Skip to content
Attività

Post-election America: political and economic challenges

    • Rome
    • 1 December 2016

          The starting point of discussions at this international workshop was an examination of the extent to which the result of the US election in November 2016 has engendered widespread concerns for the entire framework of transatlantic relations. The fears that have arisen relate to the future of agreed rules and dialogue vehicles, as well as the core values that underpin liberal democracy, in light of the strong nationalist bent (especially on economic matters) as well as the slant on alliances demonstrated by Donald Trump during the election campaign. The participants stressed the crucial need to understand how the American political system could have produced so game-changing an outcome, in part because certain aspects of the debate playing out in the United States echo the discourse unfolding in Europe.

          America’s political system: is it gradually adapting, or are there serious structural tensions at play?
          The 2016 presidential campaign brought to light full-blown revolts within the ranks of both the traditional parties, as embodied by the figures of Bernie Sanders for the Democrats and Donald Trump for the Republicans. The overarching battle was essentially fought between insiders (starting of course with the major loser, Hillary Clinton, and extending to other ineffective opponents of Trump, such as the “moderate conservatives”) and outsiders, more so than between liberals and conservatives per se.

          It was suggested that underpinning this phenomenon is a widespread perception (common also to other advanced democracies) of a profound breakdown within the political system of the relationship between decision-making mechanisms and the interests of citizens. On the one hand, there is a high degree of systemic institutional rigidity in adapting to social and economic changes, and, on the other, interest groups have shown themselves capable of bringing strong pressure to bear, especially on Congress. The political and ideological polarization of American society in recent years, combined with a distinctive “checks and balances” structure that favors veto powers, has had the overall effect of more or less stalling decision-making processes, which has in turn exacerbated public disenchantment. The response of the legislature has been to frequently churn out ever-more complicated rules with a plethora of exceptions (typically inserted at the behest of lobby groups) and with little overall consistency. This trend has prompted a large number of legal challenges, at very great expense. Meanwhile, the executive has habitually resorted to issuing “executive orders” and beefing up the powers of various semi-independent “agencies”, responses which have eroded the ability of citizens to have a say in shaping – or even, in some instances, to understand – the laws in force.

          The frontal attack mounted on the Washington establishment by both Sanders and Trump during the 2016 campaign hinged on this very combination of factors, which benefits the “insiders” of the political world and damages or marginalizes ordinary citizens. Economic inequalities, exacerbated by the Great Recession of 2008, have thus been transformed into cultural fractures and, in part, into clashes of identity between various components of American society.

          Looking ahead to the next two years, that is, at least up until the 2018 midterm elections, it was envisaged that with President Trump set to have a Republican majority in both houses of Congress (albeit a narrow one in the Senate), any risk of legislative paralysis will be limited. The role of the Supreme Court will also presumably favor the President’s agenda, since – with a Justice of the Court soon to be nominated to fill an existing vacancy – the eventuality of a tied court should be avoided.

          The participants stressed, however, that a number of the campaign promises made by Trump will, in any case, be very difficult to fulfill, especially those regarding private investments he would like to retain within the US and those concerning more radical protectionist measures. A more likely – and more popular – move would instead be to give a strong boost to infrastructure spending, even at the cost of significantly increasing public debt. Such a strategy may give rise to disagreements within the Republican Party, but probably not any strong opposition. Indeed, as Donald Trump cannot be considered a traditional stalwart of the conservative milieu, he will pose a new challenge to Republican elites, given that the electorate seems to have preferred a candidate outside the norm over so-called “moderates” or “centrists”.

          The future of both parties is thus still very uncertain, given the continual shift in the social blocs they represent, especially with the impoverished “working classes” – or at least those of them that are white – now gravitating towards the Republican Party and away from the Democrats. Demographic trends may very well continue to favor the Democrats, but not so much as to ensure an “electoral bloc” proper such as carried Barack Obama to victories in 2008 and 2012.

          Some observers were of the view that the electoral college mechanism is becoming genuinely problematic, to the extent that it has heightened the disconnect between the voters’ choice and those ultimately elected, as seen in the 2016 presidential elections, with Hillary Clinton’s approximately two-million vote lead in the national popular vote undercut by the incontestable victory of Donald Trump in the aforementioned electoral college. Should a similar situation arise again, it could call into question the legitimacy of the democratic process, all the more so given the strong political polarization of the country.

