Wall Street v. Main Street within the Trump Cabinet
Too often, commentators have been content to characterize Donald Trump’s cabinet as a collection of billionaires. The president does show a fondness for rich businessmen but to stop there is to erase important divisions among American corporate elites and ignore Trump’s critique of the global trading system, which produced his victory.
Donald Trump is president today because he retained free trading Republicans as he added voters, often working-class Democrats, who think that bringing down the U.S. trade deficit and creating more manufacturing jobs in the U.S. should be the goal of economic policy. Can this electoral coalition become a governing coalition? No. The president is going to have to choose sides. The winner of the battle over trade will determine Trump’s durability. Whatever the result, the issues Trump raised will not go away because they represent fault lines in the U.S. economy and politics, even though they often are eclipsed by the distractions and tweets.
In the U.S., unlike most other countries, the protest against globalization took the form of challenges within both major parties. For the first time in U.S. history, two insurgents indicted bipartisan trade policy — Bernie Sanders from the left, and Donald Trump from the right. When President Trump told the Congress on February 28 that he was president of the United States, not the globe, he was critiquing past policy. After World War II, both parties used trade policy to strengthen military alliances, develop the economies of partners, encourage foreign investment in developing countries, and expand the international rule of law. Traditional economic advantage was far down the list.
Granting access to the huge American market, even if it meant harming specific industries and permitting discrimination against American exporters, secured Cold War alliances. George Ball, President John F. Kennedy’s undersecretary of state, assumed “we Americans could afford to pay some economy price for a strong Europe.” Providing Japan access to the U.S. market, when Europe mostly banned its products, would prevent Japan from turning to China or the Soviet Union. The U.S. was so much richer than Europe and Japan that it did not seem that Americans would pay a great price. But as Europe and Japan recovered and as oil became more expensive in the 1970s such global priorities became costly. The AFL-CIO led the opposition. Nevertheless, the policy was maintained and expanded. In 1977, Jimmy Carter said “free access to U.S. markets is a matter of ranking importance for our allies and almost all the developing countries of the world.” National Security Council head Zbigniew Brzezinski added that for the sake of the global order we must be prepared to undertake the “necessary sacrifices.” Even after the Cold War ended, Germany’s president told President George Bush in 1992, “[T]he size and strength of the American market is of vital importance to the rest of the world leading with us.”
This is the factual basis for Trump’s critique.
Beginning with NAFTA in 1993, the American government went a step further by making it easy for corporations to offshore jobs to developing countries. By reducing labor costs and enhancing profits, NAFTA and its successors would solve America’s “competitiveness” problem. Mainstream intellectuals, led by economists, made the case for corporate-friendly trade and investment agreements. They rejected concerns over labor and environmental standards. They refused to craft alternate forms of globalization or to formulate national economic policies that aimed to create comparative advantage. Again, there was an opposition. A majority of Democrats opposed Bill Clinton’s NAFTA. Still, the dissent did not reach presidential campaigns until this year. Why did the challenge come now? The Sanders and Trump campaigns were propelled by the Great Recession, which offered tempting targets, especially the banks and the political elites that supported the bail-outs. The swift recovery of Wall Street and the stagnation of many Main Streets fingered the role of financialization, which disconnected stock market performance and the real economy. Large rewards went to firms that stripped assets, outsourced, and offshored at the same time the middle class and working class were left with precarious employment. In 2015, the ratio of CEO pay to average earnings stood at 275-1.
Why did insurgency win among Republicans and not Democrats? Every election combines profound changes and contingent events. Initially it seems as if Jeb Bush or Marco Rubio, establishment Republicans, would win the primary which initially had 17 contestants. Donald Trump was such an outlandish, unlikely candidate that most preferred to direct their arrows towards other rivals. It was too late when elite Republicans recognized the peril. In contrast, the Democratic elite earlier on rallied around Hillary Clinton and unlike the GOP had a wall of super delegates to protect her.
Still, the upheaval produced by the Great Recession continued. Since the 1960s, the core of the Republican Party was suburban white middle class, small businesspeople, professionals, and managers. Republican economic policy – free trade, deregulation, liberal immigration policy, and low tax policy — was mainly determined by the big multinational corporations. The Bush and Obama bailout of banks damaged this alliance and produced the Tea Party, composed of elements from the GOP core, who railed against corporate welfare. They joined with libertarian capitalists like the Koch Brothers, who saw an opportunity to defeat the Affordable Care Act (Obamacare) and privatize Medicare and Social Security. More mainstream capitalists tolerated this agenda as long as the Tea Party targeted unions and social services. The alliance continued through 2010 when Republicans won the House and deprived Democrats of their supermajority in Senate.
