It’s hard to look beyond Donald Trump’s continuous and escalating sociopathic behavior since Thursday’s cruel and unwarranted Tweet storm.  But this morning my thoughts turned to Agent Orange’s upcoming trip to Hamburg, Germany and the G-20 Summit.  This group, which first met following the 2008 global financial meltdown, continues to focus on putting safeguards in place to prevent future manipulation of the international banking system.

However, in recent years the attending heads of state have expanded the agenda to include other issues which depend on international engagement and coordinated policy.  Among the most pressing are climate change, terrorism and immigration (which as we now know are not totally unrelated) as well as global economic growth based on expanding opportunities for free trade.  Trump, whose “America First” platform is contrary to all of these (with the exception of terrorism), is being described as “the odd man out.”  (Source:  The Hill, July 2, 2017).  On Thursday, the New York Times reported that host German Chancellor Angela Merkel issued the following warning to her American counterpart.  She…

promised to fight for free trade and press on with multilateral efforts to combat climate change at the G20 summit next week, challenging the “America First” policies of U.S. President Donald Trump…Merkel did not mention Trump by name but said global problems could not be solved with protectionism and isolation.  (Source: New York Times, June 29, 2017)

I am less concerned with Trump being out of step with other heads of state than I am about his efforts to create what he calls “a level playing field” through protectionism, deregulation and lower tax rates.  This is a sad and defeatist indictment of American exceptionalism.  Let me explain.

The first few sessions of the Introduction to Entrepreneurship class I taught at Miami University centered on opportunity recognition, the process of identifying and introducing new goods and services to satisfy market demand.  The key to success was innovation, the ability to provide products that were better, faster and/or cheaper than those currently available.  Sometimes the product represents a quantum advance in technology such as the first cell phone.  More often it is a variation of an existing product, an example being added features (e.g. GPS, heated seats, collision avoidance systems) to automobiles.

The third category is imitation, i.e. making a facsimile of an existing product, the primary selling point being price differential.  The example I always used was memory cards for digital cameras.  When Sony first introduced the memory stick on September 10, 1998, a 4 megabite card cost $24.99.  Today, you can buy a 64 gigabite SD card for $19.99 on Amazon.  And it is not made by Sony.  In other words, when you compete solely on price, you are only renting a customer.  There is no brand loyalty.  As soon as buyers have a cheaper alternative, they will migrate to the less expensive option.

I want to make this next statement loud and clear.  The United States has NEVER competed on price.  America’s economic strength and sustainability has always been dependent on innovation and investment in infrastructure from the construction of the transcontinental railroad to the development of the Internet.  To suggest otherwise demonstrates a lack of belief in American economic exceptionalism.  Want more proof?  You don’t even have to leave the continental United States.

Those states which adopted Trump-like “Us First” development policies–Kansas, Louisiana–are struggling.  In contrast, California with its higher marginal tax rates and stricter environmental standards is prospering.  According to Bloomberg View:

California is the chief reason America is the only developed economy to achieve record GDP growth since the financial crisis of 2008 and ensuing global recession, according to data compiled by Bloomberg. Much of the U.S. growth can be traced to California laws promoting clean energy, government accountability and protections for undocumented people. Governor Jerry Brown, now in his fourth term, considers immigrants a major reason for the state’s success.

California’s creditworthiness keeps getting better, measured by the declining premium global investors must pay to ensure against depreciation of the state’s debt obligations. That premium has diminished more than for any other state since 2012…Texas, which is the second-largest state in population, became cheaper compared to Treasuries and California in the market for state and local debt since the November election. Investors see security in the state with more protections for immigrants and more regulations. (Source: Bloomberg View, May 10, 2017.)

Although Angela Merkel may say she will try and convince Trump he should reverse his positions on trade and climate change, I am betting she hopes he does not.  That way Germany can become the global equivalent of California while Donald Trump becomes the Sam Brownback of U.S. presidents.  NOTE:  Brownback is the Republican governor of Kansas and has a 27 percent approval rating, second lowest, one percentage point higher than New Jersey Republican Governor Chris Christie.  (Source: Morning Consult, April 2017)

For What It’s Worth.
Dr. ESP