Donald Trump’s fantasy-based neo-protectionist economic policy is hitting the concrete wall of reality. The dollar is falling, US stocks are seeing their worst performance against the rest of the world for 30 years and the International Monetary Fund has warned that America could face recession in the near future. It has been a destructive first 100 days to Trump’s second presidency.
None of this was unforeseeable. Trump’s veneration of tariffs is not just swimming against the consensus of economic policy. It makes no sense, is built on a false assumption – that the cost of tariffs is ultimately borne by foreign manufacturers – and pursues two stated but incompatible aims: to raise revenue and allow tax cuts in other areas, and to act as an incentive for other countries to reduce their own import duties.
The kind of economic populism Trump is pursuing is not new. Populist governments start off chasing growth and redistribution at home, while ignoring fiscal discipline and the constraints of global factors as if the markets of the world can be bullied or disregarded. Rudiger Dornbusch and Sebastian Edwards demonstrated in the early 1990s the grindingly inevitable outcome when they analysed similar policies in Latin America: inflation, economic decline, capital flight and eventually painful retrenchment. Yet Trump never hid his economic agenda, but trumpeted it, contradiction by contradiction, and was rewarded with four more years in the White House. How did this happen?
The truth is that extraordinary rises in global prosperity over the past half-century have recently lacked champions. Trump campaigned on a narrative of shocking economic decline, somehow able to make his message resonate despite the fact that America is richer than it has ever been. Supporters of the free market, free trade and the competition and innovation they bring have expected the truth to be self-evident, but we need to bang the drum more loudly.
Last week, Human Progress publicised the latest data from the Simon Abundance Index. This calculation of the relationship between resource abundance and population was devised by the economist Julian Simon in the early 1980s; he realised that although it was seemingly logical to expect that a growing population would make finite resources more scarce, the calculation failed to take account of human knowledge and innovation. That was a game-changer which meant that resources would become more abundant, not less.
The index converts the per capita availability of 50 basic commodities and the size of the global population into a single value, with a baseline of 100 set in 1980. The results are astonishing: the index for 2024 stood at 618.4, meaning that global abundance of resources has increased at a compound annual growth rate of 4.2%. In other words, it has doubled every 17 years. All 50 commodities in the original data set are more abundant now than they were in 1980. The growth in abundance has outstripped the growth in population by six to one.
This is the argument Gale Pooley and Marian Tupy set out in ‘Superabundance: The Story of Population Growth, Innovation, and Human Flourishing on an Infinitely Bountiful Planet’. It demonstrates a fundamental good-news story, that population growth generates more than enough prosperity to sustain itself, provided it takes place in the context of a free society and a free market in which people can save, invest, trade and profit securely and with minimal constraints.
This is the true narrative of recent economic history. Over the past four or five decades, while there have been mistakes, miscalculations and setbacks, the West has largely got it right in identifying the circumstances that wealth and prosperity need to flourish. Yet we have all taken it too much for granted, failing to appreciate what an exceptional level of overall economic performance we have unlocked.
That silence has opened the door for instinctive and viscerally appealing counter-arguments to make headway without any reasonable evidential basis. Donald Trump invented a scenario – that the United States was in economic decline – then misdiagnosed his own fantasy by preaching protectionism, state intervention and nativism. He should have been laughed out of the voting booth, not cheered into the Oval Office.
Perhaps the unfolding chaos of his tariff policy can act as a corrective. Too many people refused to believe what he was saying explicitly about his intentions before he returned to office. They took refuge in the idea that such obviously flawed policy must be a rhetorical device and an electoral calculation. It wasn’t. Trump venerates tariffs as a show of strength and an article of faith, not an economic argument. He has chosen to believe and does not apply rational arguments.
The best antidote is not to tell but to show, to demonstrate that we have made ourselves richer, freer and safer, and that we know exactly how we have done it. Sunlight is the best disinfectant, as the axiom has it. The argument for economic freedom should never go by default. We have seen what happens when it does. Bang the drum and make sure it does not happen again.
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