Peru’s politics of destruction, and creation

The country has overcome its immediate crisis, but faces a bumpy ride

Time was when investors believed that Peru’s fast-growing economy was immune to its politics. That contention, always questionable, was tested almost to destruction this month. 

With the country suffering a power vacuum and on the brink of descending into violent chaos, on November 16th a shamefaced Congress chose Francisco Sagasti, a 76-year-old centrist academic, as the country’s caretaker president. 

He is the fourth man to hold the top job since the last presidential election in 2016.

In Mr Sagasti Peru has come up with a winning ticket in its political lottery. His are the safest hands imaginable, but his task is not simple. It is to tackle the pandemic and the economic slump, both particularly severe in Peru, while steering the country through a general election due in April. 

His anointing followed the failure of a power grab by elements in Congress, who on November 9th voted by 105 to 19 to oust Martín Vizcarra, the president since 2018, on grounds of “moral unfitness”.

Power passed to Manuel Merino, the speaker of Congress. Rightly or wrongly, many Peruvians saw in this a plot to postpone the election and to advance murky private interests. Mr Merino named as prime minister Ántero Flores-Aráoz, a 78-year-old of the hard right who won just 0.4% of the vote in the 2016 presidential election. 

His law practice represents substandard private universities that are trying to overturn a university reform. His backers wanted to raid the treasury through populist giveaways.

This takeover prompted the biggest street protests in Peru for 20 years, mainly by young people and in defiance of a pandemic-related state of emergency. They met a brutal police response. Two protesters were killed and scores injured. With his gambit collapsing, Mr Merino resigned and promptly vanished. 

His putsch highlighted the way that political parties in Peru have become vehicles for private interests and for evading justice. Some legislators pay for places on party lists and expect a return. Although 68 of Congress’s 130 members face criminal charges of various kinds, the legislature protects its own from prosecution.

This month’s episode marked the climax of years of conflict that runs along several axes. One dates back to Alberto Fujimori, who ruled as an autocrat from 1990 to 2000. 

He defeated the Shining Path terrorist movement and reformed the economy, but his regime was corrupt. 

His daughter, Keiko, narrowly failed to win the election in 2016 because anti-fujimoristas of all stripes united against her. Her party used its majority in Congress to thwart the governing programme of the winner, Pedro Pablo Kuczynski.

Another source of conflict involves corruption and its weaponisation. Mr Kuczynski resigned in 2018 to avoid impeachment over conflicts of interest. He remains under house arrest. His three predecessors are all accused: one is awaiting extradition from the United States, one killed himself and a third spent time in jail. 

Corruption is indeed systemic in Peru, and Peruvians know it. But the presumption of innocence and a sense of proportion have been lost. No leader has been tried. Ms Fujimori spent 16 months in jail for alleged campaign-finance violations. Prosecutors are seeking to drive her party out of existence. 

Mr Vizcarra was popular, despite a mediocre record and woeful management of the pandemic, because he championed the cause of anti-corruption. But the pretext for his summary ousting was evidence that he had been corrupt when he was a provincial governor (an allegation that he denies).

The third faultline is the battle between the executive and Congress, which Mr Vizcarra exacerbated. He tried to push through political reforms. One of the few that was approved unwisely barred legislators from consecutive terms. Last year he dissolved Congress in a battle over appointments to the Constitutional Tribunal. 

The new Congress, elected in January, is even less biddable. Since its members will serve for only 19 months and cannot stand next year, they have no incentive to behave decently.

More useful reforms are coming into effect for April’s election, including a cull of minor parties and a bar on candidates charged with serious crimes. Several presidential hopefuls are populists, some of them dangerous ones. 

Those who are not will find it hard to assemble a reformist coalition in the next legislature. 

One thing is clear: the crowds of millennials out on the streets want a better democracy. 

Getting it will be a lot harder than chasing out Mr Merino.

A Legacy of Hatred, Culture Wars and Discord

The Mess Created By Trump Will Be with Us for Years

The U.S. president has damaged the political system so badly that it will be difficult to repair, even if Donald Trump gets voted out of office on Tuesday. The hatred and political discord he has stirred up will paralyze the country for years.

By Valerie Höhne, Ralf Neukirch, René Pfister, Alexandra Rojkov und Alexander Sarovic

Donald Trump Jr. doesn't want anything to ruin his good mood. Not the dark clouds gathering overhead on this afternoon and certainly not the terrible survey results that are sticking to his father, the president, like a piece of old chewing gum from the sidewalk.

Junior is standing on a podium on the outskirts of State College, Pennsylvania, and talking about the excitement that he is allegedly encountering wherever he goes. "This is 2016 on steroids," he says, as he looks out across a half-empty parking lot and the cleared cornfields of Pennsylvania. 

He says there are hundreds of people waiting outside and that he hopes they can get them in. Yet all he has to do is look a bit to the left to see that there are only a couple of stragglers waiting at the security checkpoint.

It's hard to imagine that even the president's 42-year-old son himself believes what he'll say in the next half hour. That his father will win a landslide victory on Nov. 3 and that his Democratic challenger Joe Biden shouldn't even be allowed to be president because he is on the payroll of Chinese businessmen. If there was anything to such stories, the FBI would long since have opened an investigation.

He claims that Joe Biden's son Hunter received $3.5 million from a Russian oligarch, money that allegedly comes from human trafficking and prostitution. "If I did what Hunter did, I'd be in Rikers Island doing my best not to drop the soap," he would later say at a rally in Florida, referring to the famous New York prison.

Nothing that he says is true, of course. There isn't even the slightest bit of evidence that Joe Biden has accepted any money from China. There is also no indication that his son was bribed by a Russian billionaire. 

And when it comes to the polls, they are currently showing that Biden will emerge victorious in next Tuesday's election. In an average of national public opinion polls, the Democrat has an almost two-digit lead over Trump, and his advantage in important swing states is also looking relatively stable, even if he loses a bit of ground in Pennsylvania in the final days before Election Day.

But Don Jr. isn't particularly concerned about all of that. His eyes are on the future, on a time when his father is perhaps no longer president but Trumpism remains alive and well. 

Significantly more than 30 percent of American voters will again cast their ballots for Donald Trump in this election, that much can be said with a fair degree of certainty. 

They will do so despite that the president's catastrophic pandemic mismanagement which is partially responsible for the over 220,000 coronavirus deaths in the country; despite his calls, like a wannabe dictator, for his attorney general to open an investigation into Joe Biden; and despite the fact that U.S. citizens now know that Trump, who has always bragged about his wealth, only paid $750 in taxes in the first year of his presidency.

