Trump has been unfazed by such warnings, glibly stating that children will “maybe” have fewer “dolls” than they used to. And for those who believe Trump is playing four-dimensional chess, fundamentally shifting the makeup of the American economy, decoupling from China, and reducing the overall trade deficit — all this is worth the pain. This, even as few of these cheerleaders have indications of what it is that Trump wants America to produce more of, and fewer still have realistic estimates of how long it will take to achieve all these ends.

The problem is that stagflation isn’t a blip or temporary “market correction” from which it will be easy for the US economy to emerge with greater dynamism. Rather, it is a series of mutually reinforcing negative trends that sap the willingness of firms to expand while progressively exhausting purchasing power for household essentials. That leaves less money in the economy for hiring and training, innovation, and the productive risk-taking Trump purportedly wants. Unless he imposes price controls and leans on the 1950 Defense Production Act and other emergency measures — “statist” decisions which even a MAGA-fied GOP is likely to denounce — Trump has no Plan B to simultaneously restrain costs and compel industries to reshore.

Many, then, have remarked that Trump’s main economic policies will have the opposite of their intended effect of reinvigorating the US industrial base. But there is another irony here. Despite his unflagging drive to browbeat firms and the Federal Reserve into supporting reindustrialization, this radical “conservative” President may soon encounter what all progressive and Left-wing governments have feared since the “great inflation” of the Seventies: a capital strike. In other words, the CEOs and financiers who rallied to Trump in 2024 may decide his whims are too disruptive to stay onboard — and that his apparent indifference to their profit margins, logistics, and ability to reasonably plan investments aren’t worth the candle.

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The Left can’t go back to free trade

By Justin H. Vassallo

The darkening forecast for growth precipitated so single-handedly by Trump’s management and priorities certainly has no modern precedent in US politics. But the deep uncertainty at all levels of the economy also underscores how difficult it is to alter, much less dramatically reverse, globalization. It is much easier to transfer supply chains from high-wage countries to low-wage ones than the other way around.

During Trump’s first-term trade war, Vietnam, not the US Rust Belt, was the primary beneficiary of high tariffs on China’s exports. Unless Trump resumes some of the punitive rates he paused after his “Liberation Day” tariff formula was roundly maligned, capital expenditure will be rerouted to other emerging markets — some of which the Biden administration tried to cultivate as part of its own “friend-shoring” strategy of Chinese containment. Yet swinging back to a uniformly aggressive tariff regime could rock the global economy, needlessly punishing foreign workers in textiles, small appliances, toys, and other entry-level sectors while precipitating shortages for American consumers.

Trump’s isolationist tendencies — which aren’t congruent with a positive of vision of economic nationalism — are also impeding efforts to improve America’s global share of manufacturing. Trump needs the cooperation of allies he’s gravely alienated if he intends to effectively curb Chinese trans-shipment of inputs that he wants American firms to make. However, neither he nor his closest advisers appears temperamentally prepared to make that case. Likewise, it seems impossible for them to accept that “near-shoring” of key components with strict limits on Chinese content is preferable to China’s increasing command of critical supply chains.

In turn, Trump’s constant jaw-boning could result in fewer concessions of a strategic nature. Trade barriers without multilateral coordination that fosters “reciprocal” industrial policies and content standards among close allies will do more to isolate America than insulate it from practices which undercut its manufacturers. While some unfair trade practices can be addressed by eliminating loopholes like de minimis, which allowed Chinese producers to sell and ship goods valued $800 or less directly to American consumers, Trump still lacks a plan to persuade multinationals and mid-size firms to transition away from third-party suppliers that perpetuate dumping and other harmful practices.

The ostensible carrot in all of this is Trump’s insistence that lower corporate taxes and deregulation will lure foreign investors to build in America. On the face of it, the logic is quite simple: if major foreign competitors want to avoid tariffs, they should treat the US labor market as worthy of investment. But Trump has not pursued the types of industrial policies that Biden launched, which could convince more foreign firms of the benefits of doing just that. There are clear downsides to Trump’s approach, too. The risks posed to workplace safety and pollution standards are worrisome enough, but there is also the matter of business’s confidence in America’s domestic political stability and the skill-level of its workers.

Contrary to the libertarian notion that enterprise wants only a nightwatchman state, fanatical deregulation and slashing state capacity are not particularly encouraging for firms concerned with high-value-added manufacturing and standards compliance across the supply chain. In fact, the Left-wing school of thought which critiqued “corporate liberalism” delineated why a strong administrative state was integral to making and stabilizing modern American capitalism. While some government policies have made it onerous to build efficiently in America, new research indicates that DOGE’s actions and similar cuts to federal research and development are likely to retard growth and make Americans significantly poorer, compounding the near-term losses imposed by passed-on tariff costs.

