Retreat from Globalism: A Domestic Diagnosis

Dec 1

Prologue

When President Trump withdrew the U.S. from the Trans Pacific Partnership (TPP) agreement immediately upon assuming office in 2017, the American political stage and the world looked on with genuine shock and awe. Was Trump playing with fire by ripping up the diplomatic playbook the U.S. religiously adhered to since the end of WWII? Surely, according to commentators and political opponents, he must have been a reckless radical for retreating the U.S. from the world stage and the very global liberal order it had led in establishing after WWII. The Trump administration’s withdrawal from the TPP was only the first taste of the protectionist policies and seemingly indiscriminate tit-for-tat trade wars that it would wage against allies and competitors alike. This essay will seek to analyze this seemingly sudden and populist reversal in American foreign economic policy heralded and spearheaded by the election of Donald Trump to the Oval Office through an examination of domestic and sectoral interests that directly and indirectly translate into foreign policy. In other words: was America’s protectionist retreat, Trump administration or not, inevitable given the domestic forces that so strongly shape how America engages with the world?

Inside Out, or Outside In?

That Trump’s withdrawal from the TPP and subsequent trade wars with NAFTA signatories, the European Union, and China marked a major reversal from the globalist grand strategy the U.S. has pursued for decades is undeniable. But radical and unpredictable? This paper will argue absolutely not; Trump’s policies were a result of domestic economic forces that would have tied the hands of any president following the Obama administration.

This contemporary emergence of insularity in America's foreign economic policy from domestic economic interests and its tensions with the externally-oriented liberal order in the 21st Century may invoke a sense of déjà vu for another period of time not too long ago during which the U.S. struggled to balance globalist and protectionist implementations of foreign policy: the interwar period. During this period, as scholars like Jeffrey Frieden (1988) note, externally oriented industries like financiers and exporters with vested interest in capital mobility and free trade actively lobbied for interests that directly conflicted with other sectors of the economy that greatly benefited from the import substitution industrialization that the United States had traditionally pursued. The result was a cleavaged state mechanism and inter-bureaucracy tensions that ultimately manifested into contradictory implementations foreign economic policies that may have each served the interests of select factions but altogether amalgamated into what can only be described as an incoherent mess. This “incoherent mess” was not insignificant, given the fact that the United States’ lackluster leadership has widely been blamed for failing to prevent the world from slipping into a second global conflict.

Just as Frieden has provided a compelling historical account of the domestic sectoral forces that shaped American foreign policy during key periods of the 20th Century, contemporary observers have not shied away from similar frameworks to analyze U.S. foreign policy’s domestic nuances in the 21st Century. Shaun Narine (2018), for example, identifies acute economic inequalities and the working class’ stagnating economic mobility as the cause of America’s withdrawal from the TPP–and the Asia Pacific region in general. More importantly, the working class has resoundingly attributed its economic woes to FTAs that increase the mobility of labor and investment among America and its signatory counterparts. Political and economic researchers have long attempted to quantify the impact of import competition and labor offshoring on voters in U.S. presidential elections. In one such case study, empirical evidence reveals that the American voting public is substantially more sensitive to job losses resulting from foreign competition and offshoring than unemployment induced by other factors (Margalit, 2011). Whereas corporations and their investors may reap the profits by profiting off gains from trade, the job losses were not costless–voters have statistically been shown to punish incumbent presidents and their parties for import and offshoring induced unemployment.

