Populism, protectionism, nationalism and the erosion of the political middle ground: In Europe more so than in the US, some aspects of Donald Trump’s successful election campaign evoke memories of the dreadful 1930s. In this report, we ask how close the parallels are and what key risks we need to watch.

After the Brexit vote and the triumph of Trump, the echo of the early 1930s sounds a little less faint than it did before. But the situation is very different in at least three key respects.

First, employment is rising across much of the Western world. Despite widespread anger at the establishment, we are not quite living in pitchfork times again.

Second, Trump and some other leading populists today come across as opportunistic self-promoters rather than incorrigible ideologues. Having been a reality TV star before, Trump may simply switch roles. Isn’t that what actors do?

Third, institutions of international co-operation and the rule of law at home are much stronger in the developed world than they were in Europe in the 1930s.

Nonetheless, significant risks remain. In 1930, the US Smoot-Hawley tariff act unleashed a wave of protectionism that crippled world trade. To their great credit, policymakers avoided any relapse into protectionism after the 2008-2009 financial crisis. With Trump’s triumph, the threat of some renewed protectionism has become more acute.

Populists can promise their voters the moon. But they cannot deliver. If Trump turns mainstream, a continuing economic upswing may gradually soften the anger of his base. However, to the extent that populists in power actually implement some of their anti-trade agenda, the resulting economic damage may in the end feed the anger that swept them to power in the first place. If the rustbelt stays rusty, who will its voters fall for next?

Markets are betting that Trump will implement much of his domestic agenda of fiscal boost and deregulation while ditching most of his international agenda of protectionism and “America first” that could destroy wealth and stoke conflicts around the world. We largely agree. Trump has started to back away from some of his wilder campaign threats. Nominating the well-regarded Reince Priebus as his chief of staff also points that way. Seen from outside the US, it remains a risky bet, though. The checks and balances that hem in US presidents are stronger for domestic than for foreign and trade policies. In dealing with foreign leaders such as Putin, in decisions on the use of force or to impose trade sanctions, the personal traits of the commander in chief may matter.

Managing the decline of Russia and the rise of China while stabilising the Middle East will take strategic vision, patience and a readiness to strengthen alliances and engage with the world in a consistent fashion. Trump may not have meant it when he questioned America’s NATO promise to defend its allies. But deterrence needs to be credible to work. Words can create facts that can be costly to correct.

In his election campaign and his prior business career, Trump has built a reputation as a wheeler-dealer. That can help to grow a business. However, political systems and the market economy rest much more on the respect for rules and institutions than on striking one eclectic deal after the other. Such respect does not seem to be Trump’s strong point so far.

The multinational institutions that underpin peace and prosperity in Europe are much easier to break than those of a big nation state such as the US. The same kind of isolationist populism could thus do much more damage in Europe than in the US. We expect little direct contagion from the triumph of Trump to European votes. He is probably too unpopular in Europe to bolster support for right-wing populists in Europe very much. But the factors that brought Trump to power in the US are at play in Europe as well.

Our base case is clear: we expect inertia and common sense to prevail. We project some increase in US and European defence spending rather than a weakening of NATO, we expect no Putin-Trump pact at the expense of Ukraine and do not look for any new US approach to trade with Mexico and China to degenerate into a trade war. But the world has become a more uncertain place, outside the US more so than in the US itself.

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