Trump promises a return to pre–Great Depression economic policies

In his inaugural address Friday, President Donald Trump signaled plans to push the relatively healthy U.S. economy in a protectionist direction, breaking in both style and substance from decades of orthodoxy on global trade.

“We must protect our borders from the ravages of other countries making our products, stealing our companies, and destroying our jobs,” he said.

Trump’s focus on protectionism — which hasn’t been a force in the U.S. since the 1920s — plays directly to the concerns of many of the voters in Rust Belt states such as Ohio and Michigan who powered his electoral college victory in November. (Trump lost the popular vote by almost 2.9 million votes to Democratic nominee Hillary Clinton.)

“Every decision, on trade, on taxes, on immigration, on foreign affairs will be made to benefit American workers and American families,” Trump said. “Protection will lead to great prosperity and strength.”

It remains to be seen exactly how Trump plans to put his protectionist program into action.

At Senate confirmation hearings this week, Trump’s nominee to become Secretary of Commerce, billionaire investor Wilbur Ross, said that if confirmed he would make a sweeping overhaul of the North American Free Trade Agreement his top priority.

Ross also suggested he would be focused on harder-nosed negotiations with China, which Trump has repeatedly accused of keeping its currency artificially low in order to help its own export sector. China is widely thought to have done so years ago, but now as growth slows in the country, China is working to keep its currency propped up rather than artificially low.

During the transition period, Trump repeatedly and publicly criticized and threatened companies over either real or perceived plans to move industrial production jobs out of the U.S. His direct attention on the decision making of individual companies — rather than sticking to broad policy that could be applied equally under the law — is all but unprecedented in recent memory; President John F. Kennedy’s public feud with U.S. Steel is one of the few comparable historical events.

Trump’s narrative about the manufacturing sector is rooted in fact. U.S. manufacturers have lost some 5 million jobs over the past 20 years, thanks in large part to the entry of China and its vast pool of inexpensive labor into the global markets. A rise in factory automation has also played an important role. The disappearance of those jobs has undercut the demand for Americans without college degrees, helping to keep their wages down.

But while the decline of manufacturing is real, the sector is not as important to the economy as it once was. And overall, the U.S. economy has largely healed from the Great Recession and appears to have significant momentum.

After peaking at 10 percent in October 2009, unemployment declined to 4.7 percent in December, a level most economists think is relatively close to “full employment.” (Other measures of the underutilization labor, such as the labor force participation rate, remain low, however.) December marked the 75th consecutive month of job creation, the longest such streak on record. In 2015, median household incomes — one of the broadest gauges of what a “typical” U.S. household earns — rose 5.2 percent, the biggest jump on record.

While somewhat unique in style for the U.S. in recent memory, policies that stress domestic industrial production, often known as import substitution policies, have a long and checkered history in economics, especially in Latin American countries such as Brazil and Argentina.

Over the short term, such policies can boost jobs in some government-protected industries. But they also tend to raise prices for consumers, who can no longer buy cheap imports as easily. And over time import substitution policies present real risks that government subsidies and protections lead to economic inefficiencies that harm growth over time — and provide increased incentives for corruption.