All else being equal, that will have a chilling effect on long-term fixed investment. Many companies will doubt that the broader political economy, which already favors financial rents over productive investment, and which Trump seems unwilling to reform in this respect, will justify opening new plants and keeping them operational for decades.

Given the limited policy options the Trump administration is working with, there are few other levers to pull. Trump may create enough instability in the interim to significantly lower the dollar’s value, theoretically enhancing the competitiveness of American manufacturing. A possible analogue here is the 1985 Plaza Accord orchestrated by the Reagan administration, which temporarily boosted American exports, albeit at considerable cost to developing nations that had piled up debt to diversify their economies. However, America’s industrial capacity is far more diminished than it was after the 1981-1982 Volcker Shock and ensuing recession, again illustrating the “input” dilemma created by decades of offshoring. Trump wants to replace foreign inputs with American-made ones, but a weaker dollar would make plant investment more costly, since to some extent the country needs to temporarily increase imports of capital goods to efficiently rebuild domestic supply chains.

Some may counter that the dollar has long been overvalued, and that this has worsened inequality by rewarding short-term financial gains, favoring consumption of cheap imports, and eliminating the pathways to middle-class prosperity historically provided by American manufacturing. In fact, Sen. Elizabeth Warren (D-Mass.) and other prominent voices on the progressive Left made these arguments in the last decade. Yet Trump has not signalled how a weaker dollar in the current context would reduce, rather than exacerbate, international supply chokepoints. Nor has he indicated in the slightest how it would translate into a less financialized economy. Tanking global confidence in the dollar — and US Treasuries as a safe haven — is not a recipe on its own for curbing speculative finance, which Trump has otherwise encouraged through his alliance with the libertarian Tech Right and support for cryptocurrencies.

In the meantime, it is possible the early phase of stagflation is already unfolding. In anticipation of broad price hikes from tariffs, consumers binged on spending the last two months, likely masking the extent to which a slowdown has been set in motion by Trump’s capricious strategy to boost domestic industry. Unease over supply costs, meanwhile, has further reduced manufacturing orders and output, according to the Institute of Supply Management, a leading industry association. On the positive side, the hiring freeze detected last year appears to be gradual, unemployment remains low, and the last two job reports were better than expected. But the long-term jobless still number 1.7 million people, or nearly 1 of 4 unemployed workers; that level, reached last November, is a half million more than a year ago.

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As falling consumer confidence underscores, spending is based on fears of rising inflation, rather than optimism about wages and spending power, and that tariffs are cooling, not spurring, plant investment. Historic levels of household debt also suggest necessities are eating into disposable incomes. That is not an auspicious sign for manufacturers worried about whether new investments will be met with stronger demand. Another consecutive quarterly contraction would officially mark a recession, which is increasingly accepted as a fait accompli by many analysts.

Trump, of course, mounted his unexpected comeback in 2024 due to widespread disgruntlement with Biden’s economic performance. Despite a suite of policies that fueled an uptick in plant investment and construction, Biden and his anointed successor, Kamala Harris, couldn’t escape the ire over the drop in real incomes from 2021 through mid-2023. Thus far, Trump’s policies promise another decline in real wages without either the Biden-era regional investments or the tight labor markets that helped the economy rebound faster from the pandemic. Considering Team Trump still partly frames tariffs as a tool for negotiation, it is conceivable they will eventually retreat on the basis of some symbolic concessions by major firms and trade partners to support more balanced trade.

However, it is not beyond the realm of possibility that Trump will keep a stubbornly tough tariff regime in place and eventually force American firms and consumers to adjust. US Presidents, particularly Republicans, are caricatured as fearing experiments that spark market volatility and derail consumer sentiment. But the unfading populism of recent years has prompted leaders from both political parties to take protectionist risks considered irrational during an earlier, more painful stage of industrial decline in the late 20th century. That pattern is unlikely to change anytime soon, despite immense pressure from Wall Street to scrap radical changes to how America does business with the world.

That doesn’t mean Trump or his heirs will emerge victorious after the initial economic shock. Americans are paradoxically wary of major changes to the modern consumer economy and voting for politicians promising major disruptions to the status quo, and they may continue to punish incumbents for results that do little to improve their own sense of economic security. While Trump has taken an axe to globalization’s main pillars, it may be a Democrat who ultimately capitalizes on the outcome. The question, then, will be whether they try to turn back the clock or refine the unfocused autarky Trump has embraced.

His solution is equally blunt. He and his advisers insist that aggressive, universal tariffs, combined with deregulation and corporate tax cuts, will render cross-border supply chains less lucrative and domestic investment attractive for business.

