Virtue signaling. I hear it a lot from some corners of Wall Street these days vis-à-vis Donald Trump’s economic nationalism.
Frankly, it’s a little bizarre. I mean, maybe that crowd’s changed, but to my recollection, it’s not a group who’s especially sympathetic to blue-collar types, and the feeling’s mutual.
If there wasn’t a late-90s romcom where Reese Witherspoon takes her Wall Street fiancé to visit her hometown in the country only for the poor guy to get a beer bottle smashed over his head by her long, lost high school sweetheart at karaoke night, there could’ve been. (“What are you doin’, Reese?! Don’t take Julian to the Tipsy Pony! You know Jethro’s always there on Saturdays!”)
By and large, Wall Street’s still emblematic of the globalized world order the Trump administration’s hell-bent on blowing up (assuming you can get past all the Wall Street people that’ve worked in Trump’s administrations).
But there’s a contingent of strategists who like to pretend they aren’t Julian at the Tipsy Pony, which is to say week in and week out, in their notes, they implicitly promote and otherwise allude to the virtues of a de-globalized world and a re-industrialized America which wouldn’t necessarily benefit the Hermès tie crowd.
I don’t know what that is. It’s certainly not an act of atonement for decades spent wallowing in bonus checks large enough to buy romcom Reese’s family farm out of foreclose. Maybe it’s the allure of counter-narrative. Or the adrenaline of flirting with outcomes that’d be disastrous for one’s own financial well-being? Or the puerile thrill of saying things you know might irritate clients.
Who knows, but what I do know — and consider this a kind of addendum to “‘Greedflation’ Lives On” — is the same thing Deutsche Bank’s Jim Reid knows, namely that you can’t have it both ways. Either you want re-industrialization and a bigger piece of the pie for labor, or you want to pad corporate profits and line shareholders’ pockets.
The figure on the left, below, shows a correlation between free trade and the wealth/income ratio in the US (click to enlarge, as always).
The figure on the right shows workers’ ever-dwindling share.
Here are the two key points Reid made regarding those charts:
- Higher global trade as a % of GDP has correlated with US wealth outperforming income for many decades. If global trade falls due to the current US administration’s policies, the cost of re-shoring [may] fall as much on US asset holders and capital owners as it does on other countries.
- It’s not a coincidence that, as US profits have risen as a share of GDP and global trade has soared, labor’s share has fallen. A reversal from peak global trade may help re-shore manufacturing jobs and increase worker pay, but it may come at the expense of peak profits and equity returns.
The overarching point is that in the changed world the Trump administration envisions, the dynamics which inflated profits and ballooned the assets of the wealthy will go into reverse, creating a world of thinner margins, slower stock price appreciation and income outperformance versus wealth gains.
Maybe that’s a better world. Probably. Surely. But I do wonder if it’s a world most Wall Streeters are actually excited to embrace. And I know it’s not a world capital, as an economic actor, is comfortable with, which again highlights the friction between Trump’s pretensions to populism and his various and sundry commitments to preserving the perpetual motion machine that ensures the rich keep getting richer.
Here’s the irony. Even of you reshore, it is not going to bring that many jobs back. It will be mostly automated. Give Germany a look. They are great manufacturers. But their economy has to rebalanced towards services. Not enough blue color labor and not competitive costs. The competition from lower priced markets is too great. Talking about increasing manufacturing to increase jobs is performance. The money would be better spent on a better safety net and training for services, health care, and other fields where demand will continue to increase and to shift the tax burden away from the middle and lower classes.
The movie was Sweet Home Alabama, her fiance’s name was Jake, and it was the early 2000s.
Thanks for the two articles. Most people have no understanding of the tension you describe well.
Somethin’s gotta give and a lot has already given way. No idea what’s gonna turn up when the levee breaks. One giant cluster you know what spinning out of control.
How do de-globalization and reshoring to the U.S. impact inflation, both domestically and globally, in the short and long term?
If the goal of re-shoring is actually to be met we will find we don’t have enough trained workers to replace the skilled workers overseas and inflation must rise as costs rise. They will have to rise and profits will still fall. Nothing the Fed or Trump can do about that. No more 75$ cashmere sweaters for Christmas any more.
I think the real reason for on/re-shoring is to remind us all–too painfully–why we thought it was such a good idea to off-shore everything in the first place. Let’s face it, good paying 1970’s style union jobs–complete with healthcare and pensions–are not coming back due to tariffs. Anyone who re-shores their manufacturing is likely to do so in a “right to work” state. The average non-union manufacturing job in the U.S. pays about $25 an hour. That’s about $52,000 a year for often demanding, repetitive work. In the 1980’s, a non-seniority, union auto worker in Dayton Ohio made about $32 an hour with benefits, including a pension. By comparison, as of 2024, the average manufacturing job in China pays about $14,000 a year (U.S.). I am sorry, but there is no easy fix.