Table Of ContentT H E G L O B A L
T R U M P
Structural US Populism and Economic
Conflicts with Europe and Asia
PAUL J. J. WELFENS
The Global Trump
“With Donald Trump in the White Office, the world wonders, how did this hap-
pen and what does it mean for us? In this riveting, penetrating and timely book,
Paul Welfens answers with insights that are thoughtful, well reasoned and compel-
ling. This book is able to explain and analyze what has eluded both scholars and
thought leaders in business and the media—how and why populism has grabbed
center stage and posits new strategies for political and economic stability and pros-
perity in this new era of Trump. The book is not just ‘must’ reading to everyone
interested in contemporary global affairs, it is also engaging and a pleasure to read.”
—David B. Audretsch, Distinguished Professor, Indiana University,
Bloomington
“Paul Welfens has produced a highly perceptive and timely analysis of US eco-
nomic populism in the Trump era and the international implications. He
emphasizes the structural failures of the US economic system to constrain rising
inequality, in comparison with the relative success of the European social demo-
cratic systems, and emphasizes that US populism will is therefore likely to persist
in the years ahead. With great skill and insight Welfens traces the implications
of US populism for the global economic system and for Europe’s geopolitical
and economic choices.”
—Jeffrey D. Sachs, University Professor at Columbia University
“How Europe responds to U.S. President Trump’s provocations and erratic deci-
sion makings will shape its place in the world, and in global geopolitics in par-
ticular, for years to come. In this timely book, Paul Welfens both provides
valuable insight into U.S. politics and describes the strategic options for Europe
going forward.”
—Barry Eichengreen, University of California, Berkeley
“Paul Welfens has written an important and timely book on the consequences of
U.S. President Trump’s economic policies for the American, European, and Asian
economies. It offers a rich fare of information on the roots of American and
European populism and its dangers for our political stability and economic well-
being. Its critique of Trump’s fiscal and international trade policies and their weak
intellectual basis deserves the attention of U.S. and European readers alike.”
—Richard H. Tilly, University of Münster, Germany
Paul J. J. Welfens
The Global Trump
Structural US Populism and Economic
Conflicts with Europe and Asia
Paul J. J. Welfens
European Institute for International Economic Relations (EIIW)
University of Wuppertal
Wuppertal, North-Rhine Westphalia, Germany
ISBN 978-3-030-21783-9 ISBN 978-3-030-21784-6 (eBook)
https://doi.org/10.1007/978-3-030-21784-6
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Preface
The presidential elections in the West’s leading economy, that is, the US,
always attract a great deal of attention: from international market partici-
pants, the governments of (particularly partner) countries, as well as ordi-
nary citizens around the world—with President Donald Trump, the level
of global attention was obviously very high. His political victory in 2016
came as somewhat of a surprise, and his new economic policy, including
the weakening of transatlantic cooperation and the US-Sino and US-EU
tariff conflicts, marks a new chapter in modern economic history.
Trump’s surprising victory has to be explained, and there is also the
crucial question of whether “Trumpism” (as the current phase of US pop-
ulism is referred to here) is a transitory phenomenon or a more long-term
challenge. This study shows that there are good reasons to expect that
populism is a structural problem for the US, which may continue long
after the Trump presidency, and therefore, US nationalism and protec-
tionism are new problem areas facing Europe, Asia and the other regions
of the world economy. Trump’s economic policy is a rather new and
partly contradictory mix of policy measures, including import tariffs,
which raises the question of how sustainable and successful his approach
will be. Trump’s political vision is one which wants to lead the US back
to good old historical times when the American manufacturing industry
was still the driver of US growth—steel and coal were still important sec-
tors of the economy. This backward-looking perspective is not much
v
vi Preface
different from the Brexit majority in the British EU referendum of 2016:
a rather vague rhetoric centered on taking back control while ignoring
the real world with its new challenges, ranging from climate change to
the rise of China and the dynamics of globalization. In Germany, the
“globalizers” in turn are also refuted by the populist right-wing Alternative
für Deutschland, also known as the AfD (in English, the “Alternative for
Germany”) party.
The historical origins of the transformative process referred to under
the heading of globalization lie, on the one hand, in the year 1860 with
the signing of the Cobden-Chevalier trade treaty between the UK and
France, a step toward free trade that encouraged other countries to
quickly follow—with positive real income effects for so many, and, on
the other hand, with the first group of international organizations to be
created in the period 1865–1899, ranging from International Telegraphy
Union and the Universal Postal Union to the International
Telecommunications Union (to use the modern name) to the International
Court of Justice. Under President Trump, the Trump Administration has
indicated in 2018 that the US wants to leave the Universal Postal Union.
