Republicans are fracturing on the economy

Republicans Are Fracturing on the Economy
Republicans Are Fracturing on the Economy

Summary

Republicans head into their Milwaukee convention united behind Donald Trump but with a rift opening between pro-business libertarians and conservatives skeptical of big business and tax cuts.

Republicans will gather for their convention in Milwaukee next week united behind presidential candidate Donald Trump but divided on what the party stands for.

There are, of course, widely aired disagreements over abortion and the war in Ukraine. But a potentially more consequential division has opened over economics. On one side is a pro-business libertarian wing that backs low taxes, free trade and international openness. On the other is a growing contingent of conservatives skeptical of big business, ambivalent about tax cuts and vocally supportive of tariffs.

While both wings back Trump, who straddles this divide, they have different priorities should Trump win this fall’s election and Republicans retake control of Congress. Which side prevails has huge implications for the economy and business.

The new Republican thinking was evident this week at the annual meeting of “national conservatism," one of many labels attached to the new movement (along with the “new right," “populist right" and “conservative economics"). Speakers interspersed attacks on the “Marxist" and “radical" left with condemnation of the “corporatist right," “free marketism" and “globalism."

“Look at the libertarians who helped Ronald Reagan rescue the U.S. economy, then descended into hyperindividualism, materialism and globalism that has rendered them a political irrelevancy," declared Kevin Roberts, president of the Heritage Foundation, which has remade itself from a free-market think tank into a bastion of national conservatism.

You can trace the origins of this intraparty split to the end of the Cold War in the early 1990s, which robbed Republicans of the common enemy that united social conservatives, national-security hawks and free-market libertarians.

In the 2000s, China’s rise—which hollowed out many manufacturing communities—along with wars in Iraq and Afghanistan and illegal immigration, discredited globalization and international intervention among the working-class voters who had become the Republican base.

Trump rode this shift to the Republican nomination in 2016 and then the White House. Beyond his love of tariffs, though, Trump has provided no holistic alternative economic vision. So others have filled the void. One is Florida Sen. Marco Rubio who, in a 2019 speech, pressed the GOP to be more pro-worker and less reflexively pro-business, criticized stock buybacks and praised an expanded child tax credit and industrial policy—that is, federal support for strategic sectors.

Rubio’s views found a home in American Compass, a think tank founded the following year by Oren Cass, who was an adviser to Mitt Romney’s 2012 presidential campaign. Cass has positioned American Compass as a counterweight to supply-side groups such as Americans for Tax Reform (keeper of the no-tax pledge Republicans are expected to sign) and the Club for Growth.

“A huge problem with the libertarian model is thinking the free market is the end unto itself, and we have no right to question its outcomes or what the common good might be," said Cass. “The starting point is to define the ends here: human flourishing."

A central tenet of this conservative view is that making things, i.e., manufacturing, is essential to balanced growth and national sovereignty. While supply-siders deride tariffs as taxes (except when imposed on China), Cass considers them essential to supporting manufacturing, a view shared by Robert Lighthizer, the former Trump trade ambassador, who is on American Compass’s advisory board.

“Things that used to be made in America are now made elsewhere in exchange for pieces of paper," Cass said. “If you don’t think making things matters, of course you’re going to be confused by tariffs."

Besides free trade, national conservatives question Republicans’ deference to American corporations. Though not antibusiness, they abhor the boardroom embrace of progressive causes such as diversity, equity and climate change, and want to rein it in with whatever tools are at their disposal, from antitrust law to state authority over corporate governance.

“The widely held for profit corporation is a threat…no conservative should let go unaddressed," Ryan Newman, general counsel to Florida Gov. Ron DeSantis, who clashed with Walt Disney over Florida’s prohibition on classroom discussion of sexuality and gender, told a national conservatism audience.

These are the sort of interventions once championed by the left. Indeed, some Republicans are making common cause with Democrats. Sen. J.D. Vance of Ohio has praised Lina Khan, chair of the Federal Trade Commission, for taking on corporate mergers and big tech. Sen. Tom Cotton (R., Ark.) teamed up with Sen. Sherrod Brown (D., Ohio) to impose tariffs on steel imports from Mexico. Even Trump’s 2017 tax cuts, which slashed the corporate rate, are no longer sacrosanct. Before extending them, “We should start with this question: Why should labor ever be taxed more than capital?" Missouri Republican Sen. Josh Hawley said this week.

Supply-siders, who have driven the GOP’s economic agenda since the 1980s, are aghast. Steve Moore, a former editorial writer for The Wall Street Journal and now principal at the Committee to Unleash Prosperity, has called national conservatism “dangerous" and some of its causes, like protectionism and breaking up tech giants, “loony."

“We’ve been fighting a war on the right against regulation for 40 years, and they want to regulate," Moore said in an interview. Their obsession with manufacturing reflects a “romantic view of the past" rather than facts that show middle-class Americans getting steadily richer, Moore said. This week Americans for Tax Reform posted an article titled “Who Said it, Oren or Warren?" highlighting similarities between Cass’s views on taxes and those of Massachusetts Democratic Sen. Elizabeth Warren.

Which camp will prevail if Trump returns to power? Trump, famously transactional and nonideological, has advisers from both: Moore and Larry Kudlow from the libertarians; Lighthizer and former budget director Russell Vought, who align more with national conservatives.

Vought helped draft the Republican National Committee platform released this week. It backs tariffs but also tax cuts and deregulation. Trump has distanced himself from “Project 2025," a national conservative agenda for the next president overseen by Heritage. Yet he is considering both Rubio and Vance, darlings of the new right, as his vice presidential running mate.

Then there’s Congress. Rubio and Vance might not be representative of GOP lawmakers, who are mostly free marketers, said Patrick Toomey, a former Republican senator from Pennsylvania and former president of the Club for Growth.

Nonetheless, he predicted “an internal battle" if Republicans sweep the White House and Congress. “What do Republican senators do when Trump tries to impose universal tariffs, which would be terrible for the economy? There’s going to be a huge reaction across the country, from companies that buy products from overseas as inputs into final goods, from exporters hit by retaliatory tariffs. How does the battle play out over the corporate tax rate…the child tax credit?"

With the Democratic Party drifting leftward, a Republican Party under the sway of national conservatives could leave business and libertarians homeless. Said Toomey: “The Republican Party has been advocates of limited government for 80 years. If that sentiment gets abandoned, where do people who believe in economic freedom go?"

Write to Greg Ip at greg.ip@wsj.com

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