Hirschman’s warning: Forgotten lessons about Trump’s trade war

Who would have thought? Albert Hirschman, a 20th century German political economist, is having a belated “moment”. Overdue and welcome as this may be, analysts are poring over his 1945 book National Power and the Structure of Foreign Trade to understand the Trump tariff turmoil, when they should also be looking at the 1977 The Passions and the Interests: Political Arguments for Capitalism before Its Triumph, to understand the logic of America first.

National Power and the Structure of Foreign Trade provided a brilliant analysis of the way in which international trade could become an instrument of war. Germany in the 1930s was not only run by fascists, but it ran a trade surplus and was able to bully smaller nations into asymmetric economic pacts. If this sounds familiar, it should: it is precisely what the Trump administration is trying to do, despite having one of the world’s largest debt and trade deficits.

Numerous commentators have drawn attention to the problems with this strategy and the risks of creating inflation and undermining confidence in the value of the American dollar as well as government debt. Trump seems willing to overlook – or more likely, fails to understand – such problems because it has bigger geoeconomic fish to fry. Perhaps the administration is channelling Hirschman’s insight that commerce is “a model of imperialism which did not require ‘conquest’ to subordinate weaker trading partners”.

Valuable and plausible as such claims are, if we really want to understand why geoeconomics is a growing part of both America’s and China’s foreign policies, and why we find ourselves continually surprised by economic and political crises, we need to reread The Passions and the Interests as well.

The timeless starting point of the book is that men – and they invariably are men – are driven by three passions: money, power and sex. This does seem to capture what animates the most powerful man in the world, to judge by his policy and criminal records, at least. So, too, many of the alarmingly unqualified grifters and chancers who make up the court of King Donald.

The Passions and the Interests should be compulsory reading as it provides an unparalleled analysis of thinking about “human nature” before capitalism became established as the dominant economic and political system throughout Europe and eventually the world. It is this world that we unquestioningly inherit and accept despite recurrent crises and the glaring, indefensible asymmetries of wealth and life chances it facilitates and legitimises.

Trump epitomises the kinds of people who flourish in and directly benefit from an economic and political ecosystem in which the wealthy shape policies and norms that serve their interests. Significantly, before the rise of modern capitalism, “interests” were seen as a potentially benign counterforce to the passions. The expansion of commerce across national borders was seen by Hirschman as creating a pacifying “web of interdependent relationships”, an idea that has explicitly underpinned America’s liberal hegemonic vision for decades.

Even if many of the assumptions about the benign nature of American hegemony in the period after the Second World War failed to take account of the lack of development in the global south or the frequently violent nature of US foreign policy, many benefitted from the much-invoked rules-based international order. The economic illiteracy that pervades the Trump administration threatens to overturn such achievements with potentially dire consequences for allies like Australia.

As Maurice Obstfeld, the former chief economist at the International Monetary Fund, points out, “it is fantasy to think trade partners will voluntarily … adjust their currencies higher and also agree to bankroll unbridled American deficits through purchases of ultra-long-maturity Treasuries at low interest rates”. Unfortunately, there is no shortage of fabulists in the Trump administration.

Yet in a world where the United States is seen to be dominated by a self-interested coterie of plutocrats who care little about the detrimental impact of their actions on less powerful states, even some of the US’s closest allies and trade partners are distancing themselves from America and seeking new economic relationships. In one of the greatest of historical ironies, China will be the principal beneficiaries of such moves as the People’s Republic attempts to stabilise a capitalist order from which it has benefitted enormously.

Both Hirschman’s books remind us that not only do ideas matter, even in the dimmest and most self-serving of heads, but that there is also a very real danger that “vaguely similar” historical circumstances can give rise to “identical and identically flawed thought-responses if the earlier intellectual episode has been forgotten”.

This is the danger that the United States currently faces. The US is not a fascist state, or not yet at least. But there are some alarming anti-democratic and anti-intellectual processes unfolding in the land of the free that place a major question mark over its future and by extension the world’s. Re-reading Hirschman may not save the day, but it may help us to understand how we got here and even what might come next.