Perspective

Who wins if Trump loses?

Updated Nov 09, 2016 01:42pm

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Donald Trump and Hillary Clinton shake hands after the second presidential debate in Missouri earlier this month | AFP
Donald Trump and Hillary Clinton shake hands after the second presidential debate in Missouri earlier this month | AFP

This article does not seek to predict the outcome of the US presidential elections; it only tries to understand how the political landscape in the US has allowed for the unprecedented media circus in the past year. With candidates inciting violence, insulting voters, threatening trade wars and questioning the mental and physical health of other candidates, the 2016 electoral campaign is unique and somewhat distressing.

The political circus

Obama’s impassioned plea that these elections be viewed as an assessment of his legacy is a remarkably strong statement for a sitting US president. His explicit need to ensure that Hillary Clinton wins, suggests that the reputation of the political establishment is at stake.

What is surprising is that the US is not experiencing any significant upheaval. The US economy is performing far better than other Organisation for Economic Co-operation and Development (OECD) countries; the US is not actively engaged in an overseas war and its dependency on imported oil has been eliminated.

Clearly these positives have been overwhelmed by other issues, many of which have been festering outside the political radar. While Obama had tangible challenges to overcome in 2009, the current candidates have not inherited similarly weighty problems, and perhaps because of this, there is more soul-searching by the American voter.

As revealed by the shock of the ‘Brexit’ decision in June 2016, it appears that the political class, on both sides of the Atlantic, has lost the pulse of their people. The imbalanced economic recovery since 2009 and the downside of globalisation (the loss of blue-collar jobs) have impacted the lower and middle class much more than most politicians anticipated. Furthermore, the Syrian refugee crisis and a spate of ISIS attacks in Western Europe have stoked fear and xenophobia within the US.

The changing political landscape

US President Barack Obama addressing the Parliament of Canada in June 2016 | Reuters
US President Barack Obama addressing the Parliament of Canada in June 2016 | Reuters

In our view, three factors have created the current political climate in the post-Reagan period: (1) the damage done to American workers in certain industries by unfettered global trade; (2) the growing spread of 24-hour cable news channels; and (3) the ideological shift towards the centre by both the Democrat and Republican parties.

Globalisation expands the economic pie, but it does not ensure that everybody gets a fair slice. Free trade has created immense wealth, but it has also hurt certain groups of Americans. Loss of blue-collar jobs, economic slowdown in the Rust-Belt, and marginalisation of the less educated can be traced to free trade and specialisation.

One could argue that the spread of 24-hour cable TV has been instrumental in shaping and commoditising political personalities, parties and agendas. Airing pro-globalisation stories would have been encouraged by multinational corporations, which are the primary source of revenue for these news networks. The downside of globalisation does not get sufficient airtime. In addition to economic marginalisation, many people feel left out of the mainstream cultural discourse.

Furthermore, political thinking in the US since the 1990s has become less ideological and driven more by moneyed interests with some social values sprinkled in, to motivate people to get involved and vote. So while Republicans focus on lower taxes and higher military spending, Democrats focus on social safety nets and affordable education (especially college). Both, however, support free trade (even if it means exporting US jobs) and have allowed bankers free reign to do as they want.

Bernie tries, but Trump does

Former Democratic presidential candidate, Sen. Bernie Sanders, speaks at a campaign rally in New York in April 2016 | AP
Former Democratic presidential candidate, Sen. Bernie Sanders, speaks at a campaign rally in New York in April 2016 | AP

Just like British Labour Party leader Jeremy Corbyn has taken a strong leftist stance that makes him almost unelectable (as prime minister), Bernie Sanders tried to pull the Democratic Party to the Left. He tapped into the informed, college-educated version of Donald Trump’s disaffected supporters. Unfortunately, Sanders had a relatively narrow base of voters (the young, college-educated who live primarily on the East and West coasts), and did not discredit the political establishment as effectively as Trump has.

Furthermore, one cannot help but think that multinational corporations may have found Hillary more palatable than Sanders; hence, the institutional bias against Sanders that was revealed by leaked Democratic National Committee emails.