Trump has managed to create a kind of parallel universe in which his words are all that matter. In the vast majority of cases, those words have very little to do with reality, but his most loyal followers don't seem to care. 

If Trump has ever uttered a true sentence, then it was his claim that his followers would continue to love him even if he was to shoot somebody dead on Fifth Avenue.

But what will Trump's fanatic base do if they see their hero fall in the election?

Joe Biden's most significant promise is his pledge to reunite America if he is elected president. In his portrayal, Trump is an "historical aberration" that can be corrected with a bit of effort and goodwill. 

But if you travel through the United States, if you flip through TV channels in the evening, if you speak with Trump supporters, a vastly different picture begins to emerge. 

It becomes clear that Trump alone isn't responsible for the deep divisions in American society, but is just a symptom of a much deeper crisis. And it is a crisis that won't disappear if he is voted out of office.

Trumpism is here to stay, even if the president goes, writes Republican political adviser Peter Rough, who has intimate knowledge of the conservative scene in Washington, in a position paper about the future of his party.

Police in San Francisco Foto: Chris Tuite / imago images

Trump, if you will, has essentially magnified a development that began over 30 years ago. He is the product of a party that once professed the holy trinity of family values, military and "small government," only to then completely subordinate itself to the resentments and desires of wealthy donors. 

This lack of principles allowed Trump to rise to power against the resistance of the old party establishment. Now, the Republicans are led by a man who allegedly cheated on his wife with a porn star, who is said to have called fallen U.S. soldiers "losers" and "suckers," and who has presided over a $4.4 trillion rise in the national deficit during his term.

Never before in U.S. history has a president done such lasting damage to the fabric of American democracy in such a short amount of time.

The wheels of Trump's rise were greased by media outlets whose business model depends on sowing the seeds of anger and discord. 

Without the hate machine of Facebook, the Kremlin would not have been so effective in manipulating the 2016 election in Trump's favor, while Rupert Murdoch's Fox News has outstripped all others in the history of television in transforming lies and propaganda into billions of dollars in profit and massive political influence.

None of that will disappear if Donald Trump is voted out of office on Nov. 3. On the contrary, in the last four years the president has systematically deepened the trenches dividing Americans. After him, there will still be plenty others seeking to take advantage of those differences. 

Over the course of several decades, for example, the Supreme Court was an impartial authority respected by Republicans and Democrats alike. Twenty years ago, two-thirds of Americans still had faith in the work of the country's highest court. Today, it is just half.

Trump has pulled the Supreme Court into the partisan trench warfare in which he thrives and appointed justices that will continue pushing through conservative positions even if Democrats manage to win control of the White House and both houses of Congress. 

On Monday, the Senate confirmed Amy Coney Barrett, a jurist who has never been shy about her desire to reverse the right to abortion, even though almost two-thirds of all Americans are opposed to such a reversal.

It will take years to repair the damage that Trump has done to American governmental institutions. The president has fired five independent auditors responsible for investigating corruption and cronyism in government ministries and agencies. He has inflicted significant harm on the State Department, once the pride of the U.S. government. 

Important posts have been left unoccupied for years and those concerned about their reputations preferred to avoid working for Secretary of State Mike Pompeo, a loyal Trump vassal. Most recently, Trump fired the chief scientist at the National Oceanic and Atmospheric Administration and replaced him with a researcher who has primarily attracted attention for his efforts to play down climate change.

      Trump's son Donald Jr. Foto: Preston Ehrler / imago images

Never before in U.S. history has a president done such lasting damage to the fabric of American democracy in such a short amount of time. Trump has repeatedly insisted to his followers that a majority of American media outlets, from CBS to the Boston Globe, are nothing but fake news factories working on behalf of the Democrats. 

And it seems to have worked: Whereas 69 percent of Democrats say they continue to trust mass media outlets, only 15 percent of Republicans say the same. From Trump's perspective, that is perhaps his greatest accomplishment while in office.

When he was sworn in as the 45th president of the United States on Jan. 20, 2017, the White House claimed that never before had so many people gathered to pay their respects to a new president. Just a quick look at the aerial views from his predecessor Barack Obama's inauguration was enough to reveal the lie. 

Trump's then adviser Kellyanne Conway said in response to the criticism that the president's press spokesman had merely been presenting "alternative facts."

It was an early shot fired in Trump's war against the customs and conventions that American democracy had held dear to that point. And it was one that many observers felt was a response to the fact that he actually received 3 million votes fewer than his opponent Hillary Clinton and only won because of the antiquated Electoral College system.

Now, Trump is far behind in the polls, but he nevertheless continues to act as though the Democrats are trying to steal the election from him. "The only way we're going to lose this election is if the election is rigged," he said recently. It is a claim that could have a toxic effect. After all, if the Democrats were in the process of planning a coup, wouldn't all efforts to stop it be legitimate? Even violent resistance?

A gun shop in Pennsylvania: Weapons purchases have increased rapidly this year, partly due to violent unrest and protests in the country that have been fuelled by Donald Trump.

A gun shop in Pennsylvania: Weapons purchases have increased rapidly this year, partly due to violent unrest and protests in the country that have been fuelled by Donald Trump. Foto: Sara Lewkowicz / DER SPIEGEL

It is difficult to picture Nathan Houck with a weapon in his hands. The 34-year-old has the look of a teenager and as he speaks, his four-year-old daughter squirms on his lap. 

Houck is a family man and a reliable employee, not the kind of guy you could imagine manning a barricade. Still, he believes it is possible that he might have to take part in an armed conflict. 

"If the Democrats win the House, the Senate and the presidential election, I am almost positive that there will be no fair elections anymore," Houck says.

His family's home is in a cul-de-sac at the end of a road that snakes through rural Pennsylvania. Signs on the side of the road leave no doubt as to who people in the area are going to vote for: "Keep America Great" signs can be seen in front of almost every home, with TRUMP in capital letters above them.

Stepping into Houck's home is like going back to the 1950s, with ceramic plates on the wall and a Bible on the shelf along with books full of stories of salvation. Houck's wife is raising their two girls and they are not planning to send their older daughter to a public school. Houck says he is concerned she would be "indoctrinated."

He wasn't always an enthusiastic follower of Trump. He says he was initially repelled by his boorish mannerisms and vulgar jargon. "He uses words that I wouldn't allow in our family," he says, looking at his daughter. But today, four years later, his view of Trump has changed. 

"He is fighting for our values," values that Houck believes would be under threat should Biden win. He says that Biden would transform the U.S. into a socialist police state. "I think in 40, 50 years, there will be persecution for being Christian."

