Why populists can do so much harm

 

Trump’s ‘Liberation Day’ naturally reminded me of Johnson’s ‘Independence Day’. There are of course many differences between the two. Tariffs are a tax on imports, while Brexit erected bureaucratic barriers to trade with the UK’s largest trading partner. A more important difference is that tariff barriers can go down as quickly as they went up, while Brexit was a much more drawn out and permanent affair that couldn’t be reversed quickly. But essentially both are bad because they stop mutually advantageous trades taking place.

Another difference between Brexit and Trump’s Liberation Day tariffs is that the latter only impact US imports directly. US exports are only hit if other countries respond with their own tariffs against the US. If other countries do not respond by raising tariffs on US exports, then the impact of the US tariffs can be offset by an appreciation in the dollar. This is one of the many reasons that raising tariffs across the board to improve your trade balance makes little sense.

If other countries retaliate with tit for tat tariff increases, then we wouldn’t expect an appreciation in the dollar. That situation is more like Brexit, and just as Sterling depreciated following Brexit a US led tariff war might lead to a depreciation in the dollar, because the hit to the US economy is bigger than the hit to the Rest of the World. Of course we cannot really infer anything from exchange rate movements immediately after Trump’s announcement, because higher tariffs had been anticipated for some time before that. (In contrast, Brexit went from a possibility to a certainty the moment the referendum result was announced, so we know Brexit depreciated Sterling against the Euro.)

As Mark Carney notes here, it took time for the impact of Brexit to influence GDP, and the impact of Trump’s tariffs on the real economy is also unlikely to be instantaneous. As a result, monetary policy has time to react, and the bond market seems to be expecting the US Federal Reserve to ‘look through’ the direct inflationary impact of higher tariffs and instead cut interest rates faster to support economic activity. If a US recession happens this year, it will not be just because of tariffs, but rather a result of the uncertainty created by giving so much power to just one individual who has little contact with reality.

I would be very happy if Starmer and Reeves use Trump’s tariffs as an excuse to put up taxes, but what they are really an excuse for is to abandon Labour’s red lines on the EU, an excuse the UK government seems determined not to make. The harm US tariffs might do to the UK are only a fraction of the damage leaving the EU’s Single Market and Customs Union have already done and will continue to do. The best way for the rest of the world to deal with Trump’s tariffs is to encourage trade diversion from the US to elsewhere. Retaliatory tariffs are best kept to measures that will have an immediate negative political impact on Trump himself.

Yet another potential difference between Brexit and Liberation Day is that Brexit ended free movement of labour between the UK and the other EU countries. But Trump has that covered, not only by restricting immigration but also deporting immigrants on a largely random basis, sometimes to a prison camp in a third country. The real difference may be that what Trump is doing will actually reduce immigration into the US, and therefore do some sectors of the economy real harm, whereas for the UK Brexit largely ended up diverting the origin of immigrants from the EU to elsewhere.

While immigration is central to right wing populism, erecting trade barriers is not. We didn’t get Brexit because some politicians wanted to erect trade barriers with the EU, but instead because some feared the EU and others thought backing Brexit would help their careers. With Trump I don’t think he is erecting tariffs because they are some part of a grand economic strategy. Instead I think Trump just likes tariffs. In part this is because he sees them as a solution to a problem that is in his mind only (bilateral trade deficits). In part it is because he likes the idea of countries giving him things in deals to avoid tariffs.

Whatever the personal motivations, the United States and the Rest of the World have to live with a disastrous policy because of the whims of an elderly narcissist with no respect for facts. In the UK we got Brexit because another narcissist with little respect for truth wanted above all to become Prime Minister. The reason that successful populists can do so much harm when they gain power is not just because they are inherently evil characters, or lack empathy of any kind, or because they lie all the time, but also because populists dismantle the checks and balances that are inherent in a pluralist democracy.

As regular readers may remember, I tend to follow Jan-Werner Müller in seeing opposition to a pluralistic democracy as a defining characteristic of populism. For the populist leader, their views reflect the will of the people, and therefore if a party, cabinet, parliament, the civil service, the courts or parts of the media oppose their wishes then their wishes should hold sway rather than those of these other institutions. In short, the populist wants to be a king. Where once a king might have justified this unchallenged authority through god, now for the populist king absolute power comes not from divine right but from the imagined will of the people who elected him.

But whether you see this as a defining characteristic of populism or not, populists invariably do try to dismantle the checks and balances embodied in a pluralist democracy. Johnson illegally suspended parliament, and his supporters in the media condemned the judges who called out its illegality. Trump has usurped the power of Congress through his executive orders and the antics of Musk, and attacks judges when they call out this illegality.

Imagine a British Labour Prime Minister who decided it was a good idea to set tariffs of 20% or more to end the deficit on the UK’s balance of trade, against the advice of pretty well all the economists inside and outside the country. They would have to persuade a sceptical cabinet, and in particular a very reluctant Chancellor backed up by a Treasury happy to provide chapter and verse on why it was a terrible idea. Even if they succeeded in this, parliamentary approval might be one obstacle too far, with rebel MPs encouraged by a highly skeptical if not antagonistic media. [1]

The key difference between Trump’s first term and today is the extent to which he and his followers have eliminated most of the features of a pluralist democracy that might oppose his views. In his first term Trump had little time to pick his cabinet, and as a result they often tempered or eliminated some of his crazier ideas. This time he has picked yes men and women, which often meant selecting those with little or no experience or expertise. In his first term Trump had just been elected, so there were plenty in the Republican party that were prepared to stand up to him. Today all but a few fear the electoral consequences (in primaries) of doing so. The power of Congress has been usurped but the Republicans in Congress have so far rolled over. In his first term it took time to select a Supreme Court that would allow him to break the law, but now it is in place and he can. Trump has become king, not only in his own court but also in his own country. If these differences seem as obvious to you as they were always obvious to me, then let’s just follow Paul Krugman in noting that many in US business and financial elite missed this point completely.

We can take the checks and balances of a pluralist democracy for granted, and ignore how important they can be in avoiding some of the more damaging ideas of political leaders becoming a reality. [2] But often the way politics is presented by the media actually devalues pluralist democracy. Media discourse is too often about leaders and their wishes, and when these leaders defer to other political institutions or actors they are described as ‘weak’ and ‘failing to get things done’. Partly as a result, systems of government in the US and UK have moved to give more power to the executive and its leader. It is therefore perhaps not surprising that sections of the electorate see little difference between populist leaders like Trump, Badenoch or Farage and those of other political parties. In all these ways we have made our pluralist democracies more vulnerable to a populist takeover.

[1] Here Brexit is not a good analogy, because trade barriers were a by-product of leaving the EU, rather than its central objective.

[2] They don’t always do so, of course. I learnt in 1980 that Margaret Thatcher was very keen on a poll tax. The Treasury was horrified by the idea, and it took almost a decade before she managed to implement it (first in Scotland, then England). But then it was her party that stopped it, just as it was the party that ended Johnson’s premiership.