Yves here. It’s striking to see non-US commentators depict Trump as fulfilling voter wishes, when he’s largely engaged in a massive bait and switch. Trump did not start talking about his 1890s Gilded Era fantasies until after his win. He campaigned as a peace candidate who vowed to end the war in Ukraine in 24 hours (which he could have done as far as US support was concerned). Instead, not only is the US still dithering in Ukraine, but a Mideast buildup points to more ferocious bombing of Yemen, or worse, a war against Iran. He never revealed his intent to destroy Social Security or the funding of science. He did promise to “protect our borders” and contain immigration, but not the brutality and routine illegality of the removal program.
This piece, while it makes some sound points, depicts anger as driving the Trump vote when inflation, immigration, and the emptiness of Kamala Harris were the major factors. The author also depicts stronger social safety nets as a political impossibility, as if voters would reject it, as opposed to moneyed interests. AIPAC has shown how: fund a primary challenger. Even if the pro-social-support candidate prevails, he’s had to spend so much to get to the general election so as to be vulnerable to the other’s party’s choice.
By Richard Baldwin, Professor of International Economics IMD Business School, Lausanne; VoxEU Founder & Editor-in-Chief VoxEU. Originally published at VoxEU
If Trump’s trade policy is the earthquake, the long-standing hardships confronting America’s middle class are the tectonic plate shifts that made it inevitable. America was hit by globalisation and robotics shocks like all advanced economies, but unlike other advanced economies, it failed to help its workers adjust since the New Deal’s ‘helping hand’ policies had been removed. This fuelled economic frustration, simmering anger, and the election of an avowed protectionist. But tariffs aren’t being used as a solution; they are an excuse for not doing things that would actually help – like Canadian-style social policy. Those are politically impossible as they would require higher taxes and bigger government.
It’s hard to make sense of US trade policy these days. But it is nigh on impossible unless you understand the American middle class’s discontent and how it has built up over decades under Democrats and Republicans alike.
It takes a bit of effort, and even discomfort, to read about the fail-trail of traditional Democrats and traditional Republicans, but the upside is that once you make the effort, you will understand how persistent the US’s new attitude is likely to be.
In a nutshell, middle-class malaise and resulting fury led the US to shift to trade-hesitancy in Obama’s first term. The hesitancy turned to hostility in Trump’s first term, and in his second term it has turned to something close to isolationism.
The question of why America’s middle class is so angry is easy to ask; harder to answer. The next section starts with my answer to the question and then a look at how it emerged over the years.
Why is America’s Middle Class So Angry?
Middle-class anger driven by economic and status issues
The anger simmering in America’s middle class isn’t irrational – it’s economic reality. Many Americans cannot even dream of buying the home they grew up in. There is no way they’ll have the job security that their parents took for granted. They are finding it hard to afford a middle-class living on today’s middle-class incomes.
But it is not just about the prices they pay and how much is in their wallets. Pride matters. The last few decades have wounded the pride and shaken the confidence of many working Americans for whom the American Dream was disrupted – especially those who didn’t go to university, but even many who did.
The American Dream is not a promise that you’ll do well. It is a belief. It is a hope. It’s the idea that working hard, showing up every day and giving it your best, will allow anyone – regardless of background – to build a better life for their families. Part of the American Dream was a belief that, regardless of the nature of the shocks and shifts, you’d have a fighting chance of being one of the winners.
Here is a link to a whole slew of Pew Research charts demonstrating the socioeconomic woes of the US middle class. They illustrate how the American Dream wasn’t always an empty slogan.
How Did the US Get This Point?
Middle-class miracle after the Great Depression
The rise of the American middle class after the devastations of the Great Depression is nothing short of miraculous, although the starting point was grim (Milanovic 2016, Stiglitz 2019).
The US economy and its middle class were shattered by the Great Depression and the Calvin-Coolidge-esque faith in markets that guide Washington’s policy reactions. That changed with Franklin D. Roosevelt’s New Deal policies, which were established to help the downtrodden and the left-behind.
With FDR’s New Deal, the role of the government was to help the little guy – to look after economic stability, provide full employment, and protect people from monopolists and from political manipulations by plutocrats. That’s when Social Security and unemployment insurance were invented. Unions and collective bargaining were legalised. The Fair Labor Standards Act put a floor on workplace conditions.
In the America that Ronald Reagan grew up in, for example, people believed that the government was there to help the little guy. Using public investment, financial regulation, and social protections, the US federal government revived the economy, re-establishing public confidence in the economy and the American Dream.