He says he will spend the days after the election praying for America's future and will be keeping a close eye on how things develop. Will abortion continue to be legal? Will there be a ban on preaching against homosexuality? 

If that happens, he says, he'll have no other choice than to defend himself. "If it boiled down to me being able to worship my God versus me overthrowing the government, then I would be on God's side."

Protesters in Lafayette Foto: Go Nakamura / REUTERS

Frightened Republicans like Houck have been arming themselves in recent months. 

"We can't stock as many weapons as we can sell," says Paul, the owner of a hunting and gun shop called The Outdoorsman in Winthrop Harbor, a town in northern Illinois. 

On this recent Saturday, the store is busy as well. A married couple are examining a revolver while a young man wearing camouflage is checking out the sight on a rifle.

People want to protect themselves, says Paul, who is nervous about providing his full name in these uneasy times. But against what? "Everyone here knows what has happened," Paul says. "Nobody wants to stand by and watch as people attack their house and burn it down."

The events he is referring to took place two months previously in Kenosha, a town just a few miles away. A policeman there shot the young black man Jacob Blake in the back seven times. Violent protests erupted in response and houses and shops were set on fire.

With just days to go before the election, the mood is tense in several big cities across the country. Many in the U.S. are concerned about a flare up of political violence, or worse. According to surveys, fully a third of Americans believe that a civil war is possible within the next five years.

Protests in Kenosha: About one-third of Americans consider a civil war likely in the next five years. Foto: Daniel Boczarski / Getty Images

The idea isn't totally absurd. Armed groups across the country are arming themselves in preparation. If Biden wins, "we'll take the fight to him," says Chris Hill, the leader of an armed militia in Georgia. "I will attack a tyrant no matter where he is."

Many radicals share his view. "We have observed that militias and other right-wing extremist groups are actively talking about interfering with the election process, either on Election Day or after votes have been submitted," says Devin Burghart of the Institute for Research and Education on Human Rights. 

In early October, the FBI arrested 13 men who were planning on kidnapping Michigan Governor Gretchen Whitmer. The plan called for to be subjected to a kind of trial in a secret location because she had imposed a curfew in an effort to slow the spread of the coronavirus.

America is no stranger to political violence. Never before, though, has the country had a president who seeks to foment such unrest. Trump has said on several occasions that the country is facing massive voter fraud on behalf of the Democrats. 

During the first TV debate against Biden, the president declined to distance himself from militant groups, and in reference to the right-wing militia Proud Boys, he said: "Stand back and stand by." It was a bit like Trump was playing with matches at a gas station.

What makes his presidency so unique is that he lacks any understanding for the gravity of the job he holds.

Police across the country have spent weeks preparing for the violence that Trump appears to be provoking. "I don't think we have seen anything similar in modern times," says Andrew Walsh, deputy police chief of Las Vegas. He says the time between the polls closing and the announcement of the final results will be particularly dangerous. 

Because of the numerous votes being cast through the mail, it could take days for all the ballots to be counted. What might happen if Trump declares himself the victor in the interim? And if Biden doesn't accept that declaration? Chaos would most likely be the result.

On 60th Street in Kenosha, many shops remain boarded up even though the riots ended quite some time ago. "The boards are going to stay there for the time being," says Kyle, a mechanic at Ed's Used Tires. "Violence can erupt again at any time."

Security forces in Philadelphia Foto: Yuki Iwamura / REUTERS

Trump has transformed the United States into a dangerous place. The president, whose job it is to unite the country, has incited Americans against each other. What makes his presidency so unique is that he lacks any understanding for the gravity of the job he holds. He doesn't understand something that all of his predecessors did: That the job itself is greater than the person who holds it. 

Almost worse than Trump's political aberrations - his contempt for America's European partners, his weakness for dictators, his denial of climate change – is the fact that he has desecrated the highest office in the country. The presidency was created to bring together a country whose only link is the belief in freedom and in personal responsibility.

Trump has introduced a degree of nepotism the country has never seen before, appointing his daughter and son-in-law as special advisers. He sent his personal lawyer, Rudy Giuliani, around the world to ingratiate himself with foreign politicians and diplomats. 

He acted as though he was standing up to China, yet he secretly asked Chinese President Xi Jinping for campaign support. He has transformed the state into a wing of the Trump empire.

Can he claim any accomplishments? Trump doubtlessly played a role in the strong economic growth the country experienced in the three years before the outbreak of the coronavirus pandemic. Wages in the U.S. climbed during that time, including for those men and women without higher education who had been excluded from economic growth for decades. 

He also oversaw the convergence of Israel with some Arab countries despite decades of animosity. It is an achievement that could ultimately find a mention in the history books.

But what value do such achievements have when the president is simultaneously taking an ax to the roots of democracy at home? One certainly cannot accuse Trump of not having tried to establish a close link with the electorate. Whatever goes through his head can be found a minute later on Twitter. Barack Obama may have dabbled in using social media as a political tool, but Trump has taken the strategy to insidious lengths.

Trump passes along slogans from conspiracy theorists and racists, insulted Democrats and Republicans alike and, ever since his poll numbers have begun falling, he has used Twitter to foment doubts about the legitimacy of the election. 

Trump has gone so far that internet companies are now considering muzzling Trump on election night to prevent him from triggering violence via tweet.

But Trump hasn't been alone in worsening the political climate in the country. No other television station in the country's history has sown so much hate and division as Fox News, the profit machine in Rupert Murdoch's media empire. How it works was on full display on Thursday of last week, when Trump and Biden met for their second debate.

When the two men separated after an hour and a half of sparring, most commentators were united in the view that nobody had really emerged as the winner. The president had pulled himself together and had been able to land a few punches, while Biden valiantly defended himself, even as he tripped over his tongue on several occasions as expected.

But then, Sean Hannity went on the air, the star of Fox News. Biden, he said during his introduction, had finally dared to emerge from his basement after several weeks in hiding. "He may come to regret it," Hannity intoned. The Americans, the Fox News anchor said, should not allow themselves to be misled into believing that Biden did well in the debate. He was "caught in lie after lie after lie. The mob of the media won't tell you."

Murdoch, Trump and Murdoch's wife Jerry Hall in 2016 Foto: Carlo Allegri / REUTERS

Day after day, Hannity pounds home to his viewers that Trump is a brave outsider who is only attacked so viciously because he dares to drain the corrupt Washington swamp. In his version of events, every official in Washington is a representative of the "deep state,” and media outlets like the New York Times or CNN are pure leftist propaganda machines.