Trump, on the other hand, does not need to cater to these corporates. If he needs airtime, his outrageous and offensive statements are sufficient. As ratings are driven by public viewership, Trump ensures that he remains in the public eye. Even before his entry into politics, he was regular fodder for New York tabloids, which eagerly followed his business ventures and colourful social life. Cable networks are drawn to Trump, even if it is against the long-term interests of the American establishment that ultimately sustains them.

As an outsider, Trump is financially independent, compared to most career-driven politicians — he does not have to play by the rules. He only provides sound bites to reveal his thinking and then relies on attacking what others have to say, sneering at their ties to the establishment.

He uses simple caricatures (crooked Hillary, lyin’ Ted, low-energy Jeb, little Marco) to ensure that viewers understand his opponents’ weaknesses. His ability to understand what a large disenfranchised vote bank wants to hear, and to frame his message in a manner that is simple and engaging, created a grassroots following that is perhaps unprecedented.

Most of these people are blue-collar or middle class, socially conservative and not college educated — in other words, the traditional Republican base.

What happens after November 2016?

Donald Trump speaks at a campaign event in Ohio earlier this year | Reuters
Donald Trump speaks at a campaign event in Ohio earlier this year | Reuters

Regardless of whether Hillary or Trump enters the White House, the US will be a nation divided. To gauge how Trump could change the US political landscape, what he does on November 9 is critical. Let’s assume he loses the elections, and eventually concedes his defeat (after claiming the elections were rigged and perhaps creating a legal challenge). The issue is whether he intends to remain in the political arena or return to his business interests. Even here, Trump’s commercial interests in creating his own cable network could have strong political consequences.

If he wants to make a clean break from politics, he is likely to approach the Republican leadership and negotiate how his supporters are to be reintegrated into the traditional GOP. He would then appeal to his supporters to close ranks with the Republicans but hold firm on their demand for a leadership that is sensitive to their needs.

Another plausible scenario is that he remains politically ambitious despite his defeat and comes under immense pressure from conciliatory Republicans to keep the party united, at least in name. Trump may realise that in order to create a third party, a number of seats must be won in the Senate and the House of Representatives, which would be very complicated and expensive. Hence, he may reach a détente with the Republican establishment, compromising on various issues.

This outcome would see a new Republican party emerge, one that is more socially conservative, committed to some level of protectionism and more rigid on immigration. Eventually, some career Republicans could become neo-Trumpists (with his political views but without his free-spiritedness). Another possible scenario is that Trump feels empowered enough to part ways with the Republican Party and creates his own political movement. If this “party” manages to secure sufficient seats in the US Congress, it may become the critical swing vote on various issues, siding with either mainstream party depending on the deal that can be negotiated. This could weaken bipartisan division on key policy matters.

In the event that Trump supporters are able to sustain a new political party, we would assign the existing political groups more explicit ideological identities:

  • Conservative Republicans (the Reagan and H.W. Bush Republicans)
  • Liberal Democrats (the Democratic Party that shifts towards Sander’s policy platform)
  • Traditional America (the constituency that Trump has energised)
  • Libertarians
  • The Green Party

It is instructive to rethink what the three major parties (described above) stand for.

  • The Democrats (Liberal Democrats) seek to achieve a tolerant, multicultural and equitable society, where income inequality should be reversed with some urgency. They see Wall Street and big corporates as the embodiment of what has gone wrong in American society.
  • Trump supporters (Traditional America) are primarily people who have seen their living standards fall since the 1980s. They are socially conservative, blue-collar workers who dislike welfare and live in tightly-knit communities that are predominantly white. Their anger has been stoked for decades by right-wing media (e.g. Limbaugh and Breitbart), which has demonised liberals and promoted conspiracy theories about how the establishment is only driven by moneyed interests. Part of the narrative is racist and xenophobic.
  • Republicans (or Conservative Republicans) want to protect what they have, and build it further. They fear big government and large public debt, as it threatens the surpluses they have accumulated. They want lower taxes and are against the welfare system and affirmative action.

