers to economic success were so high that the state needed to provide welfare.

The Right-versus-Left formulation has been so deeply embedded in academia and popular discourse that it has persisted despite emerging contradictions with reality. President Trump’s Republican party continues to be seen as Right wing though its major support is from the MAGA movement driven in many ways by the working class. His preoccupation with tariffs also goes against the idea of free markets championed by the traditional Right. Tariffs have, in fact, been the foundation of several Left wing state initiatives to protect domestic industry. On the other side of the political divide, the last US presidential elections saw the Democrats being targeted as elitist, and not quite the party the poor necessarily identified with.

The pressures on the traditional Left-versus-Right divide are not confined to the United States and can be traced to the processes of globalization. Contrary to some initial expectations that globalization would lead to a uniform lowering of national boundaries, the process has only built circuits that cross borders across the world. These circuits link resource centres in some parts of the world to command and control centres in other parts of the globe. These circuits are driven by the hypermobility of capital. The circuits also have two dimensions that encourage migration. The desire to be a part of global circuits encourages migration to the resource centres from more remote regions. At the same time, the dominance of the command and control centres within the circuits generates a desire to migrate towards the cities and countries where these centres are located.

Built into the circuits of globalization is a new inequality, between those who are a part of these circuits and those who are not. This inequality can take multiple forms depending on which part of the circuit is dominant in a country. Countries dominated by command and control centres would be marked by the circuits seeking lower cost options elsewhere in the world. This would include moving jobs to resource centres elsewhere in the world. This increases the inequality between those who have gained jobs in the activities related to the command and control centres and those who have seen their jobs move to resource centres in other countries. There is a corresponding division between capital that benefits from global supply chains and the capital that does not. Industries that can tap the benefits of the communication revolution would benefit directly from globalization, while more traditional industries and agriculture would have little or nothing to gain. Those who lose out from globalization in these countries include sections of workers and capitalists, thus blurring the traditional dividing line between labour and capital.

The dimming of the distinction between a Labour supporting Left and a capital supporting Right is also seen in countries dominated by resource centres. These countries are witness to local capital moving from traditional industries to units that are parts of global supply chains. These units could range from relatively low-technology activities like the manufacture of garments to providing inputs into high-tech software. The labour that benefits from globalization also ranges from those that work in conditions that barely meet labour and environmental standards to those whose working conditions are similar to that available in the advanced countries. The difference between the beneficiaries of globalization and those who are left out cuts across multiple income groups in these countries as well. Those who are left out include labour and capital in industries and agriculture that do not find a place in global circuits. Those who benefit also range from workers earning close to minimum wages in the garment sector to those in the information technology industry whose earnings usually place them in the top five percent of the country’s population.

The inequalities of globalization have, for some reason, not gained prominence in academic discourse. The discussion on inequality that exists in this discourse has largely stayed within the traditional Right-versus-Left divide. Studies of inequality have tended to remain focused on the economic divisions of class and social divisions like that of race and caste. On the occasions when this discourse has moved beyond the traditional, it has a provided a much-needed focus on groups that have long been ignored like sexual minorities. The exploration of new inequalities has, however, not included a comparable interest in the much larger inequality between the beneficiaries of globalization and those who have been kept out of global circuits.

It was only a matter of time before those who were left out began to define a political space for themselves. As those who lost in globalization cut across all classes, their rallying call moved from divisions decided by the workplace to a call to nationalism. The Make America Great Again movement was matched by political calls to nationalism in other parts of the world. Based, as these movements were, on popular sentiment rather than intellectual theorizing, they often developed an anti-intellectual character. Rather than challenging the Right-versus-Left intellectual orthodoxy they developed the term ‘woke’ to dismiss all intellectualism.

Donald Trump had several advantages in tapping into this sentiment. Having spent a lifetime in real estate he was associated with the least mobile of assets. There was little room for outsourcing in his real estate empire, allowing him to identify with those who were outside the circuits of globalization. Some among the less educated workers could possibly even associate his bankruptcies with their own travails due to globalization. His disregard for intellectual niceties met the anti-intellectual sentiment of those who had been left out of globalization. As the movement grew, he adopted more outrageous behavioural norms on his campaigns knowing that any intellectual disapproval would only strengthen his support in the MAGA movement. His second term has been marked, if anything, by even greater appeal to the MAGA sentiment. He has sought to display American dominance in world affairs in terms that the supporters of MAGA can associate with, even if that requires humiliating leaders of other countries in the Oval office.