If you watch Fox News through European eyes, the hysteria of the nightly news has something unintentionally funny about it. Hannity consistently calls Trump's challenger "sleepy, creepy, crazy Uncle Joe.” According to Hannity, Biden is a senile puppet in the hands of radical socialists. The warmongering title of Hannity’s book on the election is "Live Free or Die." 

But Hannity isn’t some whacked-out conspiracy theorist broadcasting from a garage in West Virginia. He attracts an average of 5 million viewers each night, an audience few other political talk show stars in the U.S. could dream of.

Reed Hundt can still remember exactly how everything began. During Bill Clinton's presidency, the lawyer was head of the Federal Communications Commission (FCC), which grants licenses for television stations. In 1994, he visited Rupert Murdoch, who had invited him to dinner at his home in Los Angeles. 

Murdoch was still making a lot of money on the British newspaper market at that time. But he had a plan to revolutionize the American television business.

He recalls how Murdoch told him that when he would go to newsstands in London, he would find the Times for the educated middle classes, the Guardian for the left and tabloids like the Sun and the Mirror for the rest. 

And how he told him that TV stations in America are jostling for the moderate audience in the middle. Murdoch’s ingenious plan was to create a television station that occupied a niche that no one had seen before: white men without higher education. Murdoch didn't say so at the time, Hundt says, but he knew that his viewers would mainly skew to the right.

In a way, says Hundt, the Trump presidency is linked to the success of Fox News. The cable channel has created its own audience, and at some point, a politician was needed to entertain those viewers. If Trump didn’t exist, it would have been someone else, he says. 

That’s why he doesn’t believe a Trump defeat will bring the people at Fox to their senses. The station will simply look for a new populist who can help deliver good ratings and political influence for the station. 

Fox News will create a new beast, says Hundt. This is the inevitable consequence of all the money that goes into politics like dirty water into a sink, he says.

Populists Hannity and Trump in 2018: On Fox News, Democrat Joe Biden is portrayed as a senile puppet in the hands of radical socialists, and millions of viewers are served these bizarre distortions every day. Foto: Jim Watson / AFP / Getty Images

American television wasn't always as mercilessly biased as it is today. Until well into the 1980s, a fairness doctrine reigned supreme, one that required the major broadcasters to present controversial political issues from both sides. 

The regulation was highly controversial, with many conservatives viewing it as an attack on freedom of expression. But the Supreme Court quashed all attempts to overturn it.

It was only under pressure from President Ronald Reagan that the regulation was eliminated. When asked whether the end of the fairness clause was the cardinal sin of American politics, Hundt just shrugs his shoulders. 

He says that as a cable-only channel, the fairness doctrine anyway didn’t apply to Fox News. Besides, Hundt says, when he looks at the Supreme Court today, he doesn’t believe they would allow a thing like that to happen anyway.  

There’s much to suggest that Hundt is right. On Monday, the Senate confirmed Amy Coney Barrett as the third Trump-nominated justice on the Supreme Court. With that move, conservatives now dominate the court. 

No other U.S. president has transformed the judiciary as profoundly as Trump has in such a short period of time, and his appointees will continue to shape the country for decades to come. Presidents come and go, but federal judges are appointed for life, which gives them power and independence. 

It was the Supreme Court that heralded the end of racial segregation in schools, the right to abortion and the right to marriage for gays and lesbians -- not Congress or the White House.

That’s why Trump has put so much effort into appointing new judges and justices. 

Since the start of his term, he has appointed a total of 220 federal judges, 53 of whom sit on the country’s influential appellate courts, which are only one level below the Supreme Court.

One of those judges is Barbara Lagoa. The 52-year-old, pious Catholic, is the daughter of Cubans who fled from Fidel Castro’s socialist regime. 

Lagoa is a follower of the legal philosophy of constitutional "originalism,” which holds that judges must interpret the constitution in the strictest sense of the word and may, if necessary, orient their interpretations based on the intentions of the Founding Fathers of the U.S.

Lagoa has been part of the Atlanta-based Federal Court of Appeals for the 11th Circuit for a year now, where she is adjudicating fully in the Trump spirit. If the president were to get re-elected despite all the adversity he currently faces, it could in part be due to a ruling she played a role in.

Two years ago, the citizens of Florida voted in a referendum to restore the right to vote for convicted criminals after they have served their sentences. It was a far-reaching decision, in part because there are 1.4 million former prisoners in the state, including many blacks who tend to favor the Democrats. 

Another reason is that presidential elections in Florida have always been extremely close and the state could again be the deciding factor between victory and defeat on Election Day on Nov. 3.

The Trump presidency is the product of the complete disintegration of the substance of the Republican Party, a process that began decades ago.

Democrats were outraged when the Republicans in the Florida state legislature responded by passing a law that only allows former inmates to vote again after they have paid all their fees and fines. 

According to civil rights groups, the law serves the sole purpose of keeping those 774,000 convicted criminals who lack the money to pay their debts to the authorities off the voting rolls. The law eventually landed at the Court of Appeals in Atlanta, where it was upheld by Lagoa and her colleagues - not a huge surprise, given that five of the six judges who moved to affirm the law owed their posts to Trump.

The Democrats and many experts view Trump’s zealousness in appointing judges as an attempt to undermine the will of the majority. "The Supreme Court is too powerful," says Samuel Moyn, a professor at Yale University. 

He says the U.S. faces a potential culture war if the court overturns the right to abortion. He argues that political decisions need to be made again where they belong: in Congress. 

Moyn has proposed that steps be taken to curb the court’s influence, for instance by changing the law so that the court could only overturn laws with a qualified majority of six or seven of the nine justices’ votes, which would essentially give the liberal judges veto power over rulings.

President Trump, judge Barrett and their spouses: None of his predecessors transformed the American judicial system as fundamentally in such a short time.

President Trump, judge Barrett and their spouses: None of his predecessors transformed the American judicial system as fundamentally in such a short time. Foto: Brendan Smialowski / AFP

It would, of course, be healthier for American democracy if, with the possible end of Trump’s presidency, Republicans and Democrats in the House and Senate could relearn how to work together and compromise as they did for decades.

There are even a few Republicans who view the Trump era as one they would like to put behind them. Ben Sasse, a Republican Senator representing Nebraska, openly vented his anger over the president a few days ago in a conference call with supporters and staff, saying that Trump "spends like a drunk sailor.” The Senator railed that it is unforgivable that Trump "kisses dictators’ butts” around the world.

But it’s more likely that Sasse will remain a lone voice in a party whose moral foundation has almost completely crumbled. In the past four years, few Senators have shown the courage to stand up to Trump, with the vast majority simply looking the other way when it became apparent that Trump had blackmailed the Ukrainian government in an effort to force them to deliver dirt on his challenger, Joe Biden. 

