Global economic policy in the era of Trump

Donald Trump has been a never-ending source of controversy since becoming president, but his ascent to the White House has not caused the collapse of western civilization. And even though he has now been in the Oval Office for an entire year, his presidency has not even caused any measurable damage to the United States.

Indeed, there is a very plausible argument that his first year in office has been a net plus for the U.S. economy. The regulatory state has been curtailed and a semi-significant tax reform has been enacted. And since the reduction in the U.S. corporate tax rate presumably will trigger a virtuous cycle of tax competition, it is reasonable to speculate that Trump’s policies indirectly will lead to better policy and more growth in other parts of the world as well.

Equally important, Trump has not destabilized global trade. His protectionist rhetoric has not (yet) translated into major anti-trade initiatives. Nor has he implemented any populist policies on immigration or the budget.

In other words, we have dodged a bullet. Other than the 24-hours-a-day outrage generated by presidential tweets, not much has changed in Washington. Bismarck was reputed to have said there is “a special providence for drunkards, fools, and the United States of America,” and the first year of the Trump Administration does indeed suggest he had a point.

That is the good news. The bad news (or, to be fair, unsettling news) is that Trump still has at least three more years in office. He still has plenty of time to pull the United States out of the North American Free Trade Agreement. Or maybe even cause problems at the World Trade Organization. He has three more years to trigger something unpleasant on the Korean Peninsula. Or in the Middle East.

Perhaps the bigger question, though, is whether the Trump presidency signals the start of something. Is America heading into a period where politics is characterized by a strange mix of populism and celebrity? Considering that Washington is rife with rumors that Oprah Winfrey and/or Dwayne “The Rock” Johnson may run for president, this is not as outlandish as it seems.

And this leads to an even larger question about what this means for public policy. Professional politicians are deeply flawed, to be sure, but they operate within conventional boundaries. If Hillary Clinton had prevailed, she would have proposed incrementally left-wing policies. If Jeb Bush has won, he presumably would have advanced an incrementally right-of-center agenda.
The fact that Trump’s first year has been characterized by a “normal” set of Republican policies is besides the point. Almost everyone assumes he is capable of doing something out of the ordinary. He spent most of his life as a Democrat and even donated to Hillary Clinton, so it is unclear if he has any underlying principles.

By the way, the United States is not alone. Populist politicians – on the left and right – have generated record levels of support in many developed nations. We may even see the ideologically incoherent Five Star movement prevail in the upcoming Italian elections, which would probably trigger a fiscal crisis given the nation’s huge debt burden and anemic economic outlook.

One lesson to learn from the global shift to populism is that the negative consequences of bad policy are now larger. Voters are anxious and impatient, so periods of economic stagnation can produce unpalatable political results. Some have persuasively argued that this represents a “failure of the elites” since monetary policies and regulatory interventions, particularly in the United States, led to the global financial crisis, which then triggered the populist backlash against bailouts and favoritism.

In other words, Trump and Trumpism may simply be a symptom of a deeper malaise.