Social policies are downsized: From helping hand to invisible hand
Then came Reaganomics. From the 1980s, the US pivoted from Roosevelt’s vision of government as protector to Ronald Reagan’s supply-side economics and the trickle-down theory. When Reagan took office in 1981, the top marginal income tax rate was about 70%. Ten years later, it was down to about 40%. This is where it has stayed for the last 35 years, unchanged by Democrats or Republicans.
These tax cuts weren’t free – they were paid for by eroding America’s social policies. The government didn’t eliminate all social policies, since many were too popular to kill. But the visible helping hand of the government was steadily replaced by the invisible hand of the market – undermining the safety net that working families used to be able to count on in hard times.
The globotics shocks hits an unprotected middle class
This weakening of social policy coincided with another seismic shift: the ICT revolution, which accelerated industrial automation from the 1970s and turbocharged globalisation from the late 1980s. The economic impact of this combined shock – what I call the globotics shock (Baldwin 2019) – caused massive labour force dislocation in all advanced economies. The globalisation part of this is often called the China Shock (Autor et al. 2016, or Piketty 2020)
ICT hit low- and high-education workers differently: The skills twist
Rapid advances in information and communication technology (the ICT revolution) disproportionately affected middle-skilled workers engaged in manual labour. We are talking about jobs that, in Reagan’s youth, were considered good jobs. How was that?
ICT advances created better substitutes (via industrial automation) for middle-skill manual labour – especially those working in factories. This, in turn, depressed their wage growth and narrowed opportunities for those who lost their jobs. This is how the tech shock part of globotics undermined middle-class incomes and job prospects.
Exactly the opposite happened for high-education workers. Workers who had university degrees and worked in knowledge-intensive occupations benefited from the ICT revolution. For them, improved ICT gave them better tools to work with – things like desktop and laptop computers, easy-to-use database software, writing software, and analytic tools like Excel.
This sharp contrast can be thought of as a ‘skills twist’: ICT created better substitutes for middle-skilled workers but better tools for high-education workers. The result was a marked increase in inequality since the computer-on-a-chip was invented in 1973.
ICT turbocharged globalisation and offshoring
The ICT revolution’s impact on US manufacturing workers was felt from the 1970s as ICT automated away industrial jobs. From the late 1980s, the ICT revolution hit US workers by facilitating the offshoring of industrial jobs to low-wage nations.
The key was the way that ICT made it feasible to separate stages of production, to offshore them to faraway emerging economies and yet coordinate all the manufacturing stages. ICT thus made offshoring feasible; vast wage differences made it profitable.
A key, but underappreciated, point is that this offshoring was impactful because it moved the advanced manufacturing technology of US firms (like Tesla) to emerging economies, where it was combined with low-wage labour. In this way, industrial offshoring created a new, highly competitive combination: high tech with low wages. This made it hard for advanced economy workers – who had high tech and high wages – to compete. A similar difficulty faced industrial workers in emerging markets that didn’t get offshored stages of production. They were competing with low tech and low wages.
As it turned out, nations with the high tech, low wage combination saw their global shares of manufacturing soar – especially China. Nations with high tech and high wages saw their global share decline. The low-tech, low-wage rest of the world saw very little change in their global shares.
Importantly, the globotics shocks struck the world economy at an unprecedent pace since they were driven by digital technology, which was advancing at exponential speed.
The resulting devastation: Social pathologies in America
With FDR’s helping hand having been replaced by trickle-down’s cold shoulder, the American middle class had to face the globotics shocks alone.
The shocks without safety nets devastated the middle class, leading to outcomes never seen before: frequent school shootings, an opioid crisis, an obesity epidemic, medical bankruptcies, high maternal mortality rates, crushing student debt, world-leading incarceration rates, high rates of old-age poverty, concerning levels of homelessness, rising suicide rates among low-education middle-class people, and other deaths of despair (Case and Denton 2020). Such social pathologies are unknown at comparable levels in other advanced economies.
Middle class frustration: Watching the rich pull away as the poor catch up
All the while, the middle class was forced to witness the rich pulling away from them on the upscale side, while the poor were catching up on the downscale side – as John Burn-Murdoch showed in his recent Data Points column (Burn-Murdoch 2025). If you think about that, you’ll see that it meant that the American Dream was working – just not for the middle class.
The shocks without social policy created a society where American children today are performing active shooter drills at the same schools where their parents performed fire drills. Strangely, no one thinks that the US political system can fix that, or that it should even try. The result was economic and social upheaval that created a deep and lingering middle-class malaise.