They remained silent when the president publicly stated that he had more faith in Russian President Vladimir Putin than in the U.S. intelligence services. Nor was there any outrage when Trump disparaged his government’s pandemic experts as "idiots” a few days ago.

The Trump presidency is the product of the complete disintegration of the substance of the Republican Party, a process that began decades ago. The party suffers from the lack of a unifying ideological bond. 

The 80 million or so Evangelical Christians who form the core of the voter base have little in common with Wall Street bankers, who by no means consider sex before marriage to be a sin, but want to pay as few taxes as possible on their annual bonuses.

Trump supporters in Arizona Foto: Ariana Drehsler / AFP

It was Newt Gingrich who turned what was then a rather well-behaved party into a populist movement at the end of the 1990s. The movement stirred up sentiment against a purportedly corrupt system in Washington and exploited the party’s ideological void. It led the Republicans in 1994 to win their first majority in Congress in over 40 years. With Trump’s election, Gingrich’s revolution came full circle.

Under Trump’s leadership, there are Republicans running for Congress who openly support the QAnon movement, which promotes an abstruse conspiracy theory that the Democrats are part of a satanic criminal ring that kidnaps children in order to extract a rejuvenating drug from their blood.

Trump is the logical consequence of the racism and hatred that has become the essence of the Republicans over the past three decades, former strategist and campaign consultant Stuart Stevens writes in his recent book, "It Was All A Lie,” a bitter and angry reckoning with his own party. "Trump isn’t an aberration of the Republican Party,” argues Stevens, who led Mitt Romney’s presidential campaign. "He is the Republican Party in a purified form.”

And whoever succeeds Trump in the party won’t be able to afford to alienate the voters Trump has lured with his brash language. "The Republican Party will be taken over by whoever knows how to take up the Trump rebellion and can turn it in a productive direction," says Peter Rough of the conservative Hudson Institute.

There’s just one problem: Who could that person be? Donald Trump Jr. undoubtedly has the trust of the most loyal Trump fans. After the cheering of his fans died down at the campaign rally in Pennsylvania on Tuesday, Trump Jr. shouted: "Make liberals cry again,” an allusion to his father's campaign slogan "Make America Great Again.”

But if Donald Trump loses his re-election bid, the Trump family myth will be shattered. "The president will be seen as someone who failed to deliver on his core promise: To always be on the side of victory,” says Rob Stutzman, a Republican strategist who once served as an adviser to California Governor Arnold Schwarzenegger. "Even Trump fans will say: 'OK, that was it,’ and they’ll start looking for someone else.”

Someone like Nikki Haley, who began her career as the governor of South Carolina and then served as Trump’s ambassador to the United Nations. She quit in late 2018, but unlike former National Security Adviser John Bolton or ex-Secretary of State Rex Tillerson, she avoided a public break with the president. On the contrary, at the Republican National Convention in August, she spoke as one of the few representatives of the old party establishment and called for the president’s re-election.

It is, of course, possible to have doubts about the sincerity of her words given that she, too, has been critical of Trump’s character. But with her speech, she secured the sympathy of those Trump supporters who will be looking for a new political home if the president is defeated. There are no doubts within the party that Haley has her sights set on becoming the first woman in the White House. And she has already proven that she has the agility necessary for the job.

But does she have the power to lead the Republicans back to the path of reason? It’s not only fans of the potential ex-president that any successor would have to keep happy. A successor would also need the support of Fox News. And the station, which often acts as Trump’s personal propaganda channel, has no interest in politicians who allow themselves to get muddled in the boring and tedious business of political compromise. Fox News’ aim is to sow hatred between Americans, says Blair Levin, who was in charge of media policy during Bill Clinton’s tenure and now works for the Brookings Institution in Washington. "And American society offers fertile ground for that hatred.”

Republicans Nikki Haley and Trump in 2018: There are no doubts within the party that Haley has her sights set on becoming the first woman in the White House. Foto: Jonathan Ernst / REUTERS

It appears some kind of evil curse has gripped America. There’s little that could be less helpful for the country right now than for the partisan blockading to continue. Over 12 million people are officially unemployed in the U.S., thousands of families don’t earn enough to put food on the table for their children in the evening. 

And Congress? It’s not even capable of deciding on an extension of a COVID-19 relief package that cushioned the worst effects of the pandemic until the autumn.

That failure by politicians is making life difficult for people like Jasmine Rognrud. The 26-year-old lives together with her female partner and their cat in a small apartment in Minneapolis. 

At the moment, she’s experiencing just how ruthless American capitalism can be. Until recently, she worked for a startup. The company didn’t pay a lavish salary, but it did promise a relaxed team atmosphere and the opportunity to be given new responsibilities quickly.

Then the pandemic struck. As sales plummeted, Rognrud’s company began laying people off. She was able to keep her job, but only by accepting a 30-percent salary cut. 

Still, Rognrud’s boss argued, at least she would be able to keep her health insurance. 

She agreed, but also soon realized that the salary was no longer enough to cover her bills.

Since then, Rognrud has found a new job, but one in which she has to cover her health insurance out of pocket for $300 a month. She’ll soon celebrate her 27th birthday, and then the cost will go up to $400. 

With money running low, she’s been forced to stop her treatment for an eating disorder. It’s too expensive. Rognrud says she doesn’t want to complain and that she has co-workers who are worried about losing their apartments.

Joe Biden has pledged help for people like Rognrud. He intends to establish a minimum wage of $15 per hour and has announced the introduction of a public health insurance option that would provide inexpensive coverage for people with low incomes. 

But the Democrat will only be able to push all that through if his party also manages to win the Senate on Tuesday. And if Biden’s fellow Democrats don’t allow themselves to be intimidated by the toxic political atmosphere the president leaves behind.

Will Trump just walk off the stage if he loses? 

Before he won the election in November 2016, Trump and friends had been considering launching their own television station. Many Democrats now fear he could revive that idea. In recent months, Trump has often complained bitterly that even Fox News has treated him unfairly. Of course, he wouldn’t have that kind of grief if he had his own station.

"Trump loses money with his hotels, and his golf courses aren’t profitable either," says former Clinton consultant Blair Levin. "But he does know how to make money in the entertainment business. So, the next logical step would be launching a station.”

That’s also what Hundt, the former head of the Federal Communications Commission, the U.S. media regulatory authority, believes. He says Trump has always been envious of Italian media tycoon Silvio Berlusconi, who got rich with television stations that subsequently helped catapult him to the position of prime minister. He says it drove Trump crazy that he didn't come up with the idea himself.

