Trump's Protectionism Is A Threat To Globalisation And Democracy And It's No Accident

(MENAFN- The Conversation) Many analysts have interpreted Trump's protectionist stance, and the United States' imposition of tariffs, as economically irrational . If the liberal motto was once that“under free trade everybody wins”, it is now logical to think that, under protectionism, everyone will lose. It would also mean the end of globalisation, which would come at a great economic cost for the US.

In just the last few days, the US-Canada tariff crisis has escalated significantly. The Ontario government responded to Trump's threats with a 25% tariff on electricity serving the states of Minnesota, New York and Michigan, prompting Trump to announce that he would raise tariffs on Canadian steel and aluminium to 50%. Shortly after, Ontario authorities suspended the electricity rate hike, and Trump has now also walked back his retaliatory tariff hike .

Similar events are taking place on the other side of the Atlantic as well, as the European Commission has responded to US tariff threats on steel exports with its own package of measures targeting a range of American goods.

Read more: How the EU is preparing to play hardball in the face of Donald Trump's tariff threats

Trump's narrative pivot has caused turmoil, and seems to run contrary to US business interests. However, a critical look at the benefits of free trade – and the US' unique position in relation to it – can help us understand the resurgence of protectionist discourse, and the US' trade war with China.

Free trade serves US interests

Economic history shows that, once the US' technological development outstripped its competitors, it was able to turn free trade into an instrument that protected its own interests . At this point it, along with its allies, began to promote free trade as vital to the development of less advanced economies.

This resulted in globalisation, which was what made it possible to manufacture goods in China at lower costs, thus keeping US wages and inflation in check and increasing the profits of US companies. As long as this remained the case, free trade with China served the interests of US companies, and was therefore justifiable .

However, in recent years China has shifted its economic strategy towards producing and exporting high-tech, value-added products (as South Korea and Taiwan have also done). Chinese-produced mobile phones, electric cars and artificial intelligence have subsequently conquered the US market.

The longer this shift goes on, the more useful and legitimate tariffs and protectionism become as a way to shield the economic interests of US businesses.

Read more: US-China tensions are an opportunity – the EU could become the world's third great power

How far will the US go?

Protectionist rhetoric and trade wars were already trumpeted by the first Trump administration. However, the KOF globalisation index – which measures the global connectivity, integration and interdependence of countries – showed the same value in 2021 as it did in 2017 .

While the growth experienced since 1970 ground to a halt, the index's indicators disprove any claim that globalisation receded during Trump's first term in office.

This second term may well be different because, according to some experts, the president has learned to bypass political counterweights, to surround himself with like-minded people, and to free himself from partisan ties in order to implement his own agenda.

Others, however, question the very existence of his own agenda beyond the interests of big business, because it is precisely this alignment of interests that allows him to:

• Impose tariffs on developed countries , and on products competing for the same markets.

• Make political use of tariffs to threaten other countries and secure access to vital resources for the technology race (mainly due to the US' position of being the world's largest buyer and military power).

• Launch a new arms race that will boost the profits of US industry.

• Use a nationalist and anti-globalisation narrative to justify the growing precariousness of the US working class. He aims to unite US citizens behind the flag, dilute their class consciousness, and offer up new scapegoats in the form of immigrants.

In reality, Trump's agenda is unlikely to be compatible with any meaningful de-globalisation process. Reversing globalisation would be contrary to the interests of US capital, which needs to expand – into both new territories and sectors – to ensure its own survival.

In light of all this, why would US multinationals want to stop making huge profits in other countries? What could lead them to give up producing in territories with lower production costs, cheaper labour, and a guaranteed supply of raw materials? Why would the United States be in favour of rebalancing its trade deficit, and thus give up the privilege of issuing the benchmark currency for international reserves?

The dollar's 'exorbitant privilege'

According to IMF data , in the third quarter of 2024 the US dollar still accounted for more than 57% of total international reserves , and more than 80% of international trade financing.

When a country's domestic currency acts as a reserve asset or is the currency in which most international payments are made, the financing of persistent current account deficits does not carry major risks of either devaluation or currency crisis. Every year since 1982, with the sole exception of 1991, the US current account balance has been negative.

These conditions for financing its debt – which Valéry Giscard d'Estaing , Charles de Gaulle's Minister of Economy, defined in 1964 as an“exorbitant privilege” – improve even in times of crisis. The dollar's status as a safe haven asset (much like gold) means that international demand for it actually increases in times of uncertainty .

So why would the US be in favour of shifting its trade balance, thereby renouncing the privilege of issuing the international reserve currency?

Globalisation, democracy, sovereignty: the great trilemma

In his 2012 book The Globalisation Paradox , Turkish economist Dani Rodrik puts forward his theory of the“trilemma”. This theory states that democracy and national sovereignty are fundamentally incompatible with globalisation.

Only those who accept the existence of this trilemma, and understand the tensions that arise from it, can then begin to pick apart one of its components. This is where Trump seems to have the upper hand. He is playing a game of illusions, one where he publicly pretends to dynamite globalisation while, behind the scenes, he stealthily dismantles the pillars of democracy.

This article was originally published in Spanish

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