The MAGA sentiment of restoring American dominance has prevailed in his strategy on tariffs as well. Using tariffs as a means of protecting domestic industry is not new. What is new is that the tariffs have been presented as being country specific rather than product specific. In the past, tariffs have tended to be used primarily as a means of protecting specific industries from foreign competition. Some products may require no more than modest levels of protection while others might need much higher tariffs for effective protection. The variations in rates of tariffs in President Trump’s ‘Liberation day’ announcement was, however, country specific. The rates for each country were derived through a formula with its appropriate quota of Greek alphabets, but once the Greek was translated into numbers the formula boiled down to the trade deficits the United States had with individual countries.

The use of trade deficits with individual countries as the basis for rates of tariff comes up against three formidable economic arguments. First, there are products that individual countries do not produce and therefore need to import. If these products are subject to tariffs, it hurts the American consumer without there being any producer who could benefit. If these products also happen to be imported from countries that the United States has a substantial trade deficit with, the tariffs would be higher, adding further to the prices paid by the American consumer.

Second, at a more general level, tariffs as a means of protection have been known to hamper the competitiveness of domestic industry. The pressure on domestic industry to keep prices down stems from the availability of cheaper imported alternatives. Once the imported alternatives are made more expensive through tariffs, this pressure on domestic industry evaporates. This leads to higher priced domestic products which cannot compete in the international market. Economies that provide high degrees of protection typically find it more difficult to export. This has been seen in the experience of several developing countries. India had around 2.5 percent of world exports in the 1950s. By the 1980s, after a period of both tariff and non-tariff protection, its share of world exports declined to 0.4 percent. President Trump’s tariffs will tell us whether the same process works in the developed world, thereby threatening the prominent place the United States has in world exports.

The third economic argument that tariffs have to confront is their impact on global supply chains. In a world of global circuits, a product can move across multiple sites, picking up inputs where they are cheapest. In the case of inputs where the US has an advantage, products could come into the US from elsewhere in the world, add the American component and then be exported to another country. The tariffs that are paid on what is imported into the US would add to the price of what is exported. Global supply chains could well decide that it may be preferable to move the American operations to another country or simply replace the American producer with one from another country.

President Trump is not unaware of this risk. He has threatened to place a 25 percent tariff on iPhones sold in the United States that are manufactured elsewhere. The economists at Apple would have to work out whether the cost of manufacturing an iPhone entirely in the US would be more than 25 percent greater than the cost of manufacturing the imported product. If they are that much more expensive, it would be in their interest to continue manufacturing elsewhere and pay the tariffs in the US. Even if the difference in the costs of manufacture in the US and outside is less than 25 percent it may well be in the interests of Apple to produce separately for the American market in the United States and meet its global demand from elsewhere.

If companies do decide to manufacture separately for the American market it would limit the ability of President Trump to use the US market as a bargaining chip to attract global investment. The United States might be the world’s largest importer but that is still less than a seventh of global imports. If the rest of the world chooses to go the way of greater economic integration, they could still cater to six-sevenths of global imports at prices the products manufactured in the United States cannot match. The US would run the risk of becoming a large high-cost island. This could throw up new challenges the United States has not encountered before. There are threats that currently appear farfetched but could well find economic support in a tariff economy. If the experience of other countries is any guide, high-cost islands tend to attract smuggling from cheaper neighbours.

The economic uncertainties of a high-tariff economy are not helped by President Trump bringing the methods of real estate negotiations to international politics. The process of negotiating a real estate deal typically does not disrupt the market as a whole. Parties in real estate negotiations can take extreme positions, generate high levels of uncertainty, and then make concessions to arrive at a deal without impacting the overall real estate market, let alone other markets. Trade negotiations are a different kettle of fish. The uncertainty created by announcing ridiculously high levels of tariffs, followed by a 90-day pause, and then declaring some tariffs again before the 90-day deadline is over leaves its mark on markets. Each step can cause a loss or gain of trillions of dollars in market capitalization. While there may be speculators with the skill to benefit from these dramatic fluctuations, it will necessarily delay long-term investment decisions. Companies cannot be expected to make long-term investments until the dust settles.