American Discontent and Backlash
It’s hardly surprising that the middle class grew angry – deeply, justifiably angry. Every four years, they elected a traditional Democrat or a traditional Republican, but none of them provided meaningful relief. They didn’t even provide credible plans for fixing America’s socioeconomic problems, since creating the necessary social policies would have required higher taxes – a policy that had become politically impossible in the US, for reasons that are hard to pinpoint.
Given all this, a populist backlash was almost inevitable.
After 40 years of rising middle-class malaise and no real solutions, Americans elected a billionaire who blamed globalisation and ‘wokeness’ for the middle-class devastation. This billionaire has promised to help the middle class by pulling away even more social policies, cutting taxes for corporations and the well-to-do. It’s hard to see how this was a winning sales pitch to the US middle class, but it worked.
My explanation is that their anger at traditional Democrats and Republicans for failing them for decades led them to try something, anything, that wasn’t more of the same. Something had to change. Come the hour, come the hero, as they say. Or at least that is one way to comprehend the political earthquake that happened in November 2016 and 2024.
Why the Anti-Trade Emphasis?
While a backlash and populism are understandable, the question remains: why is today’s populism so anti-trade?
It’s important to start by explaining that the seemingly natural answer is wrong. The natural answer is that trade (in the absence of ‘helping hand’ policies) caused the middle-class problems, so anti-trade policies should fix them. Why is that false?
Tariffs, however, will not – indeed cannot – fix the plight of the American middle class. It is literally impossible.
- Tariffs protect goods-producing sectors, but few Americans work in those sectors (about 8% in manufacturing and about 2% in farming); most have service jobs.
- Tariffs cannot be put on service imports (tariffs are added as goods clear customs, but services don’t go through customs so they cannot be tariffed).
This means that tariffs harm most middle-class workers; they drive up goods prices without providing extra protection to service-sector jobs. I’m waiting to see how middle-class workers with service-sector jobs will react when they see that tariffs have driven up the prices of things they buy every week in Walmart.
Anti-trade policies as an excuse for not undertaking effective policies
So, tariffs won’t help the middle class. At the same time, the solutions used in other advanced economies to help the middle class won’t work since the US median voter is miles away from believing that more government and higher taxes would improve the situation.
Given there is no solution that is both economically effective and politically feasible, the American political classes – Democrats and Republicans alike – have turned to the time-honoured Plan B: convince the voters that it is someone else’s fault. When they realise that they can’t fix a problem, any politician will tell you that the next thing to do is to find someone else to blame. The full spectrum of the US policymaking community has decided that foreigners and trade in goods are an excellent candidate for the role of blame-eater – China in particular.
Summary and Concluding Remarks
The slow-burning hardship confronting the American middle class is the root cause of the backlash that brought Donald Trump and his tariffs to power. But American middle-class woes are not the result of technology and globalisation shocks alone; nor are they the middle class’s fault. Middle-class malaise, in my view, stems from the globotics shocks hitting a society that had removed the adjustment polices that had helped the middle class adjust to shocks in the past.
The role of the missing social policies comes into focus when contrasting the American experiences with that of all other advanced economies. While all other advanced economies also suffered the same globotics shocks, their governments had ‘helping hand’ policies in place that facilitated economic adjustment. There was a middle-class backlash but greatly moderated – and it tended to be focused on immigration rather than trade.
Tariffs, to my way of thinking, aren’t popular with US politicians because they are a tried-and-true solution for middle-class malaise; tariffs are popular with them because they are a substitute for politically unpopular policies that would work. And tariffs come with the side benefit of making it seem like the middle class’s problems are not “Made in America”, when in fact they were.
What does this all mean for world trade? I’ll make three points, as one always should.
- First, American middle-class malaise is here to stay. Trade policy won’t fix it – if for no other reason than most of the middle class works in the service sector where tariffs don’t defend, they damage. The policies that would help would require higher taxes, and this is politically infeasible in America’s current political climate.
- Second, America’s anti-trade, or trade-hesitant, stance started with Obama, not Trump – and it is likely to long outlive Trump’s presidency. The full spectrum of the US policymaking community has decided that foreigners and trade in goods are an excellent candidate for the role of blame-eater – China in particular. Since there are no policies that are both economically effective and politically feasible, trade will continue to be the blame-eater in the US for the foreseeable future.
- Third, US middle-class malaise doesn’t mean the end of the world trade system as we know it. The US accounts for less than 15% of world trade, so, as long as the other countries don’t follow the US’s lead with respect to each other, trade overall should do OK.
See original post for references