This year’s U.S. presidential election is often referred to as the most consequential in the country’s history. From a political perspective, it’s easy to appreciate why that might be the case. From an economic perspective, less so. There are major differences in the respective economic platforms of Donald Trump and Kamala Harris. But it’s not clear whether either candidate would fundamentally alter the country’s economic trajectory.
What defines that current economic trajectory in the United States? Does the Democratic Party’s approach to economics mark a break with the past? Could Trump trigger an all-out trade war?
Those are a few of the questions that came up in my recent conversation with FP economics columnist Adam Tooze on the podcast we co-host, Ones and Tooze. What follows is an excerpt, edited for length and clarity. For the full conversation, look for Ones and Tooze wherever you get your podcasts. And check out Adam’s Substack newsletter.
Cameron Abadi: If we’re talking about whether this election will change the country’s economic trajectory, we should first determine what the current trajectory is: What defines the structure of the U.S. economy right now and our current historical moment? If we had to put our fingers on something, is it that the U.S. economy is structured around the dollar as the world’s reserve currency? Is that fact shaping the country’s economy and all its various policies?
Adam Tooze: It’s a great question to orientate ourselves. At the macro level, the level of the economy as a whole, I do think that something like the centrality of the dollar to the global economy and Wall Street to the operation of dollar finance remains, in some ways, quite a good way of defining what makes the American economy special and different from other economies.
In terms of how government policy is set up, the other thing is the fiscal policy stance, which is just very, very unusual. And I’m, I’ll emphasize, not a deficit hawk. It’s just, historically speaking, anomalous to have America’s government budget deficit running at between 6 and 7 percent at full employment. And this also makes America really rather special. In other parts of the world, say in France, which we’ve been talking about recently, that kind of deficit is the cause for a huge political crisis. In the United States, people just shrug, and it’s barely even an issue in the election.
It’s also pretty hard to look past big tech and artificial intelligence because the United States has really emerged as the platform for this technology, which really does look as though it has the potential to transform an awful lot of routine white-collar work and, of course, in the meantime is making a cluster of American corporations fabulously wealthy, driving stock markets and so on.
And then the fourth element, I think, that has emerged in the succession of the Obama and Trump and Biden presidencies is energy. And it’s not green energy, renewable energy—it’s oil. It’s the fact that the United States has emerged as the largest fossil fuel producer the world has ever seen and has gone from being a net importer of energy to being a net exporter. And if you had to define what makes the American economy different from other rich economies or other big economies in the world, it would be some combination of those four things, I think, that distinguish it.
There’s something rather quixotic, paradoxical almost, about this relentless emphasis on manufacturing, which is in some ways the most ordinary and in many ways the least successful. If you think about General Electric or Boeing or Intel right now, these are not success stories of the U.S. economy.
CA: Yet they are at the center of the narrative of Bidenomics, the economic program that Kamala Harris is essentially promising to continue, with its focus on industrial policy, a return of manufacturing jobs. But was Bidenomics really any kind of significant shift in the essence of the U.S. economy? Or is it really a continuation of the old with just some marginal tweaks and adjustments?
AT: I mean, first of all, Biden economics is at the level of policy, right? So it’s policy talk above all, as well. It’s a way of framing what’s happening with the ultra-complex process of economic policy legislation in the United States. So we need to distinguish that. There’s the actual American economy with actual American people working in it and its relations to the wider world. There is the policy process of making legislation, something like the Inflation Reduction Act, in Congress, which is this hugely elaborate process that involves massive amounts of lobbying and lawyering. And it can take a year, 18 months, to pass a piece of legislation, which is then festooned with a bunch of other things. And then there’s the framing of what you’ve just done and how it relates to the world. That’s the level at which Biden economics, or Bidenomics, is operating.
And I think it combines two things. At a sort of cultural vibes level, I’ve ended up saying things like, it’s MAGA for thinking people, right? It’s Make America Great Again for smart types, which can seem super deflationary, but the smarts shouldn’t be underestimated. There are very smart people making policy in the Biden administration and also very good publicists. And they have really done an amazing job in wrapping this set of policies, which, broadly speaking, are an intelligent continuation of the break that we saw with Trump.
And the break is what? Well, the break is really the definitive end of the globally orientated, Wall Street-led brand of policymaking—which emerged from the ’80s under Ronald Reagan and George H.W. Bush and then was consolidated under Bill Clinton, which made it a bipartisan thing with Robert Rubin as treasury secretary and Larry Summers and all these sorts of people—organized around the U.S. Treasury as the linchpin of the world economy in the unipolar moment. That’s where we were at. And that policy regime prevailed through the 2010s. And then, even down to the fine details of what will count as an argument in a committee meeting with the treasury secretary or the undersecretary or whatever, all of that has really quite dramatically changed.
