Business Insider reports: German investment bank Berenberg believes that “some aspects of Donald Trump’s successful election campaign evoke memories of the dreadful 1930s.”
The bank’s chief economist Holger Schmieding says in a note sent out on Monday that: “After the Brexit vote and the triumph of Trump, the echo of the early 1930s sounds a little less faint than it did before.”
Schmieding highlights populism, rising protectionism and nationalism, isolationism, and the erosion of the political middle ground as key features of both the current political climate and the 1930s.
“Populist” leaders — often dictators such as Hitler and Mussolini — came to power across Europe in the 1930s with promises to restore glory and honour to their countries, often blaming foreign races and religions for the problems.
Both recent the Brexit and Trump campaigns blamed outsiders for problems at home (the EU, Mexicans, Muslims) and had strong nationalist streaks (Make America Great Again, Take Back Control).
International trade tailed off in the wake of the 1929 Wall Street Crash as the US turned inwards. Schmieding says: “Two major policy mistakes turned the financial crisis into a depression” — the US fed tightening monetary policy and the 1930 Smoot-Hawley tariff act, which enacted protectionist taxes on imports.
Both Trump and the current pro-Brexit UK government have promised to reverse the rising tide of globalism. Trump plans to do this by scrapping or significantly changing a trade deal with Mexico and putting tariffs on imports from China. UK Prime Minister Theresa May has promised to reign in globalisation.
Schmieding calls the 1930s “dreadful” because the Great Depression, triggered by policy mistakes, led to widespread poverty. The potent economic and political cocktail of depression and nationalism also led to World War II.
But Schmieding says that “the [current] situation is very different in at least three key respects.” These are:
- Rising employment: “Despite widespread anger at the establishment, we are not quite living in pitchfork times again.”
- Lack of ideology: “Trump and some other leading populists today come across as opportunistic self-promoters rather than incorrigible ideologues.”
- International cooperation: “Institutions of international co-operation and the rule of law at home are much stronger in the developed world than they were in Europe in the 1930s.”
As a result, he does not think we are hurtling towards another major global conflict or serious economic crisis. Still, there are significant risks. [Continue reading…]