The World Order Needs Some Chaos

Liberation day is upon us as we see the stock market crash with overinflated stock and asset values beginning a much needed correction. A zombie economy with minimal productivity, real wage stagnation but a “healthy” stock market is hardly the sign of a strong economy. A middle class increasingly stripped of wealth[1] but at least those GDP numbers go up. Economy as farce, globalisation as pantomime.

There are always defenders of the status quo, whether called neoliberals, financial elites or globalisation’s winners, they raise the same arguments and prospects. “A rising tide lifts all boats”, “look at global poverty rates”, “we wouldn’t have all these modern consumer goods without free trade”. On and on into the void as the global economy evolves into autonomous blocs each aiming to centre themselves as the premier producer nation, ensuring their security and future prosperity.

Beneath the ideological veneer of free trade it’s all fakery – an ersatz economy reliant on dollar hegemony as the world debtor and East Asian manufacturing as the hub of global production. State’s coercive actions and decision-making has no time for ideological trappings that are post-hoc justifications for current distributions of wealth and capital. There are no principles here, only vibes. Defenders of the current trade regime cannot dare admit that there are losers from these arrangements, sprawled across the Rust Belt and Midwestern oilfields (or Britain’s equivalent displaced by import shocks[2]). Instead, job losses are justified as the price of progress, akin to the loss of archaic industries to technological developments (while ignoring the reliance on cheap, often ex-rural, labour that Asian manufacturing requires). Global gains outweigh national losses.

Free trade is a canard[3], an ideological shibboleth for beltway libertarians and neoliberals to fawn over as the ultimate ideal. They play a pathetic parlour game, suggesting that worldwide economic growth and poverty reduction have come as a result of free trade and free markets. When it’s pointed out that the vast majority of that action came through states (particularly in East Asia) that used aggressive industrial policies, import-substitution schemes and forced technology transfers they may concede that free trade has a more limited purview. But when the questions cease, the false ideology returns. Much like we’ve seen with Covid or the war in Ukraine, fundamental principles are ultimately replaceable as the zeitgeist changes. There is as much belief in “free trade” as there is in individual choice (except when it comes to medical interventions and vaccinations) and stopping forever wars (unless it involves funding the Ukrainian military effort indefinitely).

Just ask them about intellectual property rights[4] and the accrual of economic rents and all of a sudden free markets and trade require state-backed, deeply unequal laws that favour multinational conglomerates. As I said, it’s all vibes designed to masquerade the problem as a culture war issue or a matter of economic ignorance. “How can the plebs seriously believe free trade isn’t entirely beneficial?” Or they suggest that investment flows show the strength of the American economy.

On that point alone free traders cannot be taken seriously. There is limited empirical evidence causally linking foreign direct investment with economic growth. While correlative, the underlying economic dynamics play a much greater role. “Foreign demand, human capital, productive credit creation, and labor have significant positive effects on growth, while the exchange rate EUR/USD exerts the expected negative impact”[5]. In the case of Spain, there is no significant link between FDI and economic growth, despite being a high-tech, post-industrial economy. Cross-country panel data shows similar findings, with the underlying structural conditions playing a greater role in determining the importance of FDI[6]. Even with assumptions of exogeneous technology inputs and undifferentiated government spending as a negative (failing to parse transfer from capital spending), financial infrastructure, institutions and human capital undergird the impact of FDI. With these limited or degraded, FDI is of limited value.

FDI and tariffs are not opposed though. When used to structure markets through import restrictions, FDI can be channelled so that foreign investments use domestic labour and capital as in the case of Reagan’s tariffs on Japanese automobile production, creating lucrative new avenues for domestic production with foreign involvement[7]. China’s use of forced technology transfers and domestic ownership over portions of foreign companies accomplishes a similar task, prioritising economic sovereignty over investment. The quality of FDI is also important. If it is a case of financial transfers and asset stripping, its relationship to productivity and wealth creation is at best ambivalent and at worst deeply destructive (effectively one side of the Janus face of globalisation, the other being offshoring).

