Trumpism, the Global Economy, and Silicon Valley

Speech at Haas School of Business, UC Berkeley
Delivered December 4, 2016

By: AIC's President, Dr. Hooshang Amirahmadi

Let me begin by noting that I am not using “Trumpism” to mean a coherent ideological system, which it is not. Rather Trumpism is a constellation of often contradictory or inconsistent ideas that together point towards a certain ideological orientation.  I must also note that the arguments presented here are tentative as Trumpism is an evolving “America First” movement with no set direction as yet. This fluidity notwithstanding, I believe it is possible to decipher the key features of President-Elect Donald Trump’s public-policy agendas (domestic and international) for the U.S. political-economy, which will be centered on rejecting globalism for Americanism – “To Make America Great Again.” 

Trumpism in a Shrinking America

Trumpism rides on the profound dissatisfaction of a large majority of Americans about the declining state of their living conditions, and the shrinking state of their nation’s international standing. It is indeed a racial, populist anger directed against the corrupt political-economic elite and a nationalistic rage directed against the caprices of globalization. This movement argues that the two forces have combined to deindustrialize America, reap the “real” (white?) Americans of their jobs and income, as well as weaken America’s global power. It aims to reverse these and related trends by re-introducing protectionism in global trade, legislating a tougher immigration policy, rebuilding outdated infrastructure, reviving traditional industries, and upgrading the military. Trumpism will be at odds with increasingly globalized society, and with Silicon Valley’s entrepreneurial spirit that values neoliberal free-trade and immigration orientations, the two vital requirements of the global high-tech community.   

Populism often divides people into two camps: the oppressed and the oppressors. Yet in the case of Trumpism, a racial tint is also incorporated in the movement, making it more of an “ethno-nationalist” ideology that views America as a more “white-Euro” nation, than the diversified country that it is. If this exclusionary view of America were to translate into corresponding public policies under the Trump Administration, it would negatively impact the non-white Americans and “others” across the globe.  

The original American populism, which dates back to the late 19th century, was not racially based, directed equally against every “oppressor,” politician or capitalist. Trumpism, on the other hand, is hugely biased against the political elite, suspecting only a section of the economic elite who favors economic neoliberalism. Specifically, and in contradiction to its core anti-globalism belief, Trumpism seems to favor finance capital, which indeed has provided the most significant means of global integration of the American economy.

Specifically, as a racially populist and nationalistic movement, Trumpism is primarily built on:

·        The desperate economic conditions of the American “white” working people, which it blames on the wrong economic policies of a corrupt and dispassionate political elite, particularly in its preference for curbing inflation rather than generating well-paying jobs; 

·        A liberal “democratic” immigration policy that has poured millions of “illegals” as well as some “terrorists” into the homeland;

·        A predatory, neoliberal global trading system that is stealing American capital and jobs; and

·        The demise of American power and its growing international humiliation, while its global commitments have remained (e.g., to NATO, Japan, South Korea, Germany, Saudi Arabia, etc.); Americans are let down by their elite, who are delusional for thinking that America is still a world economic power and a global leader, though they have been unable to master the required leadership.

Trump wants to reverse this unacceptable American plight through a fusion of militarism and finance capital, in order to “Make America Great Again”. Thus, key members of his emerging cabinet include belligerent, retired generals and billionaire champions of Wall Street. This foundational step suggests that, just like Trump’s return to past American racial populism and white nationalism, his approach to the economy will also mark a return to the “lost golden past” when America grew through productive investments and trade protectionism. This traditional, local-industrial capitalism is in sharp contrast to the modern, global-information based capitalism that has developed over the last three or so decades.

 While it is too soon to definitely foresee what a President Trump will do for the American economy, his proclaimed first 100-day action plan suggests that he will:

·        Expand American financial resources by deregulating domestic markets, restricting American capital flow abroad, and facilitating the return of American companies’ money held in overseas and offshore banks by giving them substantial tax relief (beneficiaries: finance capital and large corporations);

·        Invest in rebuilding aspects of America’s dilapidated physical infrastructure and inner-cities (beneficiaries: the construction and transportation industries);

·        Stimulate domestic manufacturing production through incentive policies that will reduce their processing cost (beneficiaries: automobile, household durables, petrochemical, and construction equipment industries);

·        Increase the defense budget and aggressively expand weapons exports (beneficiaries: military-industrial complexes);

·        Promote traditional energy sector by relaxing environmental and other regulatory restrictions (beneficiaries: oil, gas and coal industries);

·        Introduce protectionism in US international trade and try to renegotiate regional trading arrangements (losers: NAFTA, TPP and free-traders); and

·        Impose a substantial limit on migration, particularly for those seeking work in the US (losers: those seeking to migrate to the US).  

