From Marshall to Mercantilism: Understanding the Roots of American Populism
Sep. 08, 2025
America today feels unfamiliar, even unrecognizable, to many of its citizens and allies. The country has turned from Marshall to Mercantilism overnight. It has done so in at least two senses. It has turned away from the Marshall Plan as it has stepped back from the military and economic alliances that have cemented the postwar world order for the last 80 years. It has also turned away from the economic liberalism of Adam Smith and David Ricardo, formalized by Alfred Marshall, as it has abandoned the liberal institutions of global trade in favor of a neo-mercantilist economic agenda focused on maximizing current trade surpluses in hard goods.
How did this turn from Marshall to Mercantilism happen so quickly? Many blame misinformation, a fractured new-media landscape, and the rise of social media echo chambers. Surely these have played some part. But the root causes are much deeper and go back at least to the turn of the 21st century. Donald Trump is not the cause of America’s ailments—he is their most potent symptom. The true roots of the current moment trace back over 25 years, through economic restructuring, the demography of stagnation, and a systematic erosion of trust in institutions.
To see the root causes of this structural stagnation, it is useful to look at the state of North Carolina. With 10.5 million people, it’s roughly the size of Sweden, and like Sweden, it has witnessed a dramatic influx of people from outside the state. Over the last 25 years it has transformed from a largely rural economy with strong industries in textile and furniture manufacturing to a polarized state broken along an urban/rural divide. Today blue urban hubs centering around technology and banking are surrounded by large swaths of red reflecting what was left behind.
This dichotomy can be seen by comparing two places in particular: Gaston County and the Durham/Chapel Hill area. Gaston County was once a textile manufacturing powerhouse. In the 1920s, it was home to the largest mill under one roof in the world. Up through the 1980s, it was home to the largest Christmas ornament manufacturer on the planet. All of that, lost to China. In contrast, the Durham/Chapel Hill area is host to two world-class universities, Duke University and UNC. These universities have attracted large global players like Glaxo SmithKline and BASF, and have spawned an economy built on scientific research, especially in medicine. A textile manufacturing powerhouse of yesterday's America versus a powerhouse of today's knowledge economy. Let's look at how these places have slowly diverged.
In the late 1960s, early 1970s, the two regions were nearly identical in terms of per capita income. Durham/Chapel Hill began to pull away from Gastonia a little in the 1980s. The income gap began to widen further in the late 1990s and early 2000s. Now median income in Gastonia is about 25% less than that in Durham/Chapel Hill: about a $20K/yr difference. The divergence in median income is clear, but modest and slow-moving; it would strain credibility to call it massive or alarming. It is a gap, not a chasm.
Unemployment statistics tell a similar story. Starting around the passage of NAFTA unemployment started to spike in the textile town relative to the college town. It is not only persistently higher, but also more volatile in the textile town. And yet there has been a significant convergence beginning basically in Obama's second term. From about 2016 onward, there is effectively no difference in unemployment in the two areas.
The convergence in aggregate level statistics like regional per capita income and unemployment is one reason why explanations that center on misinformation and social media echo chambers are so appealing to Democrats who are searching for answers as to why the party has lost its way. Aggregate economic statistics do not show the gaping divergence in economic outcomes that is suggested by the political hyperbole that we hear in the US. Indeed, one of the narratives that we heard during the election was that the right wing spin machine was painting an economic suffering story that democrats were unable to combat. They were unable to make the widespread convergence of economic gains that had taken place across numerous Democratic administrations resonate with ordinary voters.
The underlying demographics of how the recovery in overall employment occurred, however, tell a different story. Areas hit by import penetration from China witnessed large declines in manufacturing employment in the 21st century. The recovery occurred through the addition of non-manufacturing jobs, but as the work of MIT economist David Autor and his co-authors have shown, these jobs were not evenly spread across demographic groups. Native- and foreign-born Hispanics found their way into new jobs in the non-manufacturing sector, while native-born white and black workers did not. Because Black Americans make up only about ten percent of the population, the overarching demographic story here is that non-college, white males in the manufacturing sector lost their jobs and never found commensurate work in the non-manufacturing sector.
In other words, while regions may have improved, some groups of people did not. Structural pockets of joblessness and despair remained. White men who were displaced by the loss of manufacturing jobs never found their way back. The digitization of commerce, the rise of AI, these factors have only added to a social schism that has been a quarter century in the making.