For those who support changes to the existing economic order and desire a more active US state or degree of economic sovereignty, decrying the tariffs achieves nothing. Looking to the stock market as a litmus test of economic health is like looking to palm reading to determine one’s proclivity for ill health. The stock value of zombie companies[8] reflects animal spirits, many of which are phantoms waiting for corporeal form. Measures like productive capacity, trade inflows and supply chain arrangements present a wider set of variables from which to determine how autonomous and anti-fragile a nation’s economy is. We’re constantly told that a lesson learned from Covid is the importance of domestic supply in economic shocks, yet act shocked when this entails actions that curtail foreign imports.

Any action to reduce international supply chain reliance and repivot an economy away from globalised flows will create economic shocks by the very construction of the international economy and the expectations of traders and businesses within it. “Guided by a philosophy of shareholder primacy and enabled by these regulatory changes, firms optimized around short-term financial returns rather than long-term planning and strategy”. Thus, “financialization and deindustrialization were not naturally occurring phenomena; they reflected policy choices, many of which the political and business elite have been (and are) party to”[9]. Those elites will not accept change willingly, rather sabotaging and delaying. Look at the Inflation Reduction Act, a series of pork barrel patronages to political machines and watered down requirements for enforcement (for example lacking domestic production requirements and maintaining reliance on Chinese technology imports and company partnerships)[10]. The politics of business is the politics of anti-politics. Any change, no matter its reasoning, will be regarded negatively if it alters the status quo. Just look at the market’s reaction to Brexit.

The irony is that creative destruction is only desired when enforced by abstract market forces (that are themselves backed by legislative and geopolitical force as well as policy preferences). The magic of markets and their disaggregated tacit knowledge are an unquestionable good, no matter the outcome. Markets are deontological, their destructive potential and cyclical nature to be admired religiously. But Trump’s tariffs are a form of creative destruction, beginning to wipe out chronic trade deficits and retaliate against mercantilist policies of opposing nations/blocs.

What matters now is what follows these tariffs. Much like Brexit, they must be treated as a process toward a new economic order rather than an entreaty for entrenched elites to continue with more of the same (as with the Boriswave of mass immigration and the childish dreams of a Singapore-on-the-Thames making a mockery of the national sovereignty gained by leaving the EU). “In many respects, that is the domestic policy challenge—and opportunity—of our time: to chart a course out of the neoliberal quagmire and toward an economy that genuinely supports national power, economic resilience, dignified work, and shared prosperity”[11].

As Stoller has pointed out, the tariffs accomplish nothing other than chaos. That’s not necessarily a bad thing as a political goal, disrupting established elite relationships and networks, sorting the wheat from the chaff in terms of what is economically valuable and what reflects speculative flows. But if that aim is simply chaos, then they’ll run out of steam very soon, either with the end of the Trump presidency or sooner with the administration’s capitulation to Wall Street wrangling. “Trump is rejecting the anti-democratic notion that ‘globalization and technology are inevitable,’ and saying that elections do matter”[12].

Trump’s tariffs must be the beginning of a transformation of the nation-state into a post-globalised paradigm otherwise they will mean nothing, either being reversed now or by the next President. This transformation is a Caesarist project, beyond the trappings of constitutional democracy as it redefines what the state is and does, introducing industrial strategy and market-shaping policies as the essence of government action, rather than being one large redistribution centre for financial transfers to unproductive people/lobbyists. The state as an infrastructural market-maker with a capacity-oriented economy, not a logistical post in international commercial flows[13]. An attempt to return to the paradigmatic industrial growth of the 19th century, emphasising self-sufficiency and national security, making an empire in the national interest rather than the global one. Without such a project, liberation day is just another broken promise in line with politics-as-usual. It must outlive Trump unless the same stagnant elites and policies regain control, happily going down the doom loop to preserve their share of national power. While Trump’s position recentres politics as the arena for deciding trade and economic policy, this cannot be a simple case of a presidential administration’s work being overturned once they’ve left office, allowing the new incumbent and their backers to return to the old order.