Unlike the political establishment, the Tea Party right supported stricter immigration controls. A large part of corporate America supported immigration and immigration reform. High tech industries wanted access to skilled foreign professionals and labor intensive sectors like agriculture, construction, domestic service, child care, health care and hospitality relied on low wage immigrant labor. Both the Business Roundtable and the Chamber of Commerce oppose deportations. They wanted reform, a guest worker program, and some path to legal status.
The uneasy alliance between Tea Party and the big corporations ended in 2013 over the budget. Flushed with their victory in 2010, the GOP felt it was strong enough to legislate its agenda and President Obama believed he had to acknowledge the verdict. According to the proposed “Grand Bargain” of 2011, Democrats would have agreed to historic cuts in the federal government and the social safety net, in exchange for an increase in federal taxation. In the end, Speaker John Boehner withdrew the offer because the Tea Party opposed. This was the last straw.
Republican elites waged a campaign against the Tea Party to defend incumbents like Mitch McConnell. In 2014, they routed the rebels. Despite the Tea Party’s ability to block discussion of immigration reform and force John Boehner out of Congress, calls by Tea Party to shut down government to block Obama’s executive order on immigration failed. In December 2014 President Obama’s budget passed, despite Tea Party opposition. Everyone thought the war was won.
But the Tea Party was reborn in the candidacy of Donald Trump. His hard line on immigration and his willingness to contemplate the notion of repaying the federal debt at less than full payment sounded a lot like Tea party talk. But he also championed an economic nationalism that rejected central tenets of the bipartisan neoliberal agenda – NAFTA, WTO, TPP. Although polls demonstrated that grass roots tea party members had opposed past trade agreements, its leaders – Rand Paul, Ted Cruz, Jim DeMint, – had been free traders.
Trump’s economic nationalism increased corporate opposition to Trump. Hillary Clinton received twice as much corporate money as he did. So, how did he win? Despite losing the popular vote by almost three million, voter participation among traditional Democratic segments fell everywhere, but decisively in several key “blue” states. The electorate included higher income voters in 2016 than in 2012 and among traditional Democratic voters – the less affluent, minorities, union households — Clinton obtained smaller percentages than did Barack Obama in 2012 
Trump’s ability to retain the Republican post 1960 voter base and reduced Democratic voting allowed him to eke out victory. The argument about why Democrats lost the white working class misses this larger point: In the 2016 election, Democrats underperformed among the entire working class—white, black, Hispanic, Asian.
On many issues Trump is intellectually promiscuous. Thus, the substitution of General H. R. Harwood for General Michael Flynn as National Security Adviser reveals that President Trump can tolerate vast differences on Russia, Iran, and Islam. Although we will soon discover what Trump really thinks, at this moment it is not clear what Trump’s foreign policy will be. His domestic cabinet appointments are from the far right. These choices reflect the rightward drift of the GOP as much as Trump’s preferences.
But the heart of Trump’s plans are economic. The most important jobs are head of the National Economic Council (Goldman Sachs banker, Gary Cohn), Secretary of Treasury (Steven Mnuchin, another Goldman alumnus who moved on to private equity), Secretary of Commerce (Wilbur Ross, private equity), United States Trade Representative (Robert Lighthizer, trade lawyer), and National Trade Council chair, (Peter H. Navarro, economist).
The distance between the first two and last three is a mile wide. Cohn and Mnuchin reflect the ideas of Goldman Sachs, which has been an architect and beneficiary of the global economic order. Lighthizer, Ross, and Navarro represent, in different ways, Trump’s promises to reduce the U.S. trade deficit and create more U.S. manufacturing jobs. Unlike most of Trump’s other appointees, each one has some support among “progressives.”
Robert Lighthizer, a Republican, who served as deputy USTR during the Reagan years, has the support of progressive trade critics like Lori Wallach, director of Public Citizen’s Global Trade Watch. Wallach concluded that “Lighthizer is very knowledgeable about both technical trade policy and the ways of Washington, but what sets him aside among high-level Republican trade experts is that for decades his views have been shaped by the pragmatic outcomes of trade agreements and policies rather than fealty to any particular ideology of theory.” In short, he is not an orthodox free trader. Lighthizer has worked with the AFL-CIO on trade matters. Democratic Representative Sander Levin believes that he “understands the harmful impact of unfairly trade imports on U.S. workers and businesses.”
The USTR was created in 1962 to remove trade negotiating from the State Department. Congress believed that State was sacrificing U.S. industries for its diplomatic priorities. Liberal Senator Paul Douglas of Illinois, an economist by training, claimed the department refused to admit that Europe maintained serious barriers. Explaining his vote for establishing the USTR, Douglas “concluded that the State Department could not be trusted to represent the Congress in economic matters.”