That’s why Hundt believes that after his term, Trump will go knocking on the doors of everyone he’s done favors for. In a first round, he could surely raise a billion dollars for a new station. The list of those he has helped is very, very long, Hundt says.

A disturbing new signal from the CDS market

Falling prices at auctions suggest trouble ahead for lenders to beleaguered companies

Gillian Tett

Recoveries for credits with CDS auctions have been ‘alarmingly low’ this year, as seen with Neiman Marcus department stores © Richard Levine/Alamy

Back in 2008, investors and journalists obsessively tracked the price of credit default swaps, derivatives contracts that investors use to insure themselves against default.

As the financial crisis unfolded, CDS prices were a financial canary in the coal mine. 

When it became more expensive to insure a bank bond against default, that signalled severe trouble at the bank. Thankfully, this ghoulish game has ceased: most banks are so much better capitalised that their CDS prices are now boringly stable.

But a new CDS signal is emerging that is worth noting. Not because the trend itself has systemic implications, but because of what it suggests about what is happening to ailing companies.

The issue revolves around what creditors can expect to recoup in bankruptcies. Most CDS contracts stipulate that financiers need to know what a company’s cheapest available bond will be worth at the point the company defaults. 

That’s because CDS contracts make investors whole by paying them the bond’s original face value minus its market value. When a company goes bust, financiers hold an auction to determine the market price, and the resulting prices offer one guide to what creditors think the company’s remaining assets are worth.

Over the past decade, the average CDS auction prices have moved in a band between 10 and 60 cents on the dollar, but have generally been between 30 and 40 cents. 

However the nine US auctions conducted in the year to August produced an average price of just 9 cents — and just 2.4 cents if you look at the worst four: Chesapeake, California Resources, Neiman Marcus Group, and McClatchy. “Recoveries for credits with CDS auctions have been alarmingly low,” Brad Rogoff writes in a Barclays note. 

The micro-level explanation for this drop is a change in capital structures. A decade ago, it was hard for distressed companies to raise emergency funding, such as “debtor in possession” loans, when they hit the wall. 

But this year, such capital “has been readily available for most companies that have sought it,” Mr Rogoff notes. 

This has enabled troubled companies to stagger on for longer, as so-called corporate zombies. And because loans take priority over bonds in a bankruptcy, the practice has also weakened bondholders’ claims, sparking fights in some bankruptcies, including US mattress maker SertaSimmons and California-based beachwear group Boardriders.

Bondholders’ claims have been further undermined by debt exchanges and stealthy asset transfers, including one known as the “J-Crew trap door”. Named after the recently bankrupted US retailer, it refers to a manoeuvre pulled off by the company’s private equity owners in 2016 in which they transferred intellectual property rights across to new lenders, out of the reach of the original creditors. Similar tactics have emerged at other troubled groups such as Travelport.

These trends are just a symptom — not the main cause — of the real reason for low recovery rates: ultra cheap money. The reason DIP financing is so plentiful, as is highly leveraged finance before a company hits a wall, is that asset managers have jumped into the lending business to increase their returns in a low interest rate world. 

And the reason that distressed companies have been able to engage in games like the J-Crew trapdoor is that creditors have stopped imposing tough covenants that might prevent this. 

Indeed, four-fifths of US loans issued last year were “covenant-lite”, that is they had little or no control over borrower behaviour, up from one-fifth at the start of the decade. 

That is because investors are so desperate to chase returns in a zero-rate world that they no longer dare to impose covenants. 

Indeed, the hunt for returns is so frenzied that junk bond yields have plunged from 12 per cent in March to below 6 per cent. Cheap money, in other words, is enabling some zombie companies to stagger on, even as creditor value shrivels — until they collapse.

That is why it pays to take note of those low CDS recovery rates. The sample size is so small that it is hard to predict how widespread the problem might be. But investors and policymakers should ask tough questions about corporate zombies — and whether it is wise to let them all keep staggering on with the crutch of cheap money.

Investors also need to insist on tough conditions when they provide loans to risky companies. That is doubly so given the IMF warning last week about the threats of sky-high US corporate leverage — and the risks of a new economic downturn as the Covid-19 pandemic flares up again. 

What Is “Auction Theory,” and What Kinds of Questions Can It Answer?

The recent Nobel put the field in the spotlight. An economist explains how it works, using his own research as a guide.


Joshua Mollner

Yevgenia Nayberg

Auction theory—which studies different auction formats and attempts to predict how people will behave in them—is having its moment in the spotlight.

The attention stems from the recent awarding of the Nobel in economics to two pioneers of auction theory research, Paul Milgrom and Robert Wilson, both at Stanford University. (Milgrom is a former Kellogg School professor.) 

Their work is both theoretical and practical: in the 1990s the Federal Communications Commission used their research to create a new way of auctioning off radio frequencies, resulting in billions of dollars in sales.

Kellogg’s Joshua Mollner started collaborating with Milgrom while Mollner was a Ph.D. student at Stanford. The two have a new paper out on auction theory. 

Kellogg Insight talked with Mollner, an associate professor of managerial economics and decision sciences, about the research and the Nobel announcement.

KELLOGG INSIGHT: What did you set out to learn in your new paper?

We were motivated by the observation that in certain situations, existing theory doesn’t make very sharp predictions about how people will behave. We had an intuition for how we could develop a new theory that would sharpen those predictions.

The gold standard for making predictions about how people will play an economic game—for example, an auction—is something that’s called Nash equilibrium.

What Nash equilibrium says, basically, is that everyone has to be using a strategy that allows them to do as well as they can provided that their opponents play as they’re supposed to be playing.

But in some settings, and particularly some auctions, there’s a problem because sometimes there can be many Nash equilibria. In other words, Nash equilibrium predicts many possible outcomes. And that might be dissatisfying because you might want just a single prediction or at least a small set of predictions.

In response, economists have developed rules, called “equilibrium refinements,” that allow you to eliminate some of these less plausible Nash equilibria so that you end up with a smaller set of predictions.

That’s where our paper fits in. We propose a new refinement, which we call “extended proper equilibrium.”

KI: Your refinement looks at the issue of “trembles,” meaning a player may do something unexpected—perhaps unintentionally, as if their hand trembled. Can you explain how that factors in?

In some games, many of the strategies I could adopt might be “tied” in the sense that each allows me to do as well as I can, given what I expect my opponents to do.