The strange reason given for such a move is China and claims that the US
is treated unfairly; the US argues that China is treated too favorably as it
still has the status of a developing country which it certainly no longer is.
However, why not try to solve the conflict within the framework of that
organization? Do the complaints of the US really require leaving such a
long-standing international organization? The Trans-Pacific Partnership
(TPP) of 2015 was ready to come into effect for 12 countries, but the US
under the Trump Administration said no at a rather late stage, and hence
only 11 countries have started TPP. Many thousands of scientists from
American, European, Asian, Australasian and other universities have
carefully accumulated evidence on global warming, just as surely as the
glaciers in Switzerland have been melting over more than a century as
postcards, old and new, show. However, President Trump’s climate policy
argues that world leaders and governments can ignore such scientific
analysis. The popes who ignored Copernicus and Galileo Galilei had a
similar (ultimately misplaced) perception, as almost everybody under-
stands these days that the Earth is not the center around which the sun
orbits, but planet Earth is in fact orbiting around the sun; and that the
Preface vii
Earth is not flat (however, it is worth noting that the Flat Earth Society
has about 34,000 followers on Facebook).
The Trump Administration largely ignores modern Economics and
certainly the international consensus in climate policy: an adequate pol-
icy requires global cooperation between large and small countries, and
this is not what the president of a superpower should like to hear; it is
certainly not the approach that President Trump, with his (in)famous
“America First” policy and his emphasis on bilateralism—and his dislike
of international organizations—wants to follow.
This study argues that the US is indeed facing a structural populist
phase, which can primarily be traced back to an enormous increase in
economic inequality over decades and—this is surprising—a relative
voter majority that holds the view that the unfair high levels of inequality
in the US should be corrected by big companies, which is little more than
wishful thinking. Although exit polls after the mid-term elections in
2018 indicated that health insurance and immigration were the two lead-
ing topics for US voters, this was a misleading picture. Broad concern
about high inequality in the US indeed was not showing up as a topical
political issue, but the main reason for this is not that there is no broad
concern about this among large strata of society. The paradox is simply
that US voters, to a large extent, do not consider inequality, and particu-
larly income inequality, to be a challenge for the political system. From a
European perspective, this is an unusual position since one would more
often than not hold the view that high levels of inequality should be cor-
rected by policymakers and economic policy intervention: adjustment in
the economic framework—for example, creating stronger rules for com-
petition—or policy intervention through tax policy or other measures
would be considered by government. Can the US pick up some elements
of the European social market economies? Will the EU be strong enough
that EU27 ideas could inspire countries in Asia, North America and
elsewhere?
The US at the end of the second decade of the twenty-first century is
far removed from such a European perspective, and it is difficult to imag-
ine that market forces would lead to reduced economic inequality in the
US. Rather, the economic dynamics, so the present study shows, will go
on in a direction which will reinforce US inequality even further: the
viii Preface
result will be broad frustration of the lower half of income earners and
hence of a near majority of voters, and this, in turn, generates opportuni-
ties for future populist presidents who can make great promises and who
have a talent for making bold announcements while not delivering much
in the long run. The political economy of the digital “new world” is such
that making generous promises in coarse and simple language and focus-
ing on “headline-grabbing projects” is rather easy for political newcomers
as the marginal cost of posting new political messages is extremely low in
the Internet economy. More radical political headlines generate higher
rankings, more attention and thus attract more followers in the digital
social networks than sober solid scientific analysis. This, by the way, is
partly also an explanation for the strange Brexit majority in the UK
(about which I have written in the book An Accidental Brexit, 2017). As
regards the US policy approach toward globalization, the rise of China
has made this a less attractive opportunity, and this new ambiguity could
affect international economic policy for many years to come.
As regards Trump’s trade policy, the book presents new arguments on
why the benefits for the US will be quite modest in the short term,
namely, by looking at both trade and foreign direct investment aspects.
A modified partial equilibrium approach already raises doubts about the
often made claim that US import tariffs on Chinese goods generate
major benefits, and a more refined new growth model—shown in the
appendix of Part II—clearly suggests that the long-run effects of US
import tariffs will be negative for the US; this appendix also suggests
some new analytical capital market perspectives based on a Brexit-related
capital market research project (which was sponsored by Deutsche
Bundesbank, with the research primarily published in a special issue of
the journal International Economics and Economic Policy, February 2019)
which can easily be applied with its event methodology to Trump’s
trade policy.