It did not work as intended and State still retained influence. Many USTR appointees were politicians who knew nothing about trade. For instance, Bill Clinton appointed Mickey Kantor as his first head. Whatever his political virtues, Kantor had no trade experience. President Obama also sought a politician, Ron Kirk who had recently failed in his bid to become US. Senator from Texas and was a lobbyist for an energy company. Negotiators from other nations, where trade is considered crucial to economic growth, are usually long-serving. In the U.S., turnover has been high. Lighthizer, with his knowledge of the law, experience negotiating treaties, and work in Congress, will be ready from day one and it looks as if he has already begun to act.
The new trade agenda document just published by USTR, probably written by Lighthizer, starts with the premise that the goal should be to “increase our economic growth, promote job creation in the United States, promote reciprocity with our trading partners strengthen our manufacturing base and . . . expand our agriculture and service exports.” This sounds banal expect for the fact that U.S. trade policy has long had goals to strengthen global alliances, developing the economies of allies, encourage foreign investment in developing countries, expanding the international rule of law. The statement explicitly rejects this past; “the notion that the United States should, for putative geopolitical advantage, turn a blind eye to unfair trade practices that disadvantage American workers, farmers, ranchers, and businesses in global markets.” 
The document notes that the economic reality of U.S .trade results gave not lived up to the promise especially after 2001 when China joined the World Trade Organization. At his confirmation hearing on March 14, Lighthizer underscored that point and promised a more vigorous enforcement of U.S. trade laws, which in the past took a back seat to geopolitical considerations.
The two others, Wilbur Ross and Peter Navarro have been more controversial. Ross a billionaire investor operates in the world of distressed investing. In 2002-03, Ross made his name by buying and salvaging two big steel mills (LTV and Bethlehem Steel), which had been hobbled by cheap imports from Eastern Europe and Russia and poor management. Ron Bloom, who negotiated for the United Steelworkers of America, said that no one was willing to make an investment in the mills. For his efforts, Ross has won the endorsement of Leo Gerard, the president of the union. Gerard said that unlike many Wall Street investors who sucked capital out of the companies and left them to die, Ross “saved the companies and even restored some of the retirees healthcare benefits after a bankruptcy court wiped them out.” He also turned to the workers themselves. Ross said “that fellow who has been standing behind a machine for 10 years, knows it better than the people who built it, really know what to do.” Ross sold the mills and made a lot of money. But the mills are running and are very productive.
His record in textiles is mixed. He has shipped jobs to China and Mexico but still kept some textile jobs in the U.S. Scott Paul, head of the Alliance for American Manufacturing, a union-business partnership that promotes American-made products, said “Wilbur Ross, he reminds me of a trauma surgeon, in a way, who’s dealing with a patient who’s in crisis. . . . You might lose a limb, but he’s gonna save your life.” Ross has been a strong critic of American trade policy and like Lighthizer comes to his task with a vast amount of experience.
Peter Navarro, Trump’s new head of a National Trade Council, is even more controversial. He holds a Ph.D in economics from Harvard and is most famous for a documentary film “Death by China,” a lurid critique of China’s role in the demise of American manufacturing. Nevertheless, the core of Navarro’s critique has been confirmed by the less-caffeinated U.S.-China Economic and Security Commission and China expert Michael Pettis. Economist Dean Baker said “while Navarro makes many questionable argument in pushing his views on trade, his point that the trade deficit can reduce growth and employment is absolutely correct.”  Navarro believes that China and Germany are currency manipulators, which aid their trade. He recently singled out Germany which has a trade surplus of 9 percent of GDP, the highest in the world. Although it does not have its own currency, Germany has suppressed the real wages of its workers and encouraged a policy mix in the euro zone that has led to a weaker currency which makes an Airbus cheaper than a Boeing. Because the German surplus with southern Europe is also large, Germany has pointedly been criticized by the European Commission, especially in the wake of the Great Recession. Of course, the language was more diplomatic than Navarro’s. Walter Manchau, an editor of the Financial Times, concludes, “Peter Navarro has a point.”
So, if his three economic nationalists have plausible resumes and ideas, can the administration and the Republican Congress implement them? Trump invites skepticism because of his extravagant language, implying that he will recreate the days of the 1950s and 1960s. Still, auto and steel have survived the waves of globalization and recession and continue to contribute to the U.S. economy, unlike the tech industry which at the first sign of trouble went to China. The Economic Policy Institute concluded that the US has lost 1.2 million computer and electronics jobs to China alone since 2001, when China joined the WTO. The twenty-first century economy will be dominated by autonomous vehicles and new materials made from lightweight metals. With a proper industrial policy, the potential for good jobs in these industries is significant.
