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What does ‘America first’ mean for American economic interests?

America first, but at what cost? Trump paper via www.shutterstock.com

What does ‘America first’ mean for American economic interests?

In his inauguration speech, Donald Trump used the phrase “America first” to describe his approach to governance.

Trump’s speech, of course, was not the first time that we have heard this phrase. Historically, politicians and activists have used the idea of putting America first to advocate for policies ranging from strict immigration to foreign policy isolationism.

But what did the new president intend to say by borrowing this well-worn but vague phrase? What does it really mean, in economic terms, to put America first?

The history of ‘America first’

Today, what unites “America first” populists is a rejection of the idea that the country’s self-interest is inextricably bound to the prosperity and liberty of the broader world.

According to this way of thinking, the world outside is full of more threats than opportunities, and America would do well to guard itself against pernicious influences from abroad. Worse, America’s generosity is constantly being abused by Asian exporters, Middle Eastern miscreants and European free-riders.

Unfortunately, we’ve seen before where such a foreign policy approach can lead.

During the Great Depression, the United States and the countries of Europe found themselves caught in a spiral of increasing trade protection and currency devaluation. This period of “beggar-thy-neighbor” policies, in which one country’s protectionist moves trigger tightened borders from trade partners, was to no one’s economic benefit. More to the point, the deepening economic crisis that ensued, combined with the declining economic interdependence of the great powers, likely contributed to the outbreak of war in 1939.

Meanwhile, inside the United States, the year 1940 saw the creation of the “America First Committee,” which opposed entry into the Second World War. This movement attracted supporters of all political stripes and motivations, but some of its leaders were uncomfortably sympathetic with the fascist parties of Europe. It is with this movement that the phase “America first” is most associated today.

Of course, it is no longer the 1930s, and we shouldn’t press the analogy too far. In all likelihood, despite the ominous behavior of Russia, world war is not on the horizon. But this doesn’t mean that adopting a narrow understanding of American self-interest will be any less dangerous for the nation’s (and the world’s) economic future.

A crowd of over 4,000 people attend an America First Committee rally in Fort Wayne, Indiama, to listen to Charles Lindbergh speak in 1941. AP Photo

The rise of ‘enlightened self-interest’

At the end of World War II, when the “America first” rhetoric had been discredited, U.S. leaders set about creating a new international system.

They envisioned the U.S. as leading a world order that embodied democracy, open trade and growing prosperity. This vision was founded on generous programs such as the Marshall Plan and on institutions like the United Nations, the World Bank and the General Agreement on Tariffs and Trade (GATT), which morphed into the World Trade Organization (WTO) in 1995.

Of course, the exigencies of the Cold War led to many abuses and mistakes in the years that followed. But the basic idea that “enlightened self-interest” required an internationalist and benevolent United States ensuring an open, prosperous and democratic world was largely accepted, at least in principle, by both parties.

This consensus found particular resonance in trade as the world shifted in the postwar period from unilateral to multilateral commercial policies. Under the aegis of the GATT/WTO, trade policy came to be set by the give-and-take of international negotiation rather than the individual decisions of national governments.

These international negotiations required that each country open its domestic markets in return for improved market access abroad. The growing trade openness that resulted from this system helped undergird America’s postwar prosperity as well as the economic miracles in Europe and East Asia.

Trump shows off the executive order withdrawing the U.S. from the Trans-Pacific Partnership. Ron Sachs/CNP, MediaPunch, PX via AP

Trump’s new protectionism

The administration’s resurrected “America first” rhetoric implies that the internationalism and “enlightened self-interest” that built the postwar order, and that was still recognizable in Obama’s foreign policy, was a gigantic mistake.

Several of Trump’s campaign aides have even used the phrase to christen a new group, “America First Policies,” to advocate on behalf of their new populist vision.

It is a vision that rejects the give-and-take of take of international agreements, the generosity of foreign aid and the conviction that what is good for our friends is good for America. It replaces these ideas with a narrow understanding of self-interest, one that risks exchanging long-run benefits for short-term satisfaction.

Take, for example, the Trump administration’s trade policy. During his first 10 days in office, the president took three extraordinary steps in a protectionist direction.

First, and most significantly, he withdrew the United States from the Trans-Pacific Partnership (TPP) agreement, formally ending years of U.S. negotiations for expanded markets in Asia. The TPP would have created a free trade zone between the United States and 11 Pacific nations.

It is true that the administration is considering a new bilateral agreement with Japan, the most important of the prospective TPP member states apart from Canada and Mexico, both of which are already in the North American Free Trade Agreement (NAFTA).

Even so, the strategic fallout from America’s rejection of TPP is likely to be significant. It sends a signal to countries in the region that the U.S. is unwilling to act as a buffer against the economic power of a rising China, quite an ironic message from a president so enamored with anti-Beijing rhetoric. It also needlessly sacrifices a potentially useful bargaining chip in future negotiations with China.

Second, President Trump threatened to slap a 20 percent tariff on Mexico, and possibly on other countries that run a large trade surplus with the United States. This threat, along with others made by Trump’s closest advisers, calls into the question the future of NAFTA, which has ensured open borders in North America for more than 20 years. Trump, for his part, has promised to renegotiate the trade deal or even pull the U.S. out of it.

While President Trump cannot permanently raise tariffs without congressional approval, he may be able to do so temporarily. In the event that he does, Mexico and other countries will certainly retaliate. The resulting trade war could deny America access to foreign markets in a way that we haven’t seen since the end of World War II.

Third, the new administration backed a Republican proposal in Congress that would incorporate “border adjustment” into a broader reform of corporate income taxes. This proposal, while less troubling than the two actions above, could have even longer-term consequences.

To improve the trade balance, the tax reform would allow U.S. companies to write off the value of their exports but would also require them to pay taxes on the inputs that they import. The problem is that this tax reform would likely violate America’s WTO commitments, inviting in the process legal action and retaliation.

Moreover, the president’s new executive order on immigration can also be seen as a symptom of “America first” thinking. It exchanges the talents of foreign workers, the goodwill of the Muslim world and the American tradition of nondiscrimination for the elusive promise of increased security. The gains, if any, will be small and temporary, while the costs will be much larger and more enduring.

A delegate waves a ‘Make America First Again’ sign on the floor during the Republican National Convention in July. Brian Snyder/Reuters

America first puts America last

To see what is wrong with Trump’s “America first” economic policy, we need to return to the basics.

The overwhelming majority of economists agree that prosperity requires countries to specialize in what they are good at producing, rather than trying to make and consume everything domestically. And the only way that specialization can work is if countries trade with one another and also allow a degree of capital and even labor mobility.

Since an open international system requires mutual consent, it also demands that the world’s most powerful country think beyond the moment and make temporary sacrifices to preserve the structure of economic relations that has benefited it so much in the past. And it demands that that country encourage others to remain open, use its foreign aid and internal market to promote development abroad and lead with its ideas.

In this sense, the old internationalism of “enlightened self-interest” is the only real way to put America first.

If the United States reverts to protectionism and isolationism, Trump may find satisfaction in punishing China for its exchange rate policy or in preventing some factories from moving to Mexico.

But the loss of American commitment to economic internationalism will probably signal the demise of the postwar system, a system that may be imperfect but that has brought prosperity and peace to millions. And if that happens, the first victim will be the United States itself.

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