In recent posts I have written how the neo-liberal order came to an end and that we had entered a transition phase toward economic policies favored by the state, or more precisely by the party in government. The use of tariffs in the first Trump administration and the enactment of industrial policy laws by the Biden administration to promote green energy and the tech industry set the pace to this transition.
Now, the speed with which the second Trump administration announced steep tariffs against Mexico, Canada and China and the strongest yet articulation of the America First doctrine are a clear signal that we are moving toward a new economic order, that of economic nationalism. Economic nationalism is the ideology that subordinates the economy to serve nationalist goals. In practice, economic nationalism disfavors unrestricted international commerce and investments and favors state intervention in the economy to achieve nationalist priorities.
The tension between free economic activity and nationalist priorities has a long history. Alexander Hamilton was one of the Founding Fathers that supported the use of protectionist policies, like tariffs and import restrictions, to give the new nation enough time to develop its own industrial base. This approach was subsequently developed further by others and came to be called the developmentalist theory. On the opposite side, Marxism-Leninism subordinated nationalism to the imperative of uniting workers on the base of their class status. And, interestingly, free market ideologues like Fredrich Hayek also saw a lesser role for strict nationalist interests that would impede consumers and entrepreneurs from coming together in supra-national markets. *
Economic nationalism rises out of the realization that left unchecked an economic system may not promote the interests of the nation as understood by a governing regime. But it goes beyond the need to intervene in the economy to boost its growth or influence the distribution of economic output across labor and capital. Economic nationalism aims more specifically in achieving economic and by extension military superiority over other nations.
Economic nationalism is not mutually exclusive with capitalism. It only means that a capitalist economy is allowed to function within the confines of a nationalist agenda. A good example of that is China. However, whereas capitalism at some level recognizes the benefits of win-win economic cooperation and trade, nationalism views relationships between countries as a zero-sum game. Therefore, to a nationalist, success is dominance and supremacy over other nations. This implies that nationalism can fuel inter-country antagonisms that, if unchecked, can lead to open warfare.
Nationalism should not be confused with patriotism. Yascha Mounk (The Great Experiment: Why Diverse Democracies Fall Apart and How They Can Endure) writes that healthy patriotism inspires citizens to do their best to improve their country and the well-being of all its citizens. Nationalism is more about prevailing over other countries. Therefore, nationalism is preoccupied more with success at the country level and less with promoting the common good at the level of individual citizens.
To be more specific, an economic nationalist agenda can be satisfied with the built-up of powerful firms that dominate their markets domestically and internationally. Similarly, economic nationalism prioritizes the maximization of the country’s GDP. Large corporations and high GDP enable the state to pursue diplomacy by military and economic means, which, however, by themselves do not necessarily improve the living standards of the citizens. Prioritizing economic size and strength does not guarantee fair distribution of economic gains or social progress. In fact, American workers without college education that had been left behind by the neo-liberal order are at great risk of being left behind again by economic nationalism.
Furthermore, prioritizing dominance over co-existence, economic nationalism is loath to placing constraints to curtail environmental and climate degradation or put checks on dangerous technologies, like AI. In addition, if goals to serve domestic and foreign priorities of the state shift in an unpredictable way, both firms and consumers are exposed to uncertainty that can upend consumption patterns and investment plans. All these downside possibilities ought to be a serious cautionary note for those who are ready to praise the current turn toward economic nationalism.
Economic nationalism also carries serious risks affecting the global order, and in the case of the US, its leadership position. Writing in Foreign Affairs, Michael Brenes and Van Jackson argue that the broad nationalist streak that runs through the second Trump administration will further erode if not irreparably damage the international order set up by the United States at the end of WW II. Withdrawing from the institutions and initiatives of this order will diminish the leadership role of the US and incentivize other countries (China primarily) to fill the gap or coalesce into their own blocks, like the BRICS. Antagonizing its traditional allies will diminish not strengthen the position of the US and its ability to negotiate a new set of global rules with other rising powers, like China and India. Nor will it help to win over the Global South where most of the global population and economic growth will take place.
The American people have made it clear that they desire a reset of the economic order. However, placing already dominant firms, especially in the tech sector, at the helm of the new order and giving them the advantage of protection from foreign competition is not what by itself will make American workers and consumers better off. Instead, it will further embolden these firms to quash competition, stifle innovation, and extract economic rents from workers and consumers in the form of unfair wages and higher prices.
*From the site Nationalism and Capitalism run by Karlo Basta, a lecturer at the University of Edinburgh.
Let's Reason 