The problem is that virtually every other Trump action since Inauguration Day has undercut the state capacity needed to rehabilitate core industries and shepherd capital and labor towards new ones. Instead of leveraging state power on behalf of massive public-private projects, research and development, and workforce training, Team Trump has subjected government agencies to DOGE’s ruthless budget cuts, and frozen funds from or threatened to terminate President Joe Biden’s flagship industrial policies.

The Trumpians are plotting to privatize a host of government services, and have sent a chill through research institutes vital to breakthroughs in advanced medicine, technology, and manufacturing. Meanwhile, the administration has largely crippled antitrust enforcement, thereby favoring powerful monopolies that can withstand or circumvent trade barriers over mechanisms to coax healthy domestic competition and investment.

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None of these actions furthers the purported aims of tariffs and targeted export controls: to create good jobs for the forgotten working class and turn depressed regions into desirable places in which to work and live. On the contrary, slashing and burning state capacity will hinder these goals. Most damningly, the Hamiltonian tradition the Trumpians claim to champion is a powerful witness against the belief that a crippled state can boost manufacturing.

These shortcomings haven’t stopped some of Trump’s most vehement critics on the labor Left, not least United Auto Workers President Shawn Fain, from conceding that he is partly right on trade. The bipartisan Washington establishment of the late 20^th century made a colossal mistake in offshoring millions of jobs on the naive assumption that high-tech innovation and services would replace manufacturing, the historic engine of American upward mobility and growth.

But despite being motivated by fear over China’s phenomenal rise, Trump’s strategy has proved mostly incoherent, not to say contradictory, sowing serious doubts over whether America, after decades of outsourcing and regulatory capture by major multinationals, has the institutional know-how to meet the new president’s promise of industrial renewal.

Trump’s approach isn’t merely myopic, though — it betrays the legacy of the GOP statesmen whom champions of his tariffs regularly invoke to defend the current administration.

The populist Right’s evangelism for Trump’s protectionist impulses has long rested on the notion that he is boldly reviving the “American System” school of economics. This tradition stretches from Alexander Hamilton in the founding era and Henry Clay in the early republic to the heterodox economist Henry Charles Carey, the influential lawmaker Justin S. Morrill (architect of Civil War-era tariffs), and Presidents William McKinley and Theodore Roosevelt. These Republican statesmen and thinkers espoused a doctrine of development premised on diversified manufacturing, vast energy sources, scientific progress, and spreading education in the “industrial arts”.

Scholars describe this doctrine as unabashedly mercantilist. Yet 19^th-century Republicans maintained that it furthered the country’s founding ideals of self-government and associationalism: the notion that an industrious, republican citizenry will form voluntary organizations conducive to promoting shared interests that transcend divisions by region, sector, or class.

Neither laissez-faire nor statist, the old GOP that supposedly inspires Trump fused support for large developmental goals from disparate parts of society — inventors, aspiring industrial magnates, prospectors, advocates of “scientific agriculture”, financiers, and tradesmen. The intent was to spread commercial hubs built on regional interdependence, raising manufacturing and agricultural output while also curbing demand for goods from competitors like Victorian Britain.

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Tariffs underpinned this system by pushing farmers, merchants, and consumers to purchase US-made goods and support local industries. Post-Civil War, tariffs underwrote pensions for Union Army veterans and their families (then a huge constituency of the GOP). Tariffs were also meant to lessen the competitiveness of imports made by foreign “pauper” labor, attracting the support of skilled workers who had few other avenues to stable wages.

Like Trump, the Republican leaders of a distant epoch believed high tariffs were a means to building national wealth and power. And their aversion to foreign competition ran deep. Cheap foreign goods were, in modern parlance, the real source of “market distortions”, because, unchecked, they made profitable manufacturing less viable and threatened the livelihoods of skilled workers.

Even Republican reformers who, like Theodore Roosevelt, were more attuned to the daily needs of thrifty households and worried that tariffs had given rise to unaccountable monopolies tended to believe that free trade was decadent. On the verge of America becoming a world power, Roosevelt remarked that “pernicious indulgence in the doctrine of free trade seems inevitably to produce fatty degeneration of the moral fiber”. Trump’s Treasury secretary, Scott Bessent, was channeling the same sentiment when he asserted in a recent speech that “access to cheap goods is not the essence of the American Dream”.

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But this is where the similarities end. In fact, depicting Trump as a descendant of the old protectionist pedigree misses an important dimension of past Republican thought. From the Lincoln era to Eisenhower’s, Republicans deployed a range of policies besides tariffs to stoke development and progress. The party’s Trumpian incarnation entirely ignores these other strategies, when it doesn’t undermine them.