It’s not just the US

People gather for an anti-Brexit protest at Trafalgar Square in central London on June 28, 2016 | AFP
People gather for an anti-Brexit protest at Trafalgar Square in central London on June 28, 2016 | AFP

One finds strong parallels between what is happening politically in the US and Western Europe. On both sides of the Atlantic, people feel estranged from their political system, as their concerns have been denied political expression.

At the risk of being too narrow in our assessment, the underlying cause of the political and economic malaise in Western Europe and the US can be traced to the globalisation movement that took hold in the 1990s. This may have triggered the political shift that Bill Clinton (1992-2000) took towards the centre, and the more pronounced New Labour movement by Tony Blair (1997-2007).

Globalisation created a set of winners (corporates, banks, economic elite) and a much larger number of losers who were effectively abandoned by the political establishment. The traditional watchdogs of the have-nots chose to ignore socioeconomic dislocation with promises of better-paying ‘high-tech’ jobs that never materialised. Trump simply courted the losers.

Impact on global economy

Demonstrators picket against the arrival of undocumented migrants in California | Reuters
Demonstrators picket against the arrival of undocumented migrants in California | Reuters

If there is a growing political constituency for protection from free trade and job security (in the US and Europe), the following policy steps could be implemented: (1) punitive tariffs on select products from select countries; (2) policies to discourage mechanisation in US factories; (3) subsidies for in-house training to eliminate redundancy of blue-collar jobs; and (4) reigning in the behavior of multinational corporates that have exacerbated the divide between the haves and have-nots.

Trade protection by the US will increase the price of consumer goods for American customers and reduce the efficiency of US factories. While this may appear regressive, this is the economic trade-off between efficiency and equity.

What lies ahead is very uncertain. If the US imposes punitive tariffs, aggrieved countries could retaliate by taxing American companies more heavily, which in turn would trigger further steps from the US. In effect, policy decisions to protect blue-collar jobs in one country could see equivalent steps by key trading partners.

Protectionism will reduce global efficiency, reduce consumer welfare and sharply reduce the volume of global trade. This may be the price the global economy will have to pay to compensate for the dislocation created by globalisation in a democratic political system. In our view, Brexit and Trump reveal that policymakers did not do enough to transition those who lost out from globalisation.

Impact on Pakistan

Demonstrators march with an inflatable effigy of Donald Trump during an immigrant rights rally in Los Angeles | earlier this year Reuters
Demonstrators march with an inflatable effigy of Donald Trump during an immigrant rights rally in Los Angeles | earlier this year Reuters

Western media has flagged the close affinity between Trump and Narendra Modi’s right-wing government – Trump’s business interests in India are also well documented. Furthermore, Middle America may not have a favourable impression of Pakistan, as Osama bin Laden and al-Qaeda have been linked with the country since 9/11. Moreover, a Hillary presidency would further strengthen US foreign policy, which is reaching out to India as a strategic partner for the 21st century.

None of this bodes well for Pakistan.

On the other hand, one could argue that Pakistan’s outlook is unlikely to be significantly impacted by who wins the US elections. Given the significant geopolitical forces that are already at play in Asia (China–Pakistan Economic Corridor), whoever enters the White House will not materially change the dynamics between the US and Pakistan.

In terms of the economic impact, since Pakistan is not a trade-driven economy, the slowdown in global trade will not be as painful as it could be for OECD countries or trade-based economies of Southeast Asia.

Conclusion

If certain segments of American society want to protect their livelihoods by imposing trade barriers (or renegotiating trade treaties), it is their right to vote accordingly. While efficiency losses should be obvious, taking this policy step boils down to a very basic argument: those who have not gained from globalisation (and have recently discovered a voice) will demand policies to increase their share of the pie, even if these policies will slow the rate at which the pie grows.

The economic rationale for free trade is undisputed in theory and intuitively appealing, but it assumes a seamless socioeconomic transition. As millions of Americans are now reminding us, this does not happen in the real world. In terms of the elections on November 8, even if Trump loses, the movement he has energised is unlikely to disappear from America’s political landscape.


Mushtaq Khan is Chief Economist at Bank Alfalah and holds a PhD from Stanford University.

Danish Hyder is a research associate at Bank Alfalah and holds a degree from Vassar College in New York.