But should I really be equally happy with any of those strategies? Maybe I should break that tie by thinking about the possibility that the other players don’t play as I expect them to play. Maybe with some small probability, another player trembles and does something that they weren’t supposed to do.

So, supposing that other players do tremble, what types of trembles should I expect? 

And that’s where our refinement comes in.

KI: Can you give an example of what this would look like?

The simplest example would be one where I’m playing a game against two opponents. 

Suppose that if I expect opponent #1 to tremble, then I prefer option A, whereas if I expect opponent #2 to tremble, then I prefer option B. 

To figure out what my best option is, what I really need to know is who’s more likely to tremble, opponent #1 or opponent #2?

It turns out that most previous refinements in the literature have basically nothing to say on that question. Our contribution is to develop a new refinement that does have something to say in some situations.

KI: What did you draw on for your idea for a new refinement?

We start with a previous equilibrium refinement from the literature. It was developed in the ’80s by Roger Myerson, who is also a Nobel laureate (and former Kellogg faculty member). He calls his refinement “proper equilibrium.” 

That concept has something to say about within-player comparisons of trembling: about whether a single opponent is more likely to make one type of mistake or another type of mistake. 

We find a way to extend that logic to across-player comparisons. That’s why we call our refinement “extended proper equilibrium.” That then allows us to make sharper predictions than the original proper equilibrium does.

KI: How does this apply to real-life auctions?

Let me give you one example. When you do a search query on Google or really any other search engine, the ads that you see on the top or on the side are the result of an auction that’s taking place behind the scenes. The most commonly used auction format there is called the “generalized second-price auction.”

Think about multiple ad positions on the page and multiple bidders. The ad position at the top of the page is the most valuable because it’s the most visible, and so it should attract the most clicks. As we go further down the page, ads are going to attract fewer clicks. Each bidder is going to submit the maximum amount that they’re willing to pay per click.

The top ad position goes to the highest bidder, but their per-click payment is not their own bid. It’s the bid of the second-highest bidder. And then the second ad position goes to the second-highest bidder, whose per-click payment is the third-highest bid, and so on.

KI: Why are they not paying their own bid?

In the olden days of search advertising, that was exactly what happened. But there was a problem with it. Let’s say I’m the highest bidder and you’re the second highest bidder, and I’m bidding $10 more than you are. 

If I’m paying my own bid, I have an incentive then to try to reduce my bid until I’m just barely above where you were. But once that happens, you might say, “Well, now I can outbid Josh and get that first position for very cheap.” 

At that point, we might keep outbidding each other until the first position becomes so expensive that you decide you’d be better off winning only the second position. So you might drop your bid back down to $10 below mine, starting the cycle all over again.

Search engines were seeing this cycling behavior, where bidding behavior wasn’t settling down. To eliminate it, they went to this design where now I can feel free to bid $10 higher than you, because whatever happens, I get the same outcome as if I were bidding just a single cent higher than you.

Google came up with this system, and now it’s the standard in the industry. That’s why economists are interested, because it’s economically important.

KI: What is it that economists are trying to understand exactly?

We want to predict how bidders are going to behave. Let’s suppose that I’m one of three bidders in one of these auctions, and I’m pretty sure that there’s going to be one bidder who will bid super high and another bidder who will bid very low. Probably my best move is to bid some number in the middle. 

If I wanted to win that first position, I’d have to outbid this really high bidder, which would be expensive. And I may as well outbid the low bidder because I can do so for cheap. So I’m going to bid some number in the middle. But then the question is: Which number in the middle?

It’s a very important question for the auctioneer, like Google, because my bid is going to set the price that the highest bidder pays, which will largely dictate the revenue of the auction.

KI: How does your refinement help answer this question?

If neither opponent trembles, then I’m indifferent among all these different bid amounts in the middle. But what if one of these other bidders trembles? What if one of them bids not exactly as I expect them to bid, even with just some small probability? If that is possible, then I might no longer be indifferent among all of these bids. 

Which of those bids I would prefer will depend on the trembles I expect. Is it more likely that the high bidder trembles or that the low bidder trembles—and if they do tremble, what alternative bids are they most likely to tremble to?

So there are these across-bidder comparisons that I need to make. Our refinement speaks to those comparisons and is going to help pin down a narrower range of possible bids that I, as this middle bidder, might make.

KI: How does this narrower range, the sharper prediction, benefit a search engine like Google?

There are other auction formats in the economics literature that in principle could also be used here. Then a relevant question for Google would be: Where is revenue going to be highest—if it sticks with this auction format that it’s using, or if it switches to a different auction format?

In order to do that comparison, Google would need a way to predict how a given set of bidders would bid in the generalized second-price auction and also how they would bid in another format. Our theory helps with the first half of that.

KI: Your coauthor, Paul Milgrom, just won the Nobel. He was originally your thesis advisor. How did you start working together?

I first saw him when I was a student in one of his classes. I was very impressed by the way he thinks, the way he explains things so clearly, and his contagious enthusiasm for, to be honest, for really nerdy stuff.

I started working for him as a research assistant. 

Then we started working on some projects together, and ultimately, he became my advisor.

KI: What has it been like recently to see auction theory in the news?

I’m really excited about it, and I’m very happy for Paul. What I think is really cool about Paul’s work and also that of Bob Wilson, his cowinner, is that it’s this brilliant theory, but it’s also incredibly practical. 

They’ve both been involved in designing auctions that have been used to allocate billions of dollars of radio spectrum. I think that mixture of brilliant theory and practical relevance is super rare and super special.

China Trade War Didn’t Boost U.S. Manufacturing Might

Factory production peaked in 2018, data show; Trump advisers say tariff campaign will yield benefits over time

By Josh Zumbrun and Bob Davis

WASHINGTON—President Trump’s trade war against China didn’t achieve the central objective of reversing a U.S. decline in manufacturing, economic data show, despite tariffs on hundreds of billions of dollars of Chinese goods to discourage imports.

The tariffs did succeed in reducing the trade deficit with China in 2019, but the overall U.S. trade imbalance was bigger than ever that year and has continued climbing, soaring to a record $84 billion in August as U.S. importers shifted to cheaper sources of goods from Vietnam, Mexico and other countries. The trade deficit with China also has risen amid the pandemic, and is back to where it was at the start of the Trump administration.

Another goal—reshoring of U.S. factory production—hasn’t happened either. Job growth in manufacturing started to slow in July 2018, and manufacturing production peaked in December 2018.

Mr. Trump’s trade advisers nonetheless say the tariffs succeeded in forcing China to agree to a phase one trade deal in January, in which Beijing agreed to buy more U.S. goods, enforce intellectual property protections, remove regulatory barriers to agricultural trade and financial services and to not manipulate its currency.

