President Donald Trump has unquestionably become the dominant source of economic uncertainty in the world today, easily displacing the eurozone (for now). The US economy is still the largest in the world, and a major driver of world demand for goods and services. It becomes important, therefore, to parse the actions of the new President, and examine whether (as his domestic opponents claim) they do not represent what the American people really want. If, on the contrary, the President is faithfully rendering the aspirations of the American people into executive action, that serves as a useful wake-up call to the rest of the world.
Opposition to Trump as the president has mapped on to criticism of a system which can elect a candidate who lost the popular vote by three million. But that electoral design, in fact, displays the far-seeing wisdom of the federal provisions in the American constitution. The electoral college ensures that the support base for any elected president is spatially dispersed over the large land mass of the country. In the limiting case, if the entire population, barring just a few scattered people in each of the other 49 states, were to have moved to California, and if a presidential candidate were to win all the votes in California but get trounced in the other states, he would still lose the election despite having overwhelmingly won the popular vote. This then ensures that the political leadership at the federal level will not focus economic attention on some favoured geographies within the country, ignoring the need for spatial equality.
That was the vision of the framers of the American constitution. There are of course other issues, such as the alleged tampering of election results by interested foreign governments (a serious charge), and also the possible misuse in some states of their constitutional power to determine eligibility to vote within their jurisdictions (even more serious), but those allegations remain unproved. For now, the world has to take Trump as the wholly legitimate president of the US—a president, furthermore, who takes seriously his promise to deliver on what he judges to be most important for his supporters.
His actions across a very broad range of issues consist of (jerky) moves to execute that promise. But that very jerkiness has given an opportunity to demonstrate to the world another very proud feature of the US—its incredible institutional strength. The (first) entry ban on people holding passports of seven nations, and its overturning by the US judicial system, will surely become a classroom case taught in law schools, and in all courses dealing with federal governance institutions.
Interestingly, the judgement of the appeals court which ruled against the first ban gives prominence to the damage caused to the teaching and research missions of the public universities in the states (Washington, Minnesota) which moved the courts. The judges on the three-member bench were appointed by presidents varying widely in their political points of origin, thereby freeing the ruling from any suspicion of partisanship.
The judgement did not damage the president in terms of his electoral support base. On the contrary, it demonstrated to them the steep uphill climb involved for him, their change agent, to execute what they would like him to do. Here is an exemplary illustration of what robust institutions can do. Not only does the judgement preserve the American constitution (as it presently stands), but it protects the agent from the rage of his supporters. If and when a revised entry ban is issued, it too will face judicial scrutiny.
Meanwhile, the hostility among sizeable segments of the US population towards the free inflow of goods and people stays firmly in place. This is what the world has to take very serious note of. Travellers from India to the US will confirm that after the 9/11 episode, officials manning entry points into the country frequently subjected them to hostile questioning bordering on abuse, even if they held valid visas and were submissive in their stance.
I eventually discovered the reasons for this phenomenon. After 9/11, in response to American citizens angrily assigning culpability to the Immigration and Naturalization Service (INS), the agency went through some internal reforms granting full protection for officials manning entry points from any complaints of incoming travellers about their behaviour. Since that terror event was perpetrated by holders of student visas to study in aviation schools, it was thought that they could have been fended off at the entry point had officials been empowered to question fitness and motivation for whatever visa the entrant held.
Those episodes declined in frequency and intensity as the Barack Obama administration elegantly directed attention towards diligence at the point of issue of the visa, rather than at the point of entry. But the anger against immigrants remained and festered, fuelled by terror events and loss of jobs. Employees at call centres in India have long faced abuse from callers in the US, when their identity peeped through the unevenness in the accent and formal American identity they were made to assume. The abuse centred on the jobs they were accused of stealing from honest, hard-working Americans.
The reason the Trump phenomenon is so important is because, in fact, he is an early warning signal to a problem the entire world faces going forward. All countries, and not just the US, find themselves facing a decline in the employment elasticity of growth—the percentage growth in employment resulting from 1 percentage point of growth. For the world to usefully absorb all the young people coming into the labour force, there is a need to both raise global growth, and employment generated by growth. Global growth, although improving, remains anaemic, and manufacturing processes are being increasingly automated. Automation has even reduced the numbers and changed the profile of hiring for software development. In such a situation, each country will attempt to protect its own share of a reducing world-employment-generation pie, by turning hostile towards cross-border movement in people, goods and services.
The immediate issue engaging Indians is H-1B visas. The modern phase of the H-1B story goes back to 1990, when president George H.W. Bush introduced a definitional change widening the range of skills in short supply in the US for eligibility. The cap on H-1B intake was raised sharply by president Bill Clinton’s administration in 1999, and raised further during the early years of president George W. Bush in 2001, but brought back in 2004 essentially to 1990 levels, where it has since remained.
The survival of the H-1B programme through changes in party in power has fuelled the widespread fear in Trump’s support base of a networked establishment working against the interests of American citizens. The H-1B numbers are small, but each episode of a skilled American worker having to train his replacement (Indian for the most part, and not just in Indian firms in the US) for the job he was losing has had a searing impact, and helped forge a political coalition with blue-collar workers laid off by manufactured Chinese imports. It does not help to point to American jobs created by Indian foreign direct investment in the US. The American establishment is perceived as an evil partnership between a profiteering class seeking cheap imports of goods and labour, and a political class enabling the profiteering.
There is also a fiscal basis to the hostility towards (new) immigrants, whether skilled or unskilled, legal or illegal, in the US. For any Indian visitor, the immediate appeal of the US is not even the higher incomes on offer so much as the blissful provision of public goods. There is a sanitation network universally in place which actually works. Then there are paved roads and footpaths, orderly traffic, and universal availability of electricity and safe drinking water (unsafe water in any part of the US makes national headlines).
Americans are justifiably proud of their public spaces and facilities. These have been paid for with taxes over the years by their forefathers, and they see themselves as the rightful inheritors of that structure. New immigrants are seen to be walking into and benefiting from a platform built by prior residents, even if they are paying taxes concurrently with the income they earn—which all (legal) residents necessarily do, in a high-compliance environment (H-1B visa holders have a counter grievance, about their social security contributions not eventually coming back to them). The decline over time in infrastructure quality, and the need to rectify that decline, is high in voter consciousness, and underlies the angry demand for a domestic policy focus.
When trade in goods and services shuts down factories over wide swathes of the country, turning them from industrial belts into rust belts, that switches off not merely private incomes, but public goods as well, since local facilities like schools are paid for through local taxes on property. Faced with this double whammy, people in these areas turned against a political leadership which did not heed their suffering.
Free (or freer) trade is endorsed by economists as long as the gains to the gainers are more than sufficient to compensate the losers—in principle, that is. Whether that compensation actually happens is left to the political process to determine. When there is a spatial concentration of losers without the skills for the new jobs created by trade, their voices are drowned until the loser space grows to some threshold value. Federal assistance to the schools in these regions could have at least salvaged the young, but that did not happen.
It is up to President Trump to redress those grievances, and to refrain from stoking them further.
Indira Rajaraman is an economist.