Remember when White House chief strategist Stephen Bannon self-immolated on Wednesday? After a week overflowing with the Trump administration's self-inflicted disasters, you would be forgiven for forgetting all about it. Still, it's worth teasing out because of what it reveals about the limits of Bannon's supposed economic nationalism.
Already supposedly in President Trump's doghouse, Bannon's latest headache came after he placed a surprise phone call to Robert Kuttner, one of the founders of The American Prospect. The interview, which Kuttner promptly published, was full of unforced errors. There's Bannon's weird assumption he had common ground with the progressive magazine just because Kuttner had criticized China on trade. There's Bannon's total failure to declare the chat off the record. And there's his off-the-cuff undercutting of Trump on North Korea.
But if you write about economics, the most interesting bit is Bannon's enthusiasm for a possible investigation into China's theft of American intellectual property.
Now, Bannon's politics are certainly more pro-worker and anti-Wall Street, in their own way, than the Republican Party mainstream. This leads to possible oddball overlaps between his stances and those of the economically populist left: A breezy optimistic indifference to American trade with China is certainly characteristic of the centrist elites Bannon opposes. And plenty of people on the left do not share that breezy optimism either.
This doesn't mean Bannon and the left see eye to eye, however. The actual problem with globalized trade in general — and trade between the U.S. and China specifically — is how flows of goods, services, and capital have been structured by legal and policy choices. But those choices weren't made by China over America's objections. Elites in both countries are effectively "cooperating" to exploit workers in both countries.
Unfortunately — but in keeping with his "economic nationalism" — Bannon seems to see both America and China as monolithic entities. And like his boss, Bannon is unable to see the economic relationship between the two powers through any lens other than combat and domination. "The economic war with China is everything. And we have to be maniacally focused on that," Bannon told Kuttner. "One of us is going to be a hegemon in 25 or 30 years and it’s gonna be them if we go down this path." Distinguishing the relationship between America and China from the relation between Chinese and American elites, or Chinese and American workers, seems well beyond Bannon's abilities.
This brings us back to an investigation that may or may not happen into China's refusal to respect American IP law.
By all accounts, the theft of American intellectual property by Chinese companies and consumers is a big issue. And it's clearly problematic — if nothing else, it's disturbing when major superpowers who ostensibly want to be allies and trading partners brazenly disrespect each other's basic economic rules.
But we should also nail down just what would happen if China suddenly started properly paying American companies fees for all the software and movies and music and other IP they're using. It's not as if all that money would go right into American workers' pockets as bigger paychecks. It would go to the major corporations who own all that IP as higher profits.
If American corporations were suffering from low profit margins that were holding back job creation, you could maybe make the case that better enforcement of IP law could help. And investment in expansion by U.S. businesses is extraordinarily low. But corporate profits are at a decades-long high, and those businesses are sitting on enormous amounts of surplus cash. It's not as if they're strapped for funds.
So the failure to create more jobs and raise wages lies elsewhere. Increasing corporate revenues from IP fees, without addressing those other issues, would likely just hike corporate profit margins still further. (While hurting Chinese living standards, and making it harder for them to buy other goods and services from us, to boot.)
Now maybe the goal here is to just get some tariffs slapped on China. That would be the end result if the investigation ever happens and it concludes that China is in violation of IP laws. But targeted tariffs are actually not a very good way to rebalance trade flows between entire national economies. At minimum, you'd need a much more comprehensive set of tariffs, to systemically adjust America's trade relationship with the rest of the world. Even better, though, would be using new tools to address currency policy and exchange rates directly, as they're really the root of the problem.
The best solution of all would arguably be deficit spending. The very fact that America is in trade deficit with the world, and that other countries like China store up vast reserves of U.S. dollars, also gives our country enormous room to deficit spend. And deficit spending is an excellent tool for boosting the economy, creating jobs, tightening labor markets, and raising wages. The specific spending can take any number of forms: An expansion of public services like health care and child care, a more generous welfare state, or even direct job creation and industrial policy by the government.
I actually bet Bannon would support the first two solutions. He might even hesitantly or partially support the third. But he's not pushing those ideas in any substantive way. Instead, he's giddily throwing his weight behind this IP investigation, which — as a tool for American job creation — is wildly unfocused and confused.
Whether or not Bannon is a reactionary xenophobe himself, he's certainly happy to play footsie with those forces in American life. As his numerous critics rightly assert, this makes Bannon a moral cretin. But it also means he defaults to seeing economics as a realm of ethnic and national conflict — when it's actually a realm of class conflict. If anything, cooperation between workers across ethnic and national lines is what's sorely needed to redress America's economic rot.
And his failure to see it makes him a particularly poor champion for working people.