This economic orientation will supposedly generate jobs and income for the “real” Americans (that is white middle classes and working people), and increase the wealth and capital of its entrepreneurs particularly because in a tax reduction to a historic low of 15 percent. The approach will, according to the Trump administration, make the US grow independently of the global economy and sustainably at about 3 to 4 percent a year (which will supposedly pay for the generous business tax cuts). In other words, Trumpism aims to rebuild American capitalism as a self-sufficient national entity protected from the vagaries of global economy and “foreign” immigrants.  

Impact on the Global Economy

Trumpism is a global movement of disenfranchised people fighting the existing orders, particularly the so-called democratic leaders, who have failed their working-class constituencies in the US, Europe and elsewhere. It is a movement that calls into question the foundational assumptions of neoclassical economics, namely the free movement of labor, capital and commodities as well as its neoliberal policy prescriptions. While the movement is essentially economic in nature, its rage against the existing political order, which has nurtured this economic malaise, is no less demanding. A crusade of this extent and intensity cannot but have far-reaching consequences for the global political-economy.

What makes the challenge even more pronounced is the fact that Mr. Trump is the first non-political leader to win a presidential election in a country with such deep global reaches using the ideological pitch of Trumpism, making him the de facto leader and prime mover of the global movement.  The enormity of this challenge for the global political-economy can be better appreciated recalling that the so-called new world order has resulted in relative American economic losses and political humiliation (losses in unsuccessful wars), all the while that its global commitments have remained.

Built on the basis of the free movement of labor, capital and commodities as well as the international strategic alliances in R&D, technology development, production and marketing, the interdependent global economy may not be able to absorb the restrictive shocks that Trumpism is expected to introduce in its global operations. These shocks could be particularly damaging given the relatively large size and influence of the US economy. Here is how the world economy can be crippled by Trumpism:

·        Trump’s anti-globalization and pro-protectionism approach can ultimately lead to “trade wars” and a shrinking world economic pie. In Trump’s world, countries like China, Japan and South Korea are not fair traders;

·        Trump’s ethno-nationalism and anti-immigration policy will lead to “visa wars” and a reduced international movement of people as well as a blockage in global knowledge diffusion (with far-reaching impact on civil aviation industry);

·        Trump’s restrictions on the free flow of American capital and money could lead to dangerous foreign currency crises and “inter-currency wars” of appreciation and depreciation, with devastating consequences for the world trade and balance of payment accounts;

·        Trump‘s neomercantilism (i.e., unilateral trade protectionism) along with his expected re-orientation of American militarism, away from gaining a “strategic advantage” toward gaining “economic advantage,” could intensify international rivalry in defense spending, which could then lead to significant global resource reallocation away from development and welfare spendings; and

·        Trump’s anti-neoliberal economic philosophy can clash with the workings of the World Bank, the International Monetary Fund, and the World Trade Organization, among with other multilateral economic institutions, thus destabilizing the world financial, commodity and technical/professional markets.  

The Silicon Valley Challenge

Silicon Valley faces three key challenges under Trumpism: a mismatch between Trump’s economic policy and the requirements of the high-tech community; Trump’s misunderstanding of the specific contributions of the sector; and a deep-seated suspicion of Silicon Valley’s impact on American national interest and security. More specifically, Trumpism is at odds with the growingly interdependent world, and with the Silicon Valley for its neoliberal free-trade and immigration orientations, the two vital requirements of the global high-tech community.

This relative demotion of Silicon Valley can happen as Trump moves to promote his traditional approach to American economic growth. In particular, as Trump reverts to past American racial populism and white nationalism, his approach to the economy could also mark a return to the lost golden past when America grew through productive physical investments and trade protectionism. This traditional, local-industrial capitalism is in sharp contrast to the modern, global-informational capitalism that has developed over the last three or so decades, in which Silicon Valley has had a significant role.

