Populist political parties are rising in the world but particularly in the United States of America, where ideological polarization is more obvious than before on issues such as trade. In his 2016 presidential campaign, Trump promised to bring back jobs to Americans as if it was previously stolen by someone else. His strong stance against “unfair” international trade gained him massive votes from non-college educated whites [1]. Not surprisingly, these votes mostly came from manufacturing states whose prospects have been declining rapidly in the past few years [2].

According to Mudde, populism rises when the demand and supply emerge at the right momentum [3]. The demand emerges when people start to feel that political establishment does not serve their interest and ignore their demands. The supply comes from the populist politicians who mobilize the existing sentiments by creating a sense of crisis. Trump is the most recent populist actor who mobilizes the demand from workers who have been through rough years. While the negative sentiments of trade have been felt for many years before, Trump successfully activated this feeling to gain political votes at the right momentum when people are already tired of being the losers in trade game.

As globalization of trade continues, deals are made by states to reduce trade barriers between countries. The aim is to open a new market that will produce growth for all countries involved. In the case of US, several studies have analyzed the impact of international trade that might have contributed to the growing populist sentiments on trade. They analyze the impact of The North American Free Trade Agreement (NAFTA) and China’s accession to the World Trade Center (WTO).

NAFTA is an agreement between US, Mexico, and Canada, formally implemented since 1994. Trump has used strong words against the deal, saying that the unfairness significantly hurts US workers [4]. A study by Hakobyan and McLaren find that NAFTA has modest impacts for most US workers, but the greatest effect was felt by blue-collar workers with no high school education [5]. As trade deals typically tried to reduce tariff barriers, industries and regions that were most affected by the reductions had significant slower wage growth than those who already reduced their tariff even before NAFTA. Another study by Romalis concluded that the effect on the US is only particularly zero [6]. This concludes that while there are negative impacts on the US, it remains relatively small and it is not clear if NAFTA really hurt the US industry more than the process of trade globalization in general. Yet, Trump used the loss as his campaign promise and convinced his electorates that he could bring back jobs to American by renegotiating such deals [7].

The China trade shock has also aggravated political polarisation on trade in the US. China’s accession to the WTO in 2001 has opened its way to export manufacturing products massively to the US, thus having an impact on the overall decrease of employment and labour force. A study by Pierce shows that US manufacturing employment plunged by 18 percentage from March 2001 until 2007, following the Chinese manufacturing imports [8]. After the decline, districts affected by the shock moved further to the right or the left, depending on which way they were leaning in the first place [9]. The accession of China might or might not have negative impact on the US, nevertheless, trade generally comes with other things–such as technological changes and the opening of a new market that might be beneficial for American companies. However, trade also becomes an easy scapegoat for populist movement because it is easier for populist politicians to blame foreigners, including immigrants, as the cause of job loss [10].

Over decades, trade has been so interlinked between one nation to another that it will be difficult to retaliate against one another. In principle, countries could significantly raise trade barriers if they believe the sudden massive imports hurt their economy. Trump indeed raised 25 percentage tariff on steel and 10 percentage on aluminium imports in March because he believed US companies rely too much on foreign steel and aluminium [11], in the hope that since imported steel products will have to raise its price, the local steel might become increasingly more attractive. The domestic reaction on this decision has been divisive; Republicans generally support Trumps’ decision to increase tariffs on steel and aluminium imports, and Democrats showing the opposite [12]. But what is more important is the effect these tariffs have on global trade system.

Following this sudden move, US trading partner, including some of its closest allies, such as EU and Canada, retaliated back by raising their tariffs. Local steel producers do not sell only to the US market and therefore they are also forced to raise their price in exporting to other countries. Moreover, steel is used to produce many different products such as cars, planes, or cans. The tariff he imposed would not only hurt companies but also consumers who have to pay more for the finished products.

