Does Trump’s jobs policy amount to a surrender?

Even Republicans disagree with the president-elect's decision to "save" American jobs, says Alan Philps

Donal Trump on his thank-you tour. Sara D Davi / Getty Images / AFP

The transition from candidate to president of the United States is usually a calm affair, with the only drama coming from announcements of candidates to major posts. Not so with Donald Trump, who has been wowing his supporters around the country with a victory tour.

While most of the policies he will follow in the White House are still unclear, one thing is certain. His promise to bring back well-paid jobs to the US is central. And he seems determined to try to achieve this, no matter what the consequences to the global trading system which, like it or not, has lifted one billion of the world’s population out of dire poverty since the 1980s and powered the rise of China and India.

One of the highlights of his tour has been to ensure that Carrier, the US maker of air conditioners, does not transfer 1,000 jobs from Indiana to a new plant in Mexico. At the cost of $7 million (Dh25.7m) in tax breaks from the state – whose governor happens to be the vice-president-elect, Mike Pence – and the threat of punishing firms that outsource manufacturing, the jobs were saved. No surprisingly, the Republican Party establishment is not impressed. Spending taxpaxer’s money to support unprofitable enterprises is not part of the party’s ideology.

Senator John McCain, a leading Republican foreign policy expert, said: “It is a fool’s errand to try to recreate a mythical time when Fortress America was impregnable, unaffected by the world’s troubles.”

Mr McCain has broader concerns than just a US corporation’s bottom line. Mr Trump’s America First strategy and distrust of free-trade deals will give China greater control of the Asian economy, the presumed source of growth in future, and lock out American firms. This could indeed happen: the president-elect has promised to kill the Trans-Pacific Partnership, a trade agreement that ties in regional states to America but excludes China. Already China is rushing to fill the vacuum, as America – in Mr McCain’s words – “retreats from the responsibilities of world leadership”.

Mr Trump’s solution to the problem of offshoring – to slap a punitive tax on imports of goods made abroad by US companies – has been ridiculed by trade experts who see crude protectionism as unworkable. When the US imposed a 35 per cent tariff on Chinese tyres in 2009 to protect the domestic industry, the effect was to spur imports from South Korea, Thailand and Indonesia, at greater cost to the US consumer.

As in some other aspects of his successful campaign for president, Mr Trump put his finger on a real problem, even if his solutions are simplistic. While the benefits of free trade appear clearly in statistics, they are lumpy and a source of galloping inequality.

Globally, the share of wealth held by the richest 1 per cent in the world rose from one-third in 2000 to a half in 2010. Some of those 1 per cent are the shareholders in American firms that shuttered plants at home and moved manufacturing to Mexico. An estimate by the Fin­ancial Times suggests that two million well-paid US jobs have been sacrificed to cheaper imports, with a similar number the victim of automation and robotics.

There is a clear change of tone among policymakers as they confront the possibility of Trump-style populism sweeping away elected governments. Mark Carney, the governor of the Bank of England whose job usually requires him to speak in Delphic terms, came down from on high this week to address some of the failures of the elites. The economics profession, he said in a speech in Liverpool, suffered from a “totemic” belief in free trade and had not taken into account that aggregate prosperity did not raise all boats. It ignored the “isolation and detachment for substantial proportions of the population” who lost their jobs.

The way people felt about their lives was affected as much by perceptions of inequality and loss of community as by statistics.

Mr Carney had no magic wand, but he did note that the same combination of factors – technological disruption combined with free trade leading to stagnating incomes – had happened in Britain in the 1860s. The solution in the decades that followed was the rise of trade unions, expanding the electoral franchise to include working men and then women and building a welfare state.

Those tasks were completed by the 1950s, so the solution is not there. It may be that the privileged lifestyle of the countries which were first to reap the benefits of industrialisation cannot be sustained. Inequality very much depends on where you stand in the world. Today, 70 per cent of Chinese workers believe that trade creates jobs and increases wages, while US households think the opposite.

With Mr Trump putting the interests of the US middle classes first, the world is clearly changing, and it could move in several different ways.

Paul Mason, a left-wing British commentator, suggests that neoliberal capitalism may collapse just as suddenly as the Soviet Union crumbled in 1991. This seems unlikely. A dictatorship which has lost the will and capacity to rule will always be swept away. Globalisation is not all or nothing, and can be recalibrated.

More likely is a time of de-globalisation where markets are divided into spheres of influence – with the US controlling the western hemisphere, ­China sitting at the centre of the Asian market and Russia seeking to restore its supremacy in its neighbourhood. Unless the world is really headed back to the 1930s, this might work for China and the US – but not so much for the lands in between. It would be particularly uncomfortable for the UAE, a trading nation par excellence, and for the wider Gulf, just as Saudi Arabia has grand plans to open up its economy and move away from reliance on oil. But it is early days yet. There are still six weeks to go before Mr Trump’s inauguration.

Alan Philps is a commentator on global affairs

On Twitter @aphilps