          The impending economic agenda and its international implications
          It was remarked that international uncertainty over the economic agenda of the incoming presidency is rife, both among political leaders and in the business world. Given the role played by the United States on the world stage, certain choices on the domestic front will at any rate – to a more or less intentional degree – have international repercussions. Indeed, according to “secular stagnation” theorists, uncertainty is a key factor in the low growth plaguing the global economy today.

          Even so, it was noted that the first reactions of US markets to Donald Trump’s victory were positive, based on expectations of a new stimulus to growth in many key sectors. It was suggested that the crucial issue of how to reduce marked inequalities might in part be addressed by the repatriation of large amounts of capital, which would be invested back in the country. Initial concerns of this nature expressed by the more innovative tech sectors – Silicon Valley and the like – would seem to be offset by the natural dynamism of the American economy and the very varied forms that innovation processes can take. In this regard, many are betting on Donald Trump proving quite pragmatic given his background as an entrepreneur.

          Looking at trade policies, it was felt that a fundamental shift in the American approach to international partnership may be in the offing. Trump’s announced position on the Trans-Pacific Partnership (TPP) has been read by many as a gift – as paradoxical as that might seem – to China’s aspirations of dominating trade in the vast Asia-Pacific region.

          On the fiscal policy front, Trump has announced the intention to have funds repatriated on a massive scale, which will have negative implications for Europe’s role as a natural destination for American capital – or at least subject it to competitive pressures. It was highlighted, however, that there are those who believe that the real shortage of capital on the Old Continent will mean a reduced US presence could determine a better allocation of resources.

          In terms of the financial sector, it was anticipated that levels of consumer protection will decline compared with those during the years of the Great Recession. The banks will be the first obvious beneficiaries of this, and could as a result begin taking excessive risks again. The participants noted, in particular, that almost all observers concur that there will soon be a rise in interest rates and a strengthening of the dollar.

          In emerging markets, on the other hand, overall risk is expected to increase, with a significant flight of capital (and hence a further strengthening of the dollar) as well as a probable slowdown of the economies in question.

          Infrastructure investment programs could – it was submitted – produce a flywheel effect for various sectors of the economy, and perhaps also an indirect positive impact on the choices of European countries, if only by reason of imitation. The Trump approach seems to anticipate that the country will undergo a new wave of “suburbanization”, with a boom in the construction market outside existing urban areas (due in part to the relative cost of building plots). Such development could be favored by mobile and communications technologies, which are capable of ensuring instant connectivity even over great distances, without the need for road travel.

          It was taken as read that such infrastructure programs will be predicated on a considerable volume of lending to support the necessary purchases and private expenditure. They also raise the issue of US public debt, which is set to increase (at least in the short term) in the face of the tax cuts promised by Trump – a situation destined to be accompanied by a growing trade deficit, though hopefully not at the expense of the dollar. This, at the very least, is the positive scenario portended by the Republican victory in November 2016.

          It was emphasized, on the other hand, that such an expansionary policy will produce inflation, in a climate like the present of nominally very low unemployment (characterized, however, by jobs of varying quality and a widespread perception of poor prospects for the younger generation). In essence, there may be little leeway for a classic “Reagan-style” fiscal stimulus: in particular, a tax cut aimed at the middle class rather than top earners may be required. One fundamental issue remains, namely, that of inequalities, which are unlikely to be reduced by the policies advanced by Trump during his candidacy – a problem which will clearly have political consequences as early as the 2018 midterm elections.

          Overall, the biggest question mark hangs over the indirect effects of American trade and financial policies on the rest of the world, which could end up backfiring and destabilizing the United States itself. A protectionist push risks reducing the profits of certain large multinationals, as well as triggering an escalation of protectionist measures by others.

          With regards to the energy sector, it was suggested that federal policies will be realigned (towards shale gas, as well as conventional oil and coal), but by this stage major investments has already been poured into renewables and the efficiency of some sources is such as to be competitive with fossil fuels without the need for subsidies. Hence, any reversal of the trends seen in recent years would not seem to be on the cards.