Trump’s approach to rebuilding American capitalism as a self-sufficient national entity, protected from the vagaries of the global economy and “foreign” immigrants, will also be in sharp contrast to the modus operandi of Silicon Valley. The community is far from ethno-nationalistic about the US economy, as its success is contingent on global markets and interdependence as well as liberal immigration and visa policies. Silicon Valley is highly dependent on foreign skilled workers and free trade. Protectionism and restrictive immigration policies limits its global reach, gainful strategic alliances, and knowledge transfer across borders. Thus, Trumpism will be at odds with Silicon Valley for its neoliberal free-trade and immigration orientations, the two vital requirements of the global high-tech community.

Silicon Valley may also suffer from Trump’s inattention to its other key requirements including an extensive electronic network such as the Internet, used for the rapid transfer of information such as sound, video, and graphics. Instead of promoting this so-called super-highway infrastructure, Trump intends to focus on rebuilding America’s traditional infrastructure. Also, the high-tech industry is increasingly required new energy technologies while Trump will concentrate on the more traditional sources. Finally, venture capital is another requirement for high-tech development but Trump’s financial approach will promote traditional banking and finance capital in general.

Trump’s lack of understanding, more so even his misunderstanding, of the high-tech community can present Silicon Valley with an even more daunting challenge. In political-economic terms, Trump is a traditional man, despite his wealth and luxury life; he is a man of construction and real estate as well as casino gambling and reality media shows. As such, Trump and Silicon Valley are mutually aliens. He views the community as too liberal politically and economically (pro-democratic party, pro-free trade and global integration) and knows that most executives there, like the stars in the Hollywood, supported the Democratic Party and its candidate, Secretary Hillary Clinton. 

Trump also holds significant misperception about the high-tech community. He thinks that the Valley creates jobs for “foreigners,” not Americans, and has a limited multiplier effect on the economy (compared to say the construction industry). Indeed, Trump may be right in one particular respect: Silicon Valley is no longer producing the amount of “Silicon” that it used to and it has increasingly become a software based industry, outsourcing the hard-ware production to overseas suppliers. Trumpism also views the high-tech industry as one most vulnerable to economic fluctuations and foreign competition, and yet less amenable to protectionism.

More importantly, Trump sees the pro-globalization stand of Silicon Valley as a serious threat to America’s national security (as it globalizes knowledge and know-how), and argues that this danger emanates from the fact that the R&D in Silicon Valley innovates for a global market rather than just the home economy. The software focus of the Valley and its global spread is of particular concern to those supporting Trumpism. They argue that this development has created a competitive advantage for America’s global competitors while diminishing the comparative advantage that America could generate through a hardware focused high-tech.  

These are huge challenges for the Silicon community to address, and unless they are properly dealt with, it is possible that Trumpism could lead to a devastating marginalization of the high-tech community. However, the key to succeeding in that area is to improve Trump and his economic team’s understanding and appreciation for the high-tech industry. For example, the argument that the industry creates jobs for “foreigners,” not Americans, or its multiplier impact on the US economy is limited, is based on an outdated view of the industry as producer of “technologies.” Yet, what has made Silicon Valley so critical for the modern economy is its leading role as generator of industry-driven, knowledge, innovation, diversity and productivity.

It is this soft side of technology that has penetrated a diverse array of economic activities, making them grow, generating jobs and income. Take, for example, heath care and education, the two sectors that look least related to technology, and yet they are the most impacted by it. These two sectors are now extensively applying technologies to their own sectors, generating more jobs and income in cities across the nation, particularly in larger urban conglomerates like New York City. What is making technology firms more important today is not their direct technology production but the wide-spread application of their innovations.  

Finally, President-Elect Trump and his economic team must be made to realize that in the last few decades, Silicon Valley entrepreneurs, collectively and in conjunction with other global technology leaders, have changed the world economy by innovating the new informational technology that are being applied in almost every industry, traditional and modern. While it is true that the high-tech community is pro-global and its soft-ware products quickly spread beyond the homeland, the same is also true about the reverse spread of technologies innovated in other nations into the US. A key characteristic of the information technology, for example, is its multi-directional and multi-industrial spread effect. Last but not least, the suspicion of the tech industry as a threat to national security is misplaced too given that the industry has generated some of the most sophisticated hardware and software technologies that are extensively used by America’s national security agencies.