Against all odds, Donald Trump, a New York businessman from the
non-tradable sector, the construction industry, became the presidential
candidate of the Republican Party in 2016, and in 2018, his view of the
mid-term election results was that he had helped the party to a big politi-
cal victory, an argument which is not fully convincing if one takes into
account that the Democratic Party regained the majority in the House of
Preface ix
Representatives, even though the Republicans had defended their major-
ity in the Senate again in early November 2018.
The Trump Administration wants a kind of unilateral leadership, partly
based on America’s economic leading position amongst OECD coun-
tries, but the facts are not very favorable for the US. One key finding of
the study presented here is that lifetime per capita consumption—net of
health-care expenditures—in the US is not much different from that in
France or Germany or indeed the UK. The strange inefficiencies of the
US health-care system lead to a much higher share of national income
devoted to health care in the US than in Western Europe; life expectancy
is considerably lower in the US than in Western Europe, while the US
infant mortality rate is higher (as will be shown). If the past 30 years
would be the benchmark gap for the next 30 years, the hypothetical loss
for the US in terms of the population that would have been achieved,
with the lower German-French infant mortality figures, amounts to
50 million by about 2048 for the US. As regards the Trump Administration’s
orientation for systemic reform, on the one hand, it seems that the US
wants a protectionist and more nationalist policy, while on the other
hand, the Trump Administration refuses to consider European countries
with high per capita income as a model: it is obvious that the Council of
Economic Advisers’ (2018) per capita consumption comparisons between
the US and Nordic European countries are biased—the CEA claims, for
example, an 18% US lead, while the effective lifetime consumption of
people in Norway is actually slightly higher than in the US; moreover, the
infant mortality rate in Norway and indeed in other Northern European
countries and in Western EU countries is lower than in the US so that
“utility spillovers” within young family suggests further advantages of
European economic systems. These should be strong incentives for the
US government and the US political system to consider learning more
from Europe; but the spirit of the Trump Administration is not much in
favor of learning. The EU has, of course, its own weak points, includ-
ing Brexit.
Comparing the US and Europe is always interesting, and a careful
economic comparison reveals new insights. The difference between effec-
tive per capita income in the EU15 and the US is very small, and hence
the US could learn as much from Europe as the EU could learn from the
x Preface
US, while both could almost always learn from Switzerland—and many
other countries as well. The challenge of digital inequality, however, is a
global one, and certainly one could try to find solutions for this problem.
Europe itself is partly unstable, as radical political protests in France and
other EU countries suggest. Moreover, populism is also visible in parts of
the European Union.
Europe—and above all the European Union—will change as a result
of Brexit and Trump’s policies in the US. The entire world economy post-
2025 could be fundamentally changed: more prone to conflicts, more
nationalistic, with structures similar to the rivalries of the great powers in
the late 1800s.
As regards my own personal research visits to the US, these date back
to 1990. In 1990/91, I was enjoying a stay as McCloy Distinguished
Research Fellow at the research institute of the AICGS/Johns Hopkins
University—expansive Reagan years were a thing of the past, and
President George Bush, Sr., was attempting to strengthen the American
leadership role in the West. In doing so, he supported Germany on the
road toward reunification of Germany and got involved in the First
Gulf War, in which the US forces stopped before reaching Baghdad.
Presidents Clinton, George Bush, Jr., and Obama followed—and
Trump in 2017.
In the US and Western Europe, many discussions took place in 2018
against the backdrop of the collapse of the New York investment bank
Lehman Brothers on September 15, 2008: a decade after the outbreak of
the transatlantic banking crisis; in Germany, this was three years after the
wave of refugees, which Chancellor Merkel, rather incomprehensibly, so
badly managed, and in the immediate aftermath of the “Chemnitz inci-
dents” with right-wing, nationalist demonstrations—with the AfD’s
regional party boss Björn Höcke leading the way. In The New York Times
on September 11, 2018, the question was raised of the ability to learn
from history. On that same day, the anniversary of the Islamist 9/11
attacks on the World Trade Center, I myself arrived in New York on
board a Lufthansa jet; eventually landing on the second attempt, after the
first attempt was abandoned, we were later informed by the crew mem-
bers that there had been another aircraft on the runway, as ours, trying to
touch down. On the next day, I was to be a guest at the United Nations.