Exit polling in the 2024 election clearly show that economic concerns drove the rise of Trump. Many narratives of "why trump won" focus on the Democrats' inability to deliver the good news of broad, economic recovery to the electorate. Declining unemployment, rising incomes, inflation being tamed: their inability to get these points across to voters suggests to many that they were out-messaged. It follows that mis-information is a big part of the reason why Trump won. But the employment data suggest a provocative counter-hypothesis: it is not that mis-information and alt-facts caused people to believe that they were facing economic hardship; instead, the economic hardship they faced caused them to believe mis-information and alt-facts.
We might look back romantically on these manufacturing jobs, but the truth is, it was tough work. A job in a textile mill meant long hours, hard work, and low pay. For people born in the 60s and 70s, the message we heard growing up was that a good education was the ticket out of the grinding life of low-skilled factory work. Yet another challenging facing America's "abandoned class" is that this pathway is increasingly unavailable to large swaths of American society.
Harvard economist Raj Chetty's work shows that children of parents in the top income quintile are about twice as likely as those in the middle of the distribution to get into an elite university conditional on their test scores. Those from the bottom of the income distribution are almost as likely as those at the very top to get in, but the middle is disproportionately excluded. Is it any wonder then that institutions of higher education are under attack by the Trump administration?
Trump's policy choices seem erratic, but when we identify the underlying structural problems that have been simmering, the internal logic becomes clear. The aggrieved party in this political story is the traditional white male whose livelihood has been stolen from him by globalist, liberal elites and brown-skinned immigrants from south of the American border with Mexico. In this narrative, it makes sense to deport brown-skinned people, to throw international diplomacy and global trade arrangements out the window. And attacks on the judiciary, on the law firms that defended political opponents of Trump? Strong men have a special appeal when the aggrieved party is a man whose strength has been stolen. Even transgender rights become symbolic in this narrative. Transgender women become the ultimate foil to those whose very identity has been economically and culturally eroded. Each of these policy thrusts is a fight on behalf of the economically dispossessed.
The American Revolution of 1776 had its roots in the discontent sowed by the British crown’s tax on American colonies to repay the cost of protecting them in the French and Indian Wars. Economic frustration and malaise ushered in a new world order. Now the tables have turned yet again, and the America that helped win the Second World War is turning its back on the world order it created, arguably because of expense and bad governance. The world order has changed irretrievably. It is easy to see the inevitably of this and conclude that the loss of American democracy is equally inevitable. Even if the world order of yesterday is gone, American democracy is not lost. Americans hopefully will breathe life into the civic institutions that have become paralyzed through pre-emptive compliance. It is not too late to rehabilitate the institutions that buttress American democracy. The economic circumstances of Trump's core will surely be a fundamental part of this story, but it is hard to see America at the helm of the new world order that will emerge from these changes.
Is there a bright spot in all this for Sweden and the rest of Europe? There are both political and economic reasons to be optimistic about what this means for Europe, for Canada and for the UK.
The American electoral system see-saws too easily. European democracies have a structural advantage: they are parliamentary democracies. Sweden has the same groundswell of populism as does the US, but the actors in parliamentary systems must negotiate to govern. This creates real opportunity for compromise and change around the challenges facing Sweden, the same issues that remained unaddressed in American society.
But more than that, Europe has a golden moment because it has a huge shock to defense spending. The EU and the European members of NATO operate with the sense of purpose that can only come from knowing they can trust no one but one another. Even the UK is leaning in. Could the NATO Innovation Fund do today what the US Dept of Defense did in the 1950s in the US, when it sponsored massive research funding at Stanford University? Because this research stimulus resulted in Silicon Valley.
Add to that three additional ingredients: the re-shoring of European supply chains, the broad support for public initiatives that promote innovation and entrepreneurship, and a brain-drain out of the US academy that is only beginning. Will Portugal start using SAAB fighter jets because the parts supply for American jets is too unreliable? Will places like the Karolinska Institute exploit the opportunity to lure top American scientists with better research funding and more academic freedom? Will the local entrepreneurship scene respond to the increased capital availability caused by the reorientation of investment? A century ago, America's promise gave opportunity to a Sweden that was poor and hungry. Today its failings give opportunity to a Sweden that prospers. Will Sweden seize the moment?