ECONOMIC NATIONALISM A NEW NORMAL.

With Steve Bannon leaving as the president’s strategic advisor on Friday, a question arises as to whether “America First” economic nationalism will become secondary to the globalist factions within the White House. Don’t count on it. U.S. economic nationalism is here to stay because it is popular with voters — at least for now.

When I heard Donald Trump’s presidential inaugural address last January, as an economist I cringed when he focused on “America First” in his various remarks. In his view, the United States has been hard done by with trade deficits — time to right the wrong by a more assertive position to protect American jobs. Buy American and hire Americans will be a priority. Rather than spend on expensive military adventures in the Middle East, use the money to build infrastructure and support social security and Medicare at home.

Much of these economic nationalist themes are consistent with Bannon’s philosophy. But Bannon is not the only one to profess them. Many Democrats and Republicans share an economic strategy encapsulated in America First — protect jobs at home and support government activism.

These conclusions are supported in an impressive study by Lee Drutman, a political scientist at New America and winner of a prestigious award in his field last year. Comparing the 2016 and 2012 U.S. election results, his research suggests that Trump created a voter coalition by capturing not just rightwing economic and social Republicans but a majority share of voters who were both left on economics and conservative on identity issues (social conservatism includes taking pride in America, limiting immigration and pursuing moral issues such as abortion and gay rights).

Drutman’s results are striking — 55 per cent of American voters are now social conservatives. Free market policies, espoused by Mitt Romney in 2012, gather support from only one-quarter of voters. Any Republican politician such as Ted Cruz on the economic and social right would lose an election. Neither would Democrats focused on the economic and social left win an election.

Thus, the 2016 election expresses strong support for economic nationalism. This is quite contrary to the Reagan years of the 1980s when voters supported economic liberalization through deregulation, free trade and smaller, less interventionist, government. These policies ultimately led to an expansion of global trade and capital movements, reducing global inequality — billions in developed economies were lifted into the middle class. However, millions in advanced countries like the U.S. lost jobs, blaming trade liberalization.

Are other countries that much different? Economic nationalism has reared its head throughout the world since the 2008 financial crisis. China has taken on several policies that aggressively capture markets through subsidies as well as by limiting market freedoms, including last week’s announcement curtailing foreign capital outflows. Europeans have adopted several tax and regulatory policies, including on immigration, that are imposing limits on the market. Free trade has become “managed trade” where job protection at home will come at the expense of consumers who face higher prices and taxpayers who must pay for industrial and export subsidies.

Economic nationalism is also growing in Canada despite our vocal support for free trade and open immigration. Politicians will fight to the dying day to protect farm lobbies, lumber producers, the Canadian auto industry and other favoured industries. Activist federal, provincial and local governments frequently use regulations, grants and tax policy to protect certain sectors, whether in health, energy or automobiles. It seems to matter little if consumers and taxpayers have to pick up the bill. So what does America First mean for Canada? Obviously, on trade reform, we should expect tough negotiations with the United States over the NAFTA agreement, given that the U. S. has withdrawn from the Trans- Pacific Partnership agreement. The U.S. will look for quick wins, especially in automobiles, agriculture and bilateral trade panels that reduce American sovereignty over trade disputes. Canada instead is hoping for a long period of negotiations to renew NAFTA to reduce barriers to competition, perhaps in the hope that Trump will disappear by 2020.

If anyone thinks that the NAFTA negotiation is a repeat of the 1980s, they are living in a dream world. American voters support economic nationalism, not free trade, and, given the size of the economy, the U.S. has the stronger position in negotiations, including by withdrawing from NAFTA. The fact that the U. S. is pushing for an expansion of Buy America policies and greater use of countervailing and anti-dumping powers in these negotiations is far from the free trade ideal.

If Canada wishes to fight hard for free trade, we will need to trade some of our own shibboleths — supply management being an obvious one — to gain an exemption from America First policies. A quick limited agreement — instead of a slow one — will reduce uncertainties now facing businesses unsure of whether to invest in Canada or the United States.

Free trade is not the only issue. As part of the America First strategy, the Trump administration has moved ahead to attract capital and jobs to the United States. Whether through deregulation such as in financial and energy markets, infrastructure or subsidies to attract capital to the U. S., the U. S. looks to create more economic growth at home through policy initiatives. Even the measures taken so far — deregulation and subsidies — are already challenging Canadian competitiveness as our governments hike taxes and heap regulatory costs onto the private sector.

Tax reform is now high on the U. S. agenda. Whether the chaotic Trump presidency and Republican-controlled Congress can deliver lower tax rates and control deficits is a story yet to be written. After so far losing the battle to reform Obamacare, tax reform will be the only policy left to maintain Republican-base support for the 2018 mid-term elections.

Regardless of what prevails from near- term elections, American economic nationalism is a new threat to manage, regardless of who is in power.