Given America’s higher labor costs relative to the economies it signs Free Trade Agreements (FTA) with, the resulting shifts in capital and labor have inevitably stoked fears of employment hemorrhaging from American soil among the manufacturing and low-skill labor force. From that perspective, the shift to cheaper labor abroad in pursuit of savings and bigger profit margins by corporations would only serve to benefit their investors and the white-collar workers they employ. In other words: the economic optimization of production factors lubricated by FTAs would reap prosperous dividends for corporate America and its investors in the form of greater profits with the tradeoff that countless low-skill workers would have to wake up to find their once-safe and reliable jobs “exported” to developing countries. The result? Attitudes among the American voting public towards free trade and FTAs have sharply bifurcated along class and income lines. Ample empirical evidence describes an America where the unemployed and financially insecure increasingly express pessimistic and suspicious attitudes towards expanding free trade, a stark contrast from their high-earning and securely-employed counterparts that resoundingly support the expansion of free trade and FTAs (Lukinovich et al., 2020). This finding is further supported by studies that conclude the increasing trade exposure’s impact on labor markets “import” political polarization into American society and politics (Autor et al., 2016). These findings are not inconsequential. When the working masses feel left behind by globalization and its purported benefits touted by Washington, discontent naturally festers and brews into a poisonous cup of tea with notes of populism and polarization that America is now forced to swallow hot.

Populism, Schmopulism

Domestic labor and industry discontent stemming from the burgeoning wave of automation-induced technological unemployment, labor offshoring, and foreign import competition would have constrained the foreign economic policy options from within the curved walls of the Oval Office to economic populism and protectionism regardless of the incumbent–Trump was simply a manifestation of this reality. The notion that populism emerges from socio-economic stratification is by no means radical or unestablished; political scientist and sociologist Seymour Martin Lipset (1960) famously attributed the Fourth Reich’s rise to economic inequality and economic discontent. And indeed, this very dynamic has been observed in 21st Century America: lower middle-class laborers most vulnerable to job insecurity and the technological revolution have become fervent ground for economic populism and backlash against globalization to develop into foreign policies that may seem regressive. The Founding Fathers may have drafted a Constitution to deter populism, but they also founded a nation rooted in economic and diplomatic isolationism from its very first day of Independence. Perhaps the America of today has overstretched that balance.

In reality, America’s retreat from the TPP was all but certain–Hillary Clinton, the Democratic presidential candidate, famously broke against the Obama administration that negotiated the agreement and would have withdrawn the U.S. from it had she been elected president in 2016. Joe Biden, Trump’s bitter nemesis and successor to the Oval Office, remained ambiguously mum about TPP before ultimately deciding to shelve it shortly after assuming office. What's more striking is the fact that the Biden administration has maintained and, in some cases, even expanded the suite of Section 232 and Section 301 tariffs and policies enacted by the Trump administration. Most notably, the Biden administration was both hailed by labor unions and scrutinized by industry groups for upholding Chinese steel tariffs enacted by his predecessor under Section 301 of the Trade Act of 1974 in the midst of the post-pandemic inflationary cycle (Mehta, 2021). Despite campaigning on repairing America’s relationship with its allies, Biden suspended Trump-era trade tariffs against the European Union, but stopped short of repealing them.

In a Shakepearean twist of political irony, Biden became the first ever sitting President to walk the picket line when he joined striking Michigan United Auto Workers union members in 2024. This was no coincidence: there has been no shortage of politicians and economists attributing the North American Free Trade Agreement signed under the Clinton administration to job losses in the manufacturing sector, a phenomenon coined the “Giant Sucking Sound” of car manufacturing jobs moving South to Mexico by 1992 presidential candidate Ross Perot. Economic research has resoundingly supported the hypothesis that the concentrated effect of certain trade shocks on specific industries and regions such as the automobile manufacturing industry in the Midwest states is economically significant due to its acute nature, and therefore of political importance in elections (Di Tella & Rodrick, 2011). It is then no surprise that the Rust Belt states, whose economies were once dominated by manufacturing industries such automobiles and steel, are battleground or “purple” states critical to any presidential contender’s path to the White House. Consequently, given the Executive branch’s wide ranging autonomy and “disposition” on matters of foreign policy, a precedent first set and upheld by the Washington administration in 1793, the economic and labor frustrations from these battleground states have acquired an outsized influence in the implementation of foreign economic policy (Prakash & Ramsey, 2001, pp. 328-346).