          Transatlantic relations and the liberal order
          At this point in the discussions, it was submitted that several important observations can be made of a comparative nature, especially with regards to the major cohesive role played by the transatlantic relationship. Indeed, the shared belief in the global success of Western civilization (or at least, in that of some of its institutional linchpins) is beginning to crumble. The responses of political and economic leaders have varied, but in recent years voters have invariably reacted with protest votes against the status quo. The malaise has manifested itself somewhat differently in every country, and in this respect there are certainly traits that are peculiar to America, though the underlying problem is the same across Western societies: the confidence of liberal-democratic countries in their own model of government and society is on the wane. In particular, the “liberal” component is often being discounted of a mix that hinges not just on the right to vote and universal suffrage (or procedural democracy) but also on the rule of law and, hence, the protection of minorities. This – it was stressed – is why any form of “illiberal democracy” cannot exist in the way democratic systems have been understood in the West. Illiberal and nationalist tendencies have historically been typical of periods where large sections of the public have come to fear the “other” (some internal or external enemy) and thus seek protection over and above any other demand. It was felt that such a stage has now been reached, posing obvious risks for international relations. Indeed, this in part explains Donald Trump’s attitude during the election campaign towards Vladimir Putin’s Russia, inasmuch as Trump voters share the demand of many Russians for a nationalist response to external threats.

          The participants were of the view that the great challenge for transatlantic relations lies in the competitive and antagonistic nature of such nationalism, which is difficult to reconcile with the close cooperation between governments that has become customary in the western world. In any event, the nationalist approach by definition does not address the root causes of the fears taking hold in society; if anything, it seeks defensive solutions, in the process endangering the established mechanisms of international cooperation.

          It was recalled, however, that the American brand of nationalism has always been different to its European counterpart: the former has manifested itself in a democratic guise, while the latter has often taken an authoritarian or decidedly anti-democratic bent. In reality, the recurring presence of nationalistic in the US tendencies has not stood in the way of the country’s ability to assume the helm of a liberal international system. While the workability of this pairing may not last into the future, it nevertheless provides some useful pointers for Europeans should they succeed in taking a more active role on the global stage during this very phase of unpredictability and uncertainty on the American policy front. Europe’s contribution will be crucial in shaping a sort of “third option” between nationalistic parochialism and unbridled globalization (which by this stage clearly no longer has the support of voters in western countries).

          In political and security terms, it was highlighted that American support for European integration has been a cornerstone of the transatlantic relationship, and this element will now be called into serious doubt if a “transactional” approach predicated on bilateral agreements – presumably, specifically with Britain and perhaps Germany – were to prevail in Washington. On matters such as cybersecurity, hybrid warfare, terrorism, and organized crime, cooperation between the United States and the EU is crucial, and security agencies are well aware of this. In recent years, Euro-American dialogue has deepened even on the issue of energy security, and there will be some pressure on the new administration not to disrupt these ongoing efforts. A question mark does, however, loom over commitments made by Washington on support for renewable energies within the framework of the Paris Accord of December 2015, in respect of which Europe has invested substantial resources and is not prepared to change course.

          As for NATO, it was seen as likely that Washington will resume its traditional stance, with a serious commitment towards common security despite understandable concerns over insufficient levels of European defense spending.

          There was general agreement that relations with Russia will be the first test of the Trump presidency’s foreign policy intentions, with a difficult balance to be struck between the current regime of sanctions and open dialogue with Moscow.

          The nuclear deal with Iran was held up as a further matter of common interest in relation to which Washington could resolutely change its position, even if a sudden abandonment of commitments undertaken in a multilateral context would seem unlikely. Naturally, it is precisely the fact that the deal is multilateral which poses an immediate problem for those European powers that have signed and supported it.

          Lastly, on the trade front, it was stated that negotiations with a view to putting a TTIP framework in place have already concluded much of the detail, and that there is any case an established tradition of dialogue over rules, standards, and dispute resolution. In essence, even an American administration with a relatively protectionist and “America first” orientation will have to take into account the realities of economic interdependence, with some experts convinced that there is a real possibility of a transatlantic trade agreement being reached, albeit less ambitious and comprehensive than envisaged for the TTIP. As a concluding remark, however, it was noted that one issue that could potentially have different effects on opposite shores of the Atlantic is the possible reform of regulations on banks and financial activities – in particular, the Dodd-Frank Act of 2010.

          • Francis Fukuyama
          • Post-election America: political and economic challenges, Rome, December 1-2, 2016
          • Domenico Siniscalco, Erik Jones and Jacek Rostowski
          • Giuliano Amato and Giulio Tremonti
          • Sergio Fabbrini, Francis Fukuyama, Marta Dassù and Federico Romero
          • Sergio Fabrini, Francis Fukuyama and Gianni Riotta
          • Walter Russell Mead, Emma Marcegaglia and Domenico Siniscalco