It is unthinkable to imagine international trade will stop sooner or later as it has been much interconnected between countries. To address concerns about unfairness within the competition, populist movement’s preoccupations might be valid but the way the actors respond to these are causing backwards in promoting trade competition. Unilateral retaliation has proven not to benefit both producers and consumers. Alternatively, in addressing those concerns, an academic journal by Rodrik suggested that the government should focus more on distributing the benefits of trade globalization more evenly, compensating the losses better by having rigid safety-nets, and giving more attention to the interests of labour in setting the rules of globalization [13]. In the US, this remains additional challenge as discussion on social security, or specifically on unemployment benefits, is a still divisive issue between the Democrats and the Republicans. Therefore, the linkage of trade with other divisive issues makes it difficult to find solutions that could represent all.

In conclusion, trade is indeed a political issue considering the length politicians have covered them to make it politically advantage for them. This has given the way for populism in trade to emerge. Even though the concerns that populist movement represents are valid demands, the way populist actors respond might be going in the wrong way and thus needs to be analyzed further. Furthermore, as trade is also linked with other issues with divisive polarity, the US becomes a breeding ground for trade populist.

Dinda ROYHAN

Reference

[1] Tyson, Alec, and Shiva Maniam. n.d. “Behind Trump’s Victory: Divisions by Race, Gender and Education.” Pew Research Center (blog). Accessed November 15, 2018. http://www.pewresearch.org/fact-tank/2016/11/09/behind-trumps-victory-divisions-by-race-gender-education/.

[2] Irwin, Neil, and Josh Katz. n.d. “The Geography of Trumpism.” The New York Times. Accessed November 15, 2018. https://www.nytimes.com/2016/03/13/upshot/the-geography-of-trumpism.html.

[3]  Mudde, C, Kaltwasser, C., “Populism: A Very Short Introduction”, Oxford University Press, 2017, Chapter 6: http://www.veryshortintroductions.com/view/10.1093/actrade/9780190234874.001.0001/ actrade-9780190234874-chapter-6

[4] Partington, Richard. n.d. “Nafta: What Is It and Why Is Trump Trying to Renegotiate?” The Guardian. Accessed November 15, 2018. https://www.theguardian.com/us-news/2018/aug/30/nafta-what-is-it-why-is-trump-trying-to-renegotiate.

[5] Hakobyan, S., and J. McLaren. 2016. “Looking for Local Labor Market Effects of NAFTA.” Review of Economics and Statistics 98 (4): 728–741, in Rodrik, “Populism and the Economics of Globalization.”

[6] Romalis, John. 2007. “NAFTA’s and CUSFTA’s Impact on International Trade.” The Review of Economics and Statistics 89 (3): 416–35. https://doi.org/10.1162/rest.89.3.416,  in Rodrik, “Populism and the Economics of Globalization.”

[7] Politifact. n.d. “Promises about Trade on Trump-O-Meter”. Accessed December 30, 2018. https://www.politifact.com/truth-o-meter/promises/trumpometer/subjects/trade/

[8] Pierce, Justin R., and Peter K. Schott. 2016. “The Surprisingly Swift Decline of US Manufacturing Employment.” American Economic Review 106 (7): 1632–62. https://doi.org/10.1257/aer.20131578.

[9] Rodrik, Dani. 2018. “Populism and the Economics of Globalization.” Journal of International Business Policy 1 (1–2): 12–33. https://doi.org/10.1057/s42214-018-0001-4.

[10] Ibid.

[11] BBC News. n.d. “Trade Wars, Trump Tariffs and Protectionism Explained.” Accessed November 15, 2018. https://www.bbc.com/news/world-43512098.

[12] Jones, Bradley. n.d. “Americans More Positive on Free Trade than Tariffs.” Pew Research Center (blog). Accessed November 16, 2018. http://www.pewresearch.org/fact-tank/2018/05/10/americans-are-generally-positive-about-free-trade-agreements-more-critical-of-tariff-increases/.

[13] Rodrik, “Populism and the Economics of Globalization.”