If you talk to insiders in Washington right now, the break within the culture of Democratic Party over economic policymaking is dramatic. And what has emerged instead is a focus on production, a focus on labor rather than consumers, a focus on the link between economics and national security, which seems to have been irreversibly hardened into a new consensus in the United States. And in this respect, at this level, not at the level of the U.S. economy per se or necessarily even at the level of the hard-nosed, gritty business of making policy, but at this level of discourse, of framing, of the cultural mores of the policy blob, there really has been quite a significant shift.
And it’s most notable on the Democratic Party side, which was so uptight about economic policy. It’s pretty hard to believe in retrospect just how MIT, Harvard economics seminar-style policy was. And we’re really well beyond that. And it’s difficult to imagine those times coming back, to be honest. Though, who knows in the Harris coalition how the cards will be reshuffled. Joe Biden was an unusual picker of people in that respect. That’s the level at which I would see there is a real break.
CA: To get to the part of Trump’s platform that he likes to emphasize the most, he talks about potentially imposing massive and comprehensive tariffs across the board. And I’m curious, if we take that seriously at face value, what could come from a widespread increase in tariffs of the sort he’s talking about? Could this lead to a real breakdown of the trading system as we know it—a legitimate widespread trade war that we haven’t seen recently?
AT: I mean, I think the first thing to say is it’s a real and present danger to the standard of living of the lowest-income Americans who are most vulnerable to indirect taxes, for whom consumption is a larger share of income. It’s an incredibly regressive move. This entire discussion of replacing America’s limited but highly progressive income tax system with indirect tax is just another word for saying “I want to increase inequality” because that’s what that shift would do. So, God knows how folks cope, right? Because the price of everything would go up—or everything imported, anyway. In the short run, there would be no supply adjustment because the American economy doesn’t have a huge amount of slack. You would expect, therefore, price surges to happen.
Given the post-truth nature of the Republican Party right now, of course, they would deny that this was actually inflation, but they would insist, though, presumably that prices are either not going up or that, in fact, they were going up but it was to do with ghastly foreigners who were price-gouging or ethnic minority bodegas or something. They would find scapegoats to tag this on. And there certainly then would be a fallout globally. The Europeans have already made clear—and they did during the first Trump administration—that if the United States comes with World Trade Organization violations, they will retaliate, and they will try to litigate. When I was in Mexico City over the summer, I heard very tough talk from them about the way in which they would respond. And of course, this will be ruinous for the Mexican economy. But they’re certainly not just going to accept a unilateral American rupture of trade relations. It is, after all, the most important trade relationship for both of them. Mexico’s in a vulnerable position, but Mexico is either the No. 1 or No. 2 trading partner of the United States. So this is crucial. If Robert Lighthizer is running the show—he’s tough, but he’s not a maniac. So I would expect them to respond rationally. But who knows?
On the Chinese side, if they really go as hard as they’re promising, I don’t know whether Beijing sits tight and just lets that happen, in which case you would expect a variety of different sanctions from the Chinese side, either against American imports or I would be more worried about the position of Apple and Tesla—because they’re the big FDI, foreign direct investment, from the American side and those are both very prominent companies and at least one of them is very well connected in the Trump circle. So there could be some pushback there from within the Trump administration.
One shouldn’t underestimate, in other words, how dramatic this would be if they really go as hard as they’re talking. And it would produce waves. What effect it would actually have on the U.S. overall macroeconomic balance is really hard to tell because in the end, if you slap a tariff on an economy that has a huge government deficit pumping excess demand into the economy, it’s not certain that it will necessarily dramatically reduce the trade deficit because that, in the end, is determined by the overall aggregate demand imbalance, and that has to be absorbed somewhere. I mean, it could be through domestic price increases in the United States, but the bigger the deficit, the more you would expect the trade deficit to expand. Just, you know, all things being equal.
So it’s a thoroughly inconsistent policy package. It could very well also drive the value of the dollar up, which could cause ructions in the administration, which is determined to believe that the dollar is manipulated in a way to the disadvantage of America. I mean, this is firing the cue ball into the pack of bulls. We’ll have to see what comes next. This, too, would really mark a break. So far, it’s inched up within the long run of historical tariff reduction. For all of the talk and all of the drama of the first Trump administration, it doesn’t yet show up as a truly dramatic shift in America’s tariff position. But if they head down the route they’re talking about, this would be a reversal of trends that have prevailed since the 1930s and 1940s.
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