The more significant question is can the Trump administration formulate a new trade policy. Polls suggest that the jobs/trade link is one of the issues on which Trump has popular support amid sagging approval ratings. Recently released 2016 trade data shows that the U.S trade deficit with China was $347 billion, almost half of the total deficit. One of the only first-day promises that he has not fulfilled was declaring China a currency manipulator. The executive order flurry has not included the widely expected termination of negotiations for a US China Bilateral Investment treaty which replicates key aspects of the TPP and NAFTA. This treaty, initiated by George W, Bush and almost completed by Obama would make it easier to offshore jobs to China. It would also give Chinese firms broader rights to buy US firms and other assets and would allow Chinese firms to attack US policies in extra judicial tribunals.
Perhaps the reason for Trump’s failure to act is that two of his most important economic advisers Gary Cohn and Steve Mnuchin come from Goldman Sachs, a firm that is the Wall Street leader lobbying for the China treaty. Lighthizer, Ross, and Navarro have been outspoken critics of the treaty. Trump was silent on the treaty and currency in his speech to Congress. Does that mean that the Goldman Sachs position has already altered China policy?
On March 10, The Financial Times reported that there is a civil war within the White House over trade. NEC chair Gary Cohn has been adding staff on trade, including Andrew Quinn, a senior negotiator for the Obama administration’s push for the TPP. Thea Lee, the top trade official at the AFL-CIO, and a member of the president’s manufacturing council, thinks that “at the moment it appears the Wall Street wing of the Trump administration is winning this battle and the Wall Street wing is in favour of the status quo in terms of U.S. trade policy.” If Lee is right, Trump’s hopes of making workers part of a GOP electoral coalition through new economic growth is a doomed mission. In short, the electoral coalition he cobbled together will be short-lived.
 George W. Ball, The Past Has Another Pattern: Memoirs (New York: W.W. Norton, 1982), 191.
 Cited in Judith Stein, Running Steel, Running America (Chapel Hill: University of North Carolina Press, 1998), 232.
 Zbigniew Brzezinsky, Power and Principle: Memoirs of the National Security Adviser, 1977-1981 (New York: Farrar, Straus, Giroux, 1981), 314-15.
 Memcom with President Richard von Weizsacker, Apr. 29, 1992, 2, file Memcoms 3/3/92-4/28/92, 91109-007, National Security Council, Brent Scowcroft papers, George H. W. Bush Library, College Station, TX.
 Zaid Jilani, “Most Tea Partiers Think Free Trade Agreements That Tea Party Candidates Support Are Bad For The Country” ThinkProgress, Sept. 30, 2010 https://thinkprogress.org/most-tea-partiers-think-free-trade-agreements-that-tea-party-candidates-support-are-bad-for-the-7bd06e6157ae#.ttkpkia0g
 Those earning less than $50,000 made up 51 percent of US pop. They composed 41 percent of the electorate in 2012, only 36 percent in 2016; those earning over $100,000 a mere 17% of population rose from 28 to 33 percent; The electorate was more well off than in last three elections. If there were fewer voters earning less than $50,000, Hillary Clinton got less of them than did Barack Obama. He got 60 percent of those less than 50,000;, Clinton’s share of these voters dropped to 51 percent. Black voters were 12% of the electorate; in 2012 they were 13 percent. Clinton got a smaller percentage of the black vote than did Obama.
 Vicki H.Needham, The Hill, Jan. 3, 2017.
 Steve Dryden, Trade Warriors: USTR and the American Crusade for Free Trade, (New York: Oxford University Press, 1995), 55.
 “The President’s 2017 Trade Policy Agenda,”2017,”https://ustr.gov/sites/default/files/files/reports/2017/AnnualReport/Chapter%20I%20-%20The%20President%27s%20Trade%20Policy%20Agenda.pdf
 “’Vulture or ‘Phoenix’? Wilbur Ross, Risk-Taker, Is Eyed for Commerce Post,” https://nytimes.com/2016/11/25/business/edealbook.wilbur-ross…
 Chris Arnold, “Wilbur Ross: The Best Commerce Secretary Pick Dems Could Hope for?” http://www.npr.org/2016/12/14/505258592/silbur-ross-the-est-com.
 Dean Baker, “Trump and Trade: He’s Largely Right,” Beat the Press, Feb. 21, 2017, http://cepr.net/blogs/beat-the-press/trump-and-trade-he-s-largely-right
 Wolfgang Munchau, “Peter Navarro has a point when it comes to Germany and the Euro,” https://www.ft.com/content/485bace6-ea0a-11e6-893c-082c54a7f539
 Shawn Donnan, “White House Civil War Breaks Over Trade,” Financial Times, Mar. 10, 2017, https://www.ft.com/content/badd42ce-05b8-11e7-ace0-1ce02ef0def9.