The Political Economy of Trump

An unprecedented number of GOP establishment figures have either renounced (e.g., Jeb Bush, Mitt Romney) their party’s presumptive nominee, offered painfully reluctant endorsements (e.g., Mitch McConnell, Paul Ryan, Marco Rubio) or remained on the sidelines (e.g., John Kasich). Criticism of Donald Trump by Republic stalwarts has often focused on his racist and intolerant statements about Muslims, Hispanics and blacks.

But it is not Trump’s racism that rankles the Republican establishment. After all, congressional Republicans opposed George W. Bush’s plan for immigration reform and rejected extension of the Voting Rights Act while at the state level Republican-controlled legislatures have passed voter identification laws that represent transparent efforts to suppress the minority vote.

So while it is politically expedient to distance themselves from Trump’s crude rants, it is not racial sensitivity that is driving the discomfort that Republican insiders feel about Donald Trump. Instead, the problem lies with Trump’s preferred policies toward trade, taxes and spending and debt. In short, Trump is out of sync with the corporate and investor interests that lie at the center of the Republican coalition.

The GOP brand is associated with lower taxes for the wealthy, smaller government, freer trade and tight money. These policies fit the preferences of corporate political backers such as the Koch brothers.

Trump, of course, is a businessman himself. But as a real estate developer, Trump’s interests differ from those of Wall St. or big manufacturers. Unlike bankers or hedge fund managers, developers are borrowers, not creditors. In contrast with manufacturing firms that export goods, real estate lies in the non-tradable sector of the economy. While many businesses and wealthy individuals prefer low taxes, developers of office buildings, hotels and casinos benefit from the public goods created through government spending. Trump’s business interests and his worldview are thus distinct from the business groups that have long held sway within the Republican Party.

Consider money. On Federal Reserve policy, bankers and creditors prefer tight monetary policies that push up interest rates, keep inflation low and strengthen the dollar. Debtors, on the other hand, prefer easy money, low interest rates and moderate inflation, which allows borrowers to pay back loans with cheaper money.

Trump has declared that “I am the king of debt. I love debt.” In contrast with Paul Ryan, Ted Cruz and John Kasich, all of whom have castigated Fed Chair Janet Yellen for keeping interest rates low, Trump has mostly offered praise for Yellen and indicated sympathy for a loose monetary policy.

Indeed, Trump has suggested that this would be a good time for the Federal government to borrow money to fund infrastructure spending because interest rates are so low. More controversially, he indicated that, as President, he would be prepared to cut the Federal debt by negotiating reduced payments to holders of Treasury bills. This is, of course, how Trump himself escaped debt obligations numerous times under the cover of bankruptcy proceedings. Even the suggestion that the United States government might renege on some of its obligations to creditors set off alarm bells among investors who have large holdings of Federal bonds.

Trump’s views on taxes and the size of government are also worrying to Republican leaders and their business friends. While Trump proposes reduced income tax rates – a perennial Republican mantra – he has waffled on whether the wealthy might have to pay more in taxes. In sharp contrast with Paul Ryan, Trump rejects cuts to social security and Medicare. He also calls for increased military spending and, as mentioned above, growing public infrastructure investment. All of Trump’s proposed spending cuts would focus, implausibly, on the relatively small portion of the Federal budget devoted to discretionary spending. Combining Trump’s various tax and spending pledges, the Tax Policy Center estimates that his proposals would produce falling revenues and ballooning budget deficits. In short, Trump is a fiscal Keynesian.

Perhaps the most glaring area where Trump defies Republican orthodoxy is international trade. Calling NAFTA a “disaster,” Trump has promised: “We will either renegotiate it, or we will break it.” Similarly, Trump has called the TransPacific Partnership agreement “insanity.”

Trump’s own business investments lie mostly in the domestic, non-tradable sector of the economy. Trade and foreign investment are tangential to Trump’s principal businesses. This frees Trump to make a protectionist pitch appealing to working class Americans who feel threatened by imports (and immigration). This places him closer to the interests of a significant, but otherwise poorly represented, segment of the Republican base whose economic interests are misaligned with those of the party’s globalized business elite funders.

Among Republicans, a voter’s position on trade is a powerful indicator of their attitude toward Trump’s presidential bid. The force of Trump’s anti-trade appeal is evident in the finding that 89 of the 100 US counties most exposed to Chinese imports voted for Trump in the Republican primaries, while Trump won only 28 of the 100 countries least exposed to Chinese imports.

A recent PEW survey found that while 51% of Americans overall view trade deals as good for the United States, two thirds of registered Republicans who support Donald Trump consider trade deals bad for the country. Democrats are now more supportive of free trade than Republicans, a reversal of patterns dating back to the 1970s. Republican pro-free trade politicians and business must now confront the possibility that Trump has shifted the party’s center of gravity toward a protectionist stance among the base.

Trump voters vary from traditional Republicans in significant ways, as is evident from recent PEW polling.

Donald Trump’s fusion of nationalism, protectionism and right-wing populism has tapped a politically rich vein that will be available for others to mine long after Trump’s own presidential ambitions have been squashed. The political economy of Trump represents a potent challenge to long-standing political alignments, especially, though not exclusively, within the Republican Party.