Populist Trade Economics and the Political Economy of Populism

Abstract

The 2016 election of Donald J. Trump marked a profound shift in U.S. trade policy, building on populist critiques of globalization and structural trade imbalances. This movement has been powerfully reinforced by the 2024 re-election of Trump which promises an “America First” trade policy that channels these critiques. This paper seeks to tease out of the writings of the main proponents the intellectual framework for "populist trade economics", the focus of which is systemic merchandise trade imbalances, critiques of the US dollar's international role and the industrial policies of trade surplus nations as fundamental drivers of these imbalances, and a causal link running from these imbalances through the decline of manufacturing in the United States to a litany of social ills plaguing America. The paper critically evaluates the empirical basis for these claims and the potential efficacy of proposed remedies, such as tariffs, managed trade, and adjustments to capital flows through securities transactions taxes. It concludes that populist trade policy prescriptions are theoretically inappropriate for the modern global economy, incapable of achieving the first-order objectives of rebalancing manufacturing trade, internally inconsistent, and in some cases politically infeasible. Moreover, they do not address the underlying political economy drivers of populism, namely soaring income inequality and the weakening of the social safety net. The trade wars and economic disruption portended by action on the populist trade policy agenda will not help on these fronts and could undermine the ability to implement the political economy reforms needed to respond to the age of data and AI.

Keywords: populism, tariffs, structural trade imbalances, manufacturing jobs, US dollar as international vehicle currency, Bretton Woods