Take the legacy of Morrill, the lawmaker who, in addition to protective tariffs, authored the legislation that created America’s exemplary land-grant colleges. Morrill well understood the relationship between education in fields like agronomy and engineering and productive innovation. The Homestead Act from the same period, which distributed public lands to frontier homesteaders for a nominal fee, likewise reflected the GOP’s belief in the importance of “decentralized” economic growth for a democratic society.

By contrast, Trump’s sweeping cuts to university grants, including for regional public universities that serve his rural base, disregard the country’s pressing skills shortage. Meanwhile, his lofty campaign pledge to build 10 “freedom cities“, still embryonic, evokes not so much the producer populism of westward expansion, but the dystopian “startup societies” dreamt up by Silicon Valley — or a Middle Eastern petrostate.

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The administration’s axiomatic contempt for regulation is also not in keeping with the GOP’s historical view. Reductive histories portray the GOP as always preaching “small government”. But the party once had vigorous debates about the purpose and scope of regulation.

Despite occasionally assailing corporate malfeasance and grilling feckless CEOs in congressional hearings, today’s Right-wing populists have yet to match the Republican “insurgents” from the party’s Roosevelt wing, including the likes of Sens. Hiram Johnson and George Norris, who pushed for corporate regulation, public works, public utilities, and direct democracy, and took a stand against corruption. Though they were rarely “redistributive” in the social-democratic sense, such positions aimed to prevent abuses by the politically connected and to give working people a material stake in democracy.

Earlier Republicans were also quite experimental in their time. President Herbert Hoover, forever marked by his loss to Franklin Delano Roosevelt for failing to alleviate the Great Depression, was, during his earlier tenure as Commerce secretary, a consummate technocrat who sought to deepen cooperation between various government bureaus and business associations to make policymaking more scientific.

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In stark contrast to DOGE’s modus operandi, Hoover’s efforts to reorganize government were founded on a belief in expertise and the legitimacy of using regulation to make markets more rational; the development of America’s burgeoning aviation sector, improvements in radio technology, and national business standards for product sizes were among his achievements.

Hoover was hardly a central planner. Judged by the current GOP’s ethos, though, his record of bureaucratic oversight epitomized the growth of the modern administrative state.

Of course, the New Deal realignment, which hobbled the GOP’s support for a generation, cemented the popular view that Republicans regularly opposed active government. But until the Reagan era, most mainstream Republicans accepted the New Deal order, occasionally endorsed breaking up monopolies, and eagerly supported generous federal funding for science and technology, even as they ritually affirmed the principle of “free enterprise”.

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Most famously, the Eisenhower administration’s vast Interstate Highway System updated Republicans’ past support for “internal improvements” for the Cold War era, further propelling the rise in suburban homeownership that characterized the postwar boom. And progressives’ arch-bogeyman Richard Nixon, now frequently regarded as the last “New Deal president”, signed NEPA and OSHA, the country’s landmark laws, respectively, for environmental protection and workplace-safety standards.

In short, major players in the Republican Party adopted a more flexible and interventionist view of political economy than is commonly recognized. Most MAGA influencers today would no doubt dismiss such evidence as not reflecting “true” Republicanism. Partisan progressives would similarly concur, at most allowing that “progressive Republicans” are extinct because the Democratic Party became their natural home.

This is to be expected. A few conservative think tanks and public intellectuals have sought to create a genuinely “pro-development” and “pro-worker” agenda for Republicans. But the anti-government tirades of Newt Gingrich, anti-tax activist Grover Norquist, and their successors in the Tea Party movement did much to fix the partisan battle lines of the last few decades, few of which the MAGA movement has redrawn besides disavowing George W. Bush’s embrace of globalized trade.

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Trump’s GOP is thus fixated on slashing and burning its way through the state, rather than restoring faith in positive government. For a little while, even skeptics allowed that a new working-class base, plus rising tensions with Beijing, might push Republicans to embrace an industrial strategy that recovered some of their party’s authentic traditions of domestic progress.

That possibility has come to naught. While Trump proclaims “liberation” is imminent, the rapid loss of state capacity under his watch promises anything but. Tariffs excepted, there is little concrete government action to compel market forces to meet national economic objectives, and the GOP has bent over backwards to accommodate banking lobbies vociferously opposed to even minor restraints on financial predation.

One hardly needs to be a radical populist to see this doesn’t bode well for American society. As the most perceptive believers in the “American System” understood, an economy that fails to maximize its productive forces and promote workers’ well-being is destined to wither. If America is to avert permanent decline, it needs leaders determined to prevent the spread of servitude masked as “liberty”.