The dust may take a long time to settle given President Trump’s preference for working out separate deals with individual countries. In working towards these deals President Trump has revealed an inclination towards a real estate negotiator’s preference for intimidation. The extraordinarily high tariffs slated for imports from some countries are designed to scare these countries into offering substantial concessions to the United States. President Trump has also revealed a willingness to merge economic intimidation with more visible intimidation of leaders of individual countries. He has chosen to use meetings in the Oval office to publicly humiliate leaders of other nations, who he believes do not have the cards to challenge him. The response of these leaders to the Oval office encounters has been varied, ranging from the moderately combative response of Ukrainian President Zelensky to the mixed response of South African President Cyril Ramaphosa. President Ramaphosa’s polite responses with a smile allowed him to slip in a loaded apology about not having a plane to offer President Trump.

President Trump may evaluate the impact of the Oval office encounters in terms of its ability to present the image of a strong United States to his MAGA constituents. The leaders who are targeted in these encounters could, however, have other audiences in mind. President Ramaphosa faces a situation at home where the anger against apartheid has not died down. There is a sentiment that historical wrongs must be corrected by confiscating the land of White farmers. President Trump’s ambush of the South African president with claims of White genocide would only strengthen the racial divide within South Africa. The humiliation of their president could well remind Black South Africans of the shame of apartheid. If President Trump’s intention was to ease the pressure on White South Africans his Oval office encounter with President Ramaphosa may well have had the opposite effect. And a South African president who is seen at home to have been humiliated cannot afford to offer further concessions in trade to the United States. The already complex process of trade negotiations has thus been made more complicated by President Trump’s methods of negotiation.

The focus on deals with individual countries also underestimates the role of global supply chains. Once the country wise deals are done and the rates finalized, global supply chains catering to the American market will also consider shifting the sources of their inputs from countries facing higher tariffs to those with lower rates. The companies producing these inputs in high tariff countries could, in turn, consider shifting their operations to lower tariff countries. Such a move would make economic sense if the advantages of producing specific products in some low-tariff countries ensures that these products will be cheaper in the American market than goods manufactured in the United States even after paying the new tariffs. In such cases, President Trump’s tariffs will only cause a shift in operations from one source country to another without increasing investment or jobs in the United States.

President Trump viewing the dynamics of global supply chains with disdain may be seen by the rest of the world as an opportunity to make their industrial centres more attractive to the supply chains. This would lead to greater integration of the economies of the rest of the world, and the economic gain that brings. If the United States under President Trump chooses to stay out of this process of integration and create a high-cost economy through tariffs investors in the US would find they are confined to catering to only a part of the world market.

None of this is to suggest an integration of the rest of the world against the United States. There are too many political divisions for that to happen. It is difficult to see a strategic alliance, for instance, between Europe and China. China’s currently close relationship with Russia is also not without its pressure points. Quite apart from the disputes that have occasionally disrupted Sino-Russian relations in the past, Russia also has to contend with the possibility of China emerging as a major competitor in the global armaments market. What President Trump’s actions have done is to disrupt the existing global order, forcing countries to find a new global normal that they can be comfortable with. This raises the possibility of new alliances, like a closer relationship between Europe and Canada. The uncertainty that characterizes President Trump’s actions also emphasizes the current risks of seeking shelter under the American security umbrella. Indeed, India’s vehement rejection of President Trump’s claims of having brokered its 2025 ceasefire with Pakistan is an indication that far from seeking a place in an American alliance India would even challenge the idea of the US having an overwhelming influence in South Asia.

President Trump’s global strategy may have also slowed down a more recent trend in politics across the world. The last decade or so has seen the emergence of a number of parties of extreme cultural nationalists that did not mind being associated with the worldview President Trump has championed. Each of them sought to present his or her country as being superior to others. The rise of this extreme nationalist ideology has an internal inconsistency to deal with. As each nation, led by an extreme nationalist, pushes itself on the global stage it will come up against the nationalist sentiment in the countries it tries to dominate. President Trump’s contemptuous demand that Canada become the 51^st state of the United States has predictably generated angry resistance in America’s northern neighbour. The popular association of the Conservative leadership in Canada with President Trump saw that party’s support slump over just a few months from being expected to sweep the polls to losing another election to the Liberals.

As President Trump systematically destroys the pillars of the global order after World War II, there is little clarity on what will take its place. President Trump’s insistence that all other countries are ripping off the United States presents America as a victim of all countries big and small. This erodes the authority of the United States to create a new world order. The next largest economy, China, lacks the moral authority to offer a new world order that others will be inclined to follow. As multiple players negotiate the terms of the new world order, the age of superpowers does appear to be coming to an end. India has long made a case for a multipolar world; it must now be prepared for a version of multipolarity driven by Donald Trump’s mix of nationalism and unpredictability.