For better or worse, Trump and any other presidential contender that follows him will find themselves afflicted by a “Loss of China Complex,” forced to outdo one another by appealing to domestic pressures such as the electoral realities and labor dynamics. This is partly due to the role of swing states in the Electoral College system that elects the President to the White House. There is increasing evidence that shows political considerations of the outsized influence that swing states possess in disincentivizing trade liberalization policies from the Executive branch (Jensen et al., 2016). That would explain why Trump’s renegotiation of NAFTA to the USMCA was branded as a hallmark achievement of his administration, while Biden has maintained and sometimes even doubled down on Trump era trade policies. While the Biden administration's continuation of certain trade policies initiated by Trump may appear contradictory to traditional Democratic stances, it underscores the complexity of domestic forces that influence his administration’s foreign economic policy. On a similar note, the Trump administration’s economic protectionism and populism in a globalized world when taken out of context, may seem wholly novel and radical given the stark contrast with the preceding Obama presidency in tone and rhetoric. But make no mistake: the roots of such policies can be traced back to simmering discontent among American workers and industries facing the challenges of globalization and trade imbalances. Any politician, Democrat or Republican, ignoring this reality would find themselves unelectable to the Oval office.

Another Dimension

While the examination of U.S. foreign economic policy through the effect of domestic forces such as labor and the electorate cannot and should not be ignored, there also exists alternative perspectives that seek to explain the different dimensions of the problem. For example, Shaun Narine (2018) ultimately argues that the bigger and more salient root of protectionist sentiments among U.S. voters is the state’s systemic failures in mitigating the inevitable structural economic changes that accompany globalization in part because of its failing welfare programs. The inadequacy of America’s welfare program, Narine argues, exacerbates the income inequality and plays a significant role in hampering the “trickle down” of wealth obtained through trade liberalizations.

The weakness and minor influence of America’s labor movements and unions in influencing corporate decisions has also played an interesting role in influencing foreign economic policy. Unlike the two-tier corporate governance system in Germany that allocates significant employee representation to one of the two boards (Aufsichtsrat) that govern corporations (Hopt, 2016), the norm for American corporations are boards of directors almost entirely elected by shareholders and investors. This co-determination model of corporate governance that ensures the interests of labor are taken into account in corporate decision-making processes can probably account for why opposition against FTAs and expanded trade liberalization has not taken center stage in German domestic politics foreign policy. America stands in stark contrast. The virtually absent representation of labor in American boards of directors means that voters usually resort to directing and funneling frustrations through their votes–this almost always leads to populistic and protectionist foreign economic policies.

Moreover, the racialized character of American politics along with the rise of identity politics increasingly play significant roles in the implementation of trade policy (Grossman 7 Helpman, 2020). To cite an example, Ashley Jardina (2019) reports that Americans who identify as “white” disproportionately include the working class and therefore are more likely to advocate for protectionist foreign policy through their votes. Findings and perspectives like this add entire layers of complexity, sensitivity, and controversy in how domestic politics in the U.S. influence its foreign policy.

Under these fraught domestic conditions, it is only natural that FTAs like TPP–which happen to be signed between America and primarily developing economies with competitive labor costs–have become lightning rods for protectionist and populist criticism. Those lightning rods, in turn, have charged and channeled into votes that elect protectionist leaders and the foreign economic policies that they implement.

A Conclusion: History Rhymes

In conclusion, the retreat from globalism observed in U.S. foreign economic policy under the Trump administration and continued, albeit nuanced, under the Biden administration is not a sudden or radical departure but rather a manifestation of deeply entrenched domestic economic forces. The challenge that America now faces is not just that the U.S. will make the incorrect choice between insularity and globalism, but also that conflicting interests ultimately expose and widen cleavages with the government like it did in the interwar period and result in contradictory foreign economic policy. And we need only a reminder from history to remember what came after the interwar period

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Howard Chen