The chaos that has begun doesn’t just recentre politics or democracy, but questions the very nature of American government – who it serves and who its enemies are – and the distribution of winners and losers in a new economic order. The neoliberals find themselves losing for once. Who eventually wins then becomes the paramount question. This is why some of the critics of this plan need to get real and actually understand the political forces laid out before them.

Justin Vassallo’s critique goes on about state capacity – “Trump’s GOP is thus fixated on slashing and burning its way through the state, rather than restoring faith in positive government”[14]. Citing Herbert Hoover’s technocratic inclusion of industry and manufacturing networks in the policy processes of the Commerce Department as an example of such positive government, it fails to grasp the reality of what state capacity is today – a vast programme of transfers[15] (internal and external) with ideological inclinations (as seen in USAID). Positive government is meaningless if the state is both overburdened and has ideological networks within it that are expansionary and sclerotic. If we are to politicise trade and industrial strategy (as arms of executive power), then we must also politicise the state bureaucracies, using or smashing them.

The technocratic methods of Hoover have never left government, but have instead been semi-privatised into business networks, lobbying and interlinked departments. Just look at the spread of civil rights legislation and diversity initiatives within businesses. Following off the back of the expansions of the HSE and NLRB in the 60s and 70s, employment and safety policies were increasingly regulated. But with their rollback under Reagan, businesses continued these initiatives privately via expanded HR and H&S departments[16]. A metastatic organisational growth that certainly exhibits governing capacity but can hardly be called positive government (coinciding as it has with the regulatory state and reductions in productivity[17] and real wage stagnation). Give me freedom cities and Silicon Valley innovation over sclerotic bureaucracy any day. And while one may say that’s not the only choice, it is a realistic reflection of the constraints presented to the executive in a situation of 40 years of the ideological and legislative growth of neoliberal governance.

“The federal government, and the executive branch in particular, is poorly equipped and structured to develop and implement national economic strategy. The vagaries of agency structure privilege technocratic issue-area fluency over big-picture thinking and silo policymakers within narrow jurisdictions”[18]. Only by firmly setting out their stall can a Trump presidency begin to recreate the economic order and repivot the US economy toward a more self-sustaining footing. Tariffs should begin this transformation, as should DOGE’s examination and slashing of wasteful state expenditure. But this dual politicisation of economy and state must continue beyond the bounds of party machines and financial elites, recreating these in the same process. In altering the world order, chaotically or otherwise, the restrictions of democracy and deep state bureaucracy present challenges to be overcome, rather than the limits of a project of national renewal and newly found sovereignty.

[1] https://x.com/infraa_/status/1898729523618746480

[2] https://cepr.org/voxeu/columns/globalisation-and-brexit

[3] https://collapsepatchworks.com/2015/02/05/the-world-of-neo-mercantilism/

[4] https://collapsepatchworks.com/2015/05/28/biocolonialism-private-property-and-patents/

[5] https://www.tandfonline.com/doi/full/10.1080/00130095.2017.1393312

[6] https://www.tandfonline.com/doi/full/10.1080/00036840701493758

[7] https://www.nationalreview.com/magazine/2022/10/17/the-american-camry/

[8] https://www.ft.com/content/e201a686-d3c4-3bb4-8f48-045974e679e3

[9] https://americanaffairsjournal.org/2022/08/state-capacity-in-short-supply-assessing-the-biden-administrations-industrial-strategy/

[10] https://unherd.com/2023/08/bidens-ira-isnt-saving-america/

[11] https://americanaffairsjournal.org/2022/08/state-capacity-in-short-supply-assessing-the-biden-administrations-industrial-strategy/

[12] https://www.thebignewsletter.com/p/with-high-tariffs-has-trump-ended