Donald Trump’s style of governance may be a distinct departure from his predecessors, but his tariff-laden approach to economics is part of a wave that started well before his second inauguration, says a business instructor at the University of Northern British Columbia.
On Friday, May 16, Charles Scott gave a presentation to some Citizen staff about the rationale behind Trump’s tariffs.
While globalization was sold as being transformative for the U.S. economy, it hasn’t panned out that way for a large section of the population, Scott said.
He showed a chart with data from the U.S. Congressional Budget Office showing the average income before transfers and taxes for various groups of Americans adjusted for inflation from 1979 through 2019.
The zero to 20th percentiles and the 21st to 80th percentiles of Americans did see some growth in their average annual incomes in that period, from $15,700 to $23,800 in the former case and from $60,000 to $85,700 in the latter case.
However, the richest 20 per cent of people saw their average annual incomes grow much larger, from $154,900 in 2019 to $332,100 in 2019.
The top one per cent of earners’ average annual income went from $595,000 to almost $2 million over that same timeframe.
While $85,000 a year might seem like a lot if you live in Prince George, it’s harder to live on that amount if you live in New York, Los Angeles or San Francisco, Scott said.
Beyond most people being left behind in terms of income, Scott said the life expectancy at birth for many countries — how long someone is expected to live when they are born — is dropping is several countries, but especially so in the U.S.
Much of these, he said, is due to “deaths of despair,” which are relating to alcohol, drug use or suicide. As of 2017, according to a study from a congressional joint economic committee cited by Scott, 45 in every 100,000 deaths were these deaths of despair.
Because of these factors, voters go to the ballot box looking for results.
“The political elites need to understand that they’re infatuated with the process and winning the process isn’t the point,” Scott said. “Voters want results and they’ll elect whoever will give it to them, whoever that is.”
South of the border, Scott said, the idea that the free market can do no wrong is an idea that’s increasingly on the outs with both Democrats and Republicans.
During the Cold War, Scott said, the United States was willing to allow its trading partner to have tariffs on American imports because they would otherwise defer to them on geopolitical issues.
But with the fall of the Soviet Union and the threat of cities being reduced to radioactive rubble less of a pressing concern, the U.S. feels less of a need to take the lead as the world’s policeman and wants to renegotiate its trade deals.
Scott classified Republicans into three tribes each trying to influence American trade policy.
The first is those who want to address those who were left behind by the old economic order. They’re represented by U.S. Trade Representative Robert Greer, who is the former understudy to his predecessor in the last Trump Administration, Robert Lighthizer.
Though the Trump cabinet had more turnover than any other in American history over four years, Scott noted that Lighthizer kept his position for the entire duration.
“His biggest book is No Trade is Free and it points out that there are negative consequences to trade and those consequences have to be factored into the trade discussions,” Scott said.
The next group Scott described as “Fortress USA,” people who want to make sure that hostile powers can’t cripple the American economy.
Scott said this group as well as unions liked when the renegotiated version of NAFTA, called USMCA in the U.S. and CUSMA here, loosened restrictions on trade unions in Mexico.
The final group are who Scott described as the culture warriors, the true believers in the “Make America Great Again” movement as well as groups like the Heritage Foundation think tank that advocates for fundamentally smaller government among other priorities.
Stephen Moran, the chair of the Council of Economic Advisers, is a member of the Fortress USA group, according to Scott.
Last November, Scott said Moran issued a 41-page document explaining the need for tariffs.
It says that after the Second World War, the world was put back together primarily by the United States and the people who have gotten rich since then are beneficiaries of the security created by the country.
Since America put this order together and others benefit from it, Scott said Moran’s approach is that access to the U.S. market is something to be earned and the U.S. has the right to change how things work in response to foreign tariffs.
Since the 1980, American manufacturing jobs have been declining to the point where it represents less than 10 per cent of the total workforce, which Moran believes needs to reverse.
Part of the cause of this is that the U.S. has become the world’s default currency, which has inflated its value. That means that U.S. exports are expensive and U.S. imports are cheap.
That wasn’t as big a problem in 1945, when the U.S. represented roughly half the world’s economy but is a problem now that the U.S. represents 25 per cent of the world’s economy.
“So, if you’re a U.S. producer trying to compete with foreign producers and the U.S. dollar is very expensive, you have a competitive disadvantage,” Scott said.
Some schools of thought want the U.S. Dollar to weaken to boost exports, but doing so would weaken the country’s ability to borrow money cheaply and make the national debt unsustainable to pay back.
In Lighthizer’s book, Scott said, he lists five primary concerns the U.S. has with Canada on trade — many of the same concerns the Clinton Administration had in the 1990s.
They are supply management, the cultural exemption within USMCA, the investor-state dispute settlement process, localized data centres and allowing foreign countries to take advantage of USMCA through backdoors.
The problem when issues arrive on Trump’s desk, Scott said, is that he only sees transactions as having one winner and one loser, not two winners.
Frequently, he’ll take the opposite side of an argument just to serve in the role of the disruptor with what Scott sees as two exceptions: immigration and trade.
“He sees immigration as fundamentally negative,” Scott said. “He sees trade as other people playing the U.S. for suckers. If the U.S. has a trade deficit in his worldview, it’s because the other guys are cheating.”
Despite Trump’s fickle nature, Scott said he doesn’t see the change in the U.S.’s position on trade as the “derangement of a demented president.”
After the Second World War, there was a structural change in world economics. Under leaders like Ronald Reagan and Margaret Thatcher, there was a move towards deregulation and neoliberalism.
Scott said the world is shifting towards localize trading blocs.
“Fundamentally, what Canada needs to do, what Canada can do and what Canada must do is diversify from the U.S. market,” Scott said.
“Not abandon it, it will still be a major customer of ours. A whole lot of what we have they need and have to buy, but we need to be focused on the 95 per cent of the human race and 75 per cent of the world economy that is not in the United States.”
For the average consumer, Scott said he expects prices to go up because it will be harder to source things from where it is cheapest to make things.
If he were handling investments right now, he said, he would be looking at automation, because improving efficiency is going to be one way to combat a higher level of tariffs.
With many baby boomers leaving the job market, automation could help bridge the gap, Scott said.
For local companies working in foreign markets, Scott said the best thing Canada can do is create trading agreements that help them do their business elsewhere without running into all sorts of restrictions.
