Under the leadership of the United States, the world appears to be entering a new era of economic nationalism, as many countries prioritize their own social, economic and environmental goals over free trade and multilateralism. Although U.S. President Joe Biden’s approach is more measured and open to international cooperation than Donald Trump’s, it still raises concerns among economic liberals who see echoes of a return to 1930s-style protectionism and autarky.
But “economic nationalism” is one of those horror terms that economic liberals use to discredit practices they don’t like. As with any ideologically charged label, it hides more than it reveals. After all, economic nationalism comes in many different forms, some harmful and some beneficial. In addition, some of the leading theorists of economic nationalism, such as Alexander Hamilton and Friedrich List, were political liberals.
Although economic nationalism, when taken to extremes, can backfire, so can liberalism. If used judiciously in pursuit of legitimate domestic goals—such as building economic strength and strengthening a sense of national purpose—it can be beneficial without necessarily harming other countries. Economic nationalism defines the economy primarily in terms of the nation, much as political nationalism does in terms of the polity. The economy exists primarily to serve the nation, just as the nation-state pursues the national interest.
Neither phrase has much substance until we begin to define what “serving the nation” or the “national interest” means. Focusing on the national economy can be completely harmless and consistent with a high level of openness to international trade and finance. According to conventional economic theory, it is in a country’s own interest to adopt free trade. A government that pursues self-sufficiency will give up the benefits of specialization, miss out on cutting-edge technologies, and lose access to foreign capital.
As economic historian Marvin Suesse argues, economic nationalism therefore oscillates between two rather contradictory impulses: the temptation to restrict economic exchanges with other countries in order to advance national independence; and the desire to expand and leverage international connections in the service of national economic growth and development.
No one has recently managed to concentrate these impulses better than the “developing” states of East Asia. Japan, South Korea, Taiwan and, most spectacularly, China have all adopted a mix of measures that both promote global economic integration and specifically protect key industries. Each shaped its own economic future through a wide range of industrial policies—targeted loans, subsidies, tariff and non-tariff barriers, and local content and other requirements for foreign investors—that helped it develop new areas of economic expertise.
These were not just economic programs. These were national renewal projects aimed at catching up with the West. As University of New South Wales political scientist Elizabeth Thurbon and her co-authors put it, policymakers with a development mindset view “local productive capacity, technological autonomy and export competitiveness as essential underpinnings of domestic political legitimacy, national security and of international politics.” “No one can deny the success of these countries. Their rapid economic growth has lifted hundreds of millions of people out of abject poverty and even made some of them a better place,” from them to advanced economies in less than two generations. China became not only an economic power but also the West’s main geopolitical rival.
The dramatic rise of each country sparked accusations that they were not open enough and did not provide sufficient market access. Large government subsidies – for steel, cars, solar panels, etc. – often undermined the competitive position of foreign companies and incurred the ire of their governments. But all in all, East Asia’s economic nationalism has been a boon to the rest of the world. Although there were trade barriers here and there, the booming markets they created for trading partners were far larger than any alternative economic strategy would likely have produced. Moreover, according to the logic of economic liberals, the subsidies were a gift to other countries because they helped lower prices for their consumers.
To be sure, China’s rapid expansion of exports has created some significant difficulties for advanced economies. The “China shock” led to long-term job losses in regions most exposed to competition from Chinese imports, thereby increasing political support for authoritarian right-wing populists in both the United States and Western Europe. But if anyone is more to blame, it is Western governments that are failing to adequately manage trade with China (e.g., by not liberalizing their trade more slowly). While China achieved exceptionally strong export performance, these governments maintained an excessive belief in economic liberalism.
Of course, economic nationalism has not worked everywhere. Too many governments have pursued excessive dirigisme (state ownership or control), propped up inefficient companies for too long, and closed their economies too indiscriminately. When governments make these mistakes, it is their own citizens who pay the price first and foremost. Failed economic nationalism is a politics of begging yourself, not begging your neighbors.
East Asian developmentalism offers a lesson for today’s world. If economic nationalism in the United States focuses on creating a strong, inclusive domestic economy, it will do a lot of good—even if it violates some tenets of economic liberalism. In fact, such a strategy would revive an earlier tradition of developmentalism in U.S. history. Other countries will ultimately benefit from a healthier U.S. economy and a more cohesive society and will have little reason to complain.
As Suesse shows, economic nationalism is typically a reaction to being left behind by other countries. Here the current US experience is somewhat different. Although others – particularly China – have caught up, the US remains the most powerful country in the world technologically and militarily.
The risk is that American economic nationalism goes beyond building a better society at home. If the United States behaves like a tyrant, imposing its policy preferences on others and attempting to undermine the technological development of its rivals, it will do great harm to the rest of the world and do little good to itself. ©2023/Project Syndicate
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