John Mills examines the contributing factors behind Donald Trump's victory over Hillary Clinton.

Why did Donald Trump beat Hillary Clinton in the 2016 US presidential election? The main reason is that globalisation, which has done wonders to living standards in much of the Third World, and which has also hugely benefitted the political and economic elite in the West, has turned out to be a lousy deal for too many other people living in most western countries, particularly the USA and the UK.

This did not need to happen. It occurred because of policies adopted in the West which could have been different, making the benefits of trade liberalisation much more evenly spread than they have been. What were the policies which did the damage?  In the UK's case it was a double whammy.

First it was the adoption of neoliberal policies during the Thatcher era, when interest base rates of 15 per cent forced up the exchange rate by 60 per cent between the late 1970s and early 1980s. This was then followed by liberalising UK asset purchases by foreign interests in the late 1990s and the 2000s, this time under a Labour administration, on a scale not replicated anywhere else in the world. The pound was then pushed up even further.  The result was to make the UK less and less competitive with the Far East, as the cost of producing almost anything here soared above what it was elsewhere.

The consequence was the decimation of UK manufacturing industry. As late as 1970, almost a third of our GDP came from manufacturing.  By 1990 this ratio had gone down to 20% and now it is barely 10%. This matters hugely for three main reasons.

The first is that productivity increases are much easier to achieve in manufacturing than they are in services so the smaller any country's manufacturing base is, the more slowly it is likely to grow.

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The second is that most of our exports are still goods rather than services, and because our industrial base is now so weak, we do not have enough to sell to the rest of the world to pay for our imports. The result is balance of payments deficits year after year, sucking demand out of the economy and making economic expansion more and more difficult to achieve.

But from a political point of view, it is the third consequence which is crucial. As manufacturing employment fell away ? dropping in the UK from 6.6m in 1978 to 2.6m today – so nearly two thirds of the high quality blue collar jobs which manufacturing used to provide disappeared off to the Far East. In their place – for those lucky enough to continue working at all –  those who lost out were offered much lower productivity, much more insecure and less satisfying service sector employment. In the USA median incomes are no higher now that they were in the 1970s.  In the UK, median earnings are still well below what they were in 2007, nearly ten years ago.

Nevertheless, up to the 2008 crash, some improvement in living standards was achieved ? partly by longer hours being worked –  and when the financial crisis erupted, not surprisingly, most people turned to their established political leaders for solutions to the financial problems which the world confronted.

Unfortunately, they did so in vain.  The policies which they were then offered continued to benefit the metropolitan elites, who do so well out of internationalism liberalisation and foreign trade and travel.  They did nothing, however, for most of the rest of the population. This is what generated the anger which drove Donald Trump to the presidency and tipped the balance in favour of Leave in the UK EU referendum.

Populist policies ? kicking over the traces and giving the establishment a bloody nose, without any coherent alternative to what has recently been on offer ? are not, however, going to provide a solution.  What would do so is to change our monetary and exchange rate policies, to unwind the huge damage done by our over-valued currency. We need a value for the pound which will enable the economy to be rebalanced; for there to be sufficient reindustrialisation to revive our industrial heartlands and to share out the benefits of globalisation much more fairly; to get physical investment up to somewhere near the world average, which is about 25 per cent of GDP instead of the UK's 13 per cent; to stop us accumulating debt which we are never going to be able to repay; and to have economic growth based on exporting and investment instead of consumption driven by ultra-low interest rates, asset price inflation and equity realisation.

How low would the pound need to be to make this happen? The answer is somewhere between $1.10 and $1.00 ? and with government policy determined to keep it there. Before the referendum, when £1.00 = $1.45 this looked like an impossible target, but at $1.22, it is a lot closer. Are the liberal intelligentsia and our governing classes going to realise that adopting a competitive exchange rate strategy is the only long-term way to protect our liberal democratic values? The alternative is to see them eroded as a result of the adoption of populist policies which won't work.

There are some crucial choices to be made.

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