They also say the tariffs—which remain on about $370 billion in Chinese goods annually—will over time force China to end unfair practices and help rebuild the U.S. manufacturing base.

Tariffs “are having the effect of bringing manufacturing jobs back to the U.S.,” U.S. Trade Representative Robert Lighthizer said in an interview, citing statistics that show a net gain of 400,000 U.S. manufacturing jobs from November 2016 until March 2020, when the pandemic forced widespread factory closures.

However, about 75% of the increase in manufacturing jobs occurred before the first tranche of tariffs took effect against China in July 2018, when annual growth in manufacturing jobs peaked and then began to decline. By early 2020, even before the pandemic reached the U.S., manufacturing job growth had stalled out, and factories shed workers in four of the six months through March.

An industry-by-industry analysis by the Federal Reserve showed that tariffs did help boost employment by 0.3%, in industries exposed to trade with China, by giving protection to some domestic industries to cheaper Chinese imports.

But these gains were more than offset by higher costs of importing Chinese parts, which cut manufacturing employment by 1.1%. Retaliatory tariffs imposed by China against U.S. exports, the analysis found, reduced U.S. factory jobs by 0.7%.

Mr. Trump is one of a long line of U.S. presidents to use tariffs to protect favored industries. President Obama put steep tariffs on Chinese tires, President George W. Bush imposed tariffs on steel and President Reagan hit Japanese televisions and computers.

But Mr. Trump’s enormous increase in tariffs on Chinese goods represented a sharp departure in post-World War II economic history. Since the war, the U.S. has led round after round of global trade talks aimed at reducing tariffs. No longer.

“This is the biggest use of tariffs since the Smoot-Hawley tariffs” during the Great Depression, said Chad Bown, a trade expert at the Peterson Institute for International Economics. “The economic impact is going to take years to play out.”

Mr. Trump has called himself a “tariff man” and said businesses that complain about the impact of tariffs should simply build factories in the U.S.

“I happen to be a tariff person because I’m a smart person, OK?” Mr. Trump said in an interview with The Wall Street Journal in November 2018 as the trade war intensified. “We have been ripped off so badly by people coming in and stealing our wealth.”

The tariff strategy, however, played out differently for manufacturers depending on their individual circumstances. That is shown by the experience of two Midwestern manufacturers, Atlas Tool Works Inc. and Hemlock Semiconductor Operations.

Illinois-based Atlas said sales of its brackets, gears and conveyor belts used in manufacturing rose 18% in the year after Mr. Trump placed tariffs on similar parts from China. But Hemlock, a Michigan company that makes polysilicon used in computer chips and solar cells, is still struggling.

The phase one trade deal signed by Washington and Beijing in January specified that China would buy more U.S. solar-grade polysilicon, Hemlock’s main product. But China never lifted its tariffs on polysilicon—just as the U.S. kept tariffs on most Chinese imports—and Hemlock didn’t register any gains.

“We’ve reached out to Chinese companies, ‘Are you interested in buying polysilicon?’” said Phil Dembowski, Hemlock’s chief commercial officer. “But they all tell us the same thing—no mechanism to import it without paying duties. They’d like to, but they can’t afford that tariff.”

Atlas, by comparison, was able to benefit from the tariffs because it shuns Chinese suppliers—a point of pride for the family-owned business founded in 1918.

The company says it was forced to close a lucrative business supplying telecom-gear makers in the early 2000s because of Chinese competition. Atlas refocused on fabrication equipment for the defense and health-care industries, but that eventually came under assault from cut-rate Chinese competition too, according to owner Zach Mottl.

When Mr. Trump approved tariffs in 2018, sales boomed. Atlas had no Chinese suppliers, so its costs remained stable. The company, which had about 100 employees before tariffs, added about two dozen new positions.

“We saw the uptick right away when the tariffs hit,” Mr. Mottl said.

But for companies including Hemlock, the tariffs backfired. Rather than pressuring Beijing to open markets, China responded with retaliatory tariffs that made Hemlock’s products more expensive there. And U.S. companies that buy parts from China suddenly faced higher costs.

U.S. trade negotiators recognized that many U.S. companies, like Hemlock, were dependent on Chinese supply chains, and sought to get China to agree to pare back its industrial subsidies. But the U.S.-China trade deal signed Jan. 15 failed to achieve that goal, which was put off for future talks that have yet to materialize.

Mr. Trump and his opponent, former Vice President Joe Biden, have tangled over whether the president’s trade and tariff policies have brought back factory jobs. “They gave up on manufacturing,” the president said of Messrs. Biden and Obama in the first presidential debate.

Mr. Biden was equally dismissive of the Trump record during the session, saying that “manufacturing went into the hole” even before the pandemic.

Even so, Mr. Biden’s top advisers don’t commit to rolling back the Trump tariffs on China. Rather, they say the vice president would consult with allies on what to do about the levies. “Tariffs would be among the tools we would consider in an allied approach,” said senior Biden adviser Jake Sullivan.

Derek Scissors, a resident scholar at the conservative American Enterprise Institute, initially supported the Trump administration’s approach to China, but now says the effort largely failed to achieve its objectives.

“There are reasons to apply tariffs, there are reasons the bilateral deficit can matter, but it’s not the big payoff of manufacturing jobs,” Mr. Scissors said.

Mark Bassett, the CEO of Hemlock, was enthused to see the Trump administration’s efforts to level the playing field in the solar industry. But he came to believe more fundamental changes were needed for his company and others that compete against Chinese rivals who are subsidized by Beijing.

“You need to take a look at things a little more holistically, rather than a whack-a-mole methodology,” Mr. Bassett said, comparing tariffs to the arcade game in which targets keep popping up.

Chinese companies that make solar panels bought $1 billion of American polysilicon, like Hemlock’s, in 2010. Anticipating continued strong sales to China, Hemlock spent more than $1 billion to build a new factory in Clarksville, Tenn., that was completed in 2012.

But China had plans of its own. Solar was specifically identified as a strategic industry for Chinese dominance in “Made in China 2025,” the country’s national plan to dominate high-tech manufacturing. That plan included making solar-grade polysilicon—turning China into a competitor to Hemlock instead of a customer.

Solar-grade polysilicon exports to China had shriveled to $107 million by 2018. The plant in Clarksville never operated, and was closed in 2014.

“It’s the classic Chinese industrial story,” said Mr. Bassett. “Continued subsidization, no requirements to deliver a return on investment, no enforcement of environmental or safety standards. An artificially low price that drives everyone else out of business.”