Donald Trump’s shocking victory in 2016 prompted speculation that American politics might be undergoing a realignment. The Republican presidential candidate picked up working class voters from the Democrats while also alienating some moderate suburbanites. Even though Trump went on to lose in 2020, many in the GOP still believe this transformation is inevitable, and, from their perspective, desirable.
While a lasting shift is certainly possible, the parties show no signs of trading places on most economic questions. Since January 2021, it has been the Democrats who have aggressively implemented populist tax and spending policies, leaving Republicans to stoke cultural battles to burnish their anti-establishment bona fides. The result has been a distorted debate, with little substantive pushback on what the Democrats have advanced, and a notable shift toward policies that set aside the market in favor of government management.
For a time, it seemed as if the political terrain might actually shift substantively and not just rhetorically. After all, Trump blustered frequently about economic populism in 2016, and then also episodically while in office, with repeated attacks on the profits of drug companies and incomes of Wall Street executives. However, his term came and went with no discernible or lasting populist influence on actual economic policies beyond the regrettable bipartisan consensus on renewed protectionism. (As an aside, the tariffs he imposed on Chinese imports are not having their intended economic effects but should be evaluated from both a trade and national security perspective.)
Democrats have shown themselves to be far more willing than Republicans to embrace economic populism, as demonstrated by the policies they advanced during the first year-plus of the Biden presidency.
Of course, many Democrats would wince at the populism label, with its connotation of inflammatory rhetoric. They would argue their policies are in line with long-standing social democratic ideals that fall within the political mainstream. Even so, in recent years there has been no shortage of Democratic fire depicting the country’s economic challenges as zero sum propositions, with the well-being of working families said to be held back by the supposed greed and power of big businesses and the rich.
Joe Biden has always viewed himself as a champion of working-class Americans. After Trump’s 2016 victory, Biden made it a top priority to reinforce the perception among voters that it is the Democrats who are most willing to promote unions, subsidize favored manufacturing industries, tax the rich, and redistribute incomes. Biden also regularly uses familiar rhetoric to suggest Republicans are interested in protecting business profits at the expense of workers, and the well off at the expense of the middle class.
And it hasn’t been all rhetoric. Recent months have shown most Democrats to be eager to act on a populist-leaning economic agenda, albeit with some restraint imposed by more moderate members of the party.
For starters, Biden has been challenging Trump as the most protectionist president of the modern era. It was Trump who pulled out of the Trans-Pacific Partnership (TPP), which had been negotiated during the Obama presidency, but Biden has chosen not to re-engage with Japan and the other signatories to the agreement despite the strategic value it would provide in the U.S.’s economic competition with China. China is actively trying to fill the void left by the Trump-Biden withdrawal by petitioning to join a revised version of the TPP (now called the Comprehensive and Progressive Trans-Pacific Partnership, or CPTPP).
Further, Biden has been lukewarm at best about serious trade talks with other allies, no matter the benefits to the American economy or democratic solidarity. Most recently, Congress approved new tax credits for electric vehicles that are conditioned on purchasing products built and supplied in North America, despite what that could mean for industries in countries in Europe and Asia that the U.S. considers allies, not to mention American consumers. Further, Biden has yet to roll back Trump’s most consequential tariffs even though doing so would ease domestic inflation.
Beyond protectionism, there is a new assertiveness by the Democrats in direct governmental intervention in the nation’s domestic economy. Two new laws—the CHIPS and Science Act and the Inflation Reduction Act—reflect a confidence in the government’s ability to nimbly reward certain activities while punishing others. There are new loan and subsidy programs for favored industries and products (semiconductors, renewable energy, electric vehicles), requirements for businesses to eschew overseas supply chains, “buy American” (or North American) requirements, expanded entitlement benefits for health insurance, government price-setting for prescription drugs, and higher taxes on businesses and private capital.
It’s not just Biden, either. There is near unanimity among Democrats on these measures. Sen. Joe Manchin constrained the administration’s spending ambitions but was all in on subsidizing certain industries, favoring unionized businesses, and taxing the rich.
Most recently, the president followed up the enactment of these significant new laws by unilaterally canceling hundreds of billions of dollars in student loan debt, which will wipe out much of the debt reduction benefits of the Inflation Reduction Act that was instrumental in securing Manchin’s support.
Trump hinted in his first campaign that he might support similar policies too, but when he got into office, Congress—fully under Republican control—never took up anything remotely close to what passed when Democrats returned to power.
There is a political opportunity here for Republicans, but most of the party’s prominent officeholders seem confused about how to take advantage of it. Many of them are caught up in this Trumpian moment and want to act the part of populist agitators. However, it is now apparent that they are very unlikely to ever outdo Democrats in their support of actual populist-leaning economic policies. In the nation’s two-party system, when one side veers too far from the center, its competitor can gain by appealing to skeptics. In this context, the agenda now being pursued by Democrats is vulnerable to the criticism that it leans too heavily on government planning, spending, and regulation.
A party wishing to take advantage would start by re-embracing free trade. Protectionism increases costs for consumers, stokes inflationary pressures, and protects inefficient businesses. Skillful politicians ought to be able to demonstrate that, in the long run, the policies now being adopted will hurt far more Americans than they will help.
Further, instead of direct government involvement in promoting industries and specific firms, government policy should use price signals to create the right incentives for the private sector. More specifically, to reduce carbon emissions, the most effective solution is a carbon tax, perhaps tied to a new rebate to protect lower-income households from its effects. Private firms would then produce the outcomes the government seeks by finding and scaling up the most efficient solutions. A cumbersome loan and investment scheme run by a federal bureaucracy to promote electric vehicles or zero carbon energy sources is near certain to underperform.
On health care, the alternative to ever higher government spending and more regulation is a structured market that helps consumers identify and benefit from low-cost and high-value providers of services. More efficient health care is also central to restraining government expenditures, and thus also public debt, which threatens to rise to levels that will precipitate an economic crisis. Slower spending growth would also ease the pressure for ever-higher tax rates.
Resisting economic populism is not synonymous with the rejection of government benefit programs or sound protections for American families. It only means that widespread economic prosperity is the result mainly of market incentives, not government policies and programs.
Of course, embracing the “anti-populist” side of today’s economic arguments would require a GOP willing to embrace the economic philosophy that was ascendant during the Reagan-Bush era, which is not something Trump and his followers are inclined to do.
Consequently, voters seem destined to be left for the foreseeable future with choosing between a party devoted almost exclusively to inflaming cultural divides, and one that wants to further expand the reach and power of a federal enterprise that is already stretched and saddled with debt. The electorate deserves better than that.
James C. Capretta is a senior fellow and holds the Milton Friedman Chair at the American Enterprise Institute.
Please note that we at The Dispatch hold ourselves, our work, and our commenters to a higher standard than other places on the internet. We welcome comments that foster genuine debate or discussion—including comments critical of us or our work—but responses that include ad hominem attacks on fellow Dispatch members or are intended to stoke fear and anger may be moderated.
You are currently using a limited time guest pass and do not have access to commenting. Consider subscribing to join the conversation.
With your membership, you only have the ability to comment on The Morning Dispatch articles. Consider upgrading to join the conversation everywhere.