The Dangers of Economic Nationalism

Hardly a day goes by without a policy announcement or public statement by President Trump that betrays a nationalist instinct. The first problem with nationalism is semantics. People tend to confuse it with patriotism, a deeply felt emotion that a nationalist can easily stir with a discourse that equates love of country with hostility to the outside world and, domestically, to those presented as a threat to the nation. 

Economic nationalists often emphasize the need to protect the nation from perceived threats rather than focusing on the alleged economic advantages of their policies. They argue that foreign countries are taking advantage of us or that a competitor’s dominance in areas like science, technology, or industry is an affront to our nation’s greatness. The latter can be seen when Trump points to Taiwan’s leadership in the chip industry. Taiwan’s leadership is only admissible if its companies make their semiconductors in the U.S.—under threat of reprisals if they don’t.

The second major problem with economic nationalism is that it is ultimately statist and conflicts with the free-market and small-government initiatives the nationalists might espouse. Trump correctly points out that the U.S. is paying a whopping $1 trillion in interest on the federal debt and that the bloated bureaucracy and regulatory labyrinth that result from successive interventionist governments impede growth and prosperity. 

But he publicly pressures the Fed to lower interest rates artificially, prevents competition by raising tariffs and rejoices in creating uncertainty by frequently changing his policies according to his tactical needs. Other countries have experienced the toxic effects of uncertainty. Certainty is so important that some countries with consistent rules have experienced greater economic progress than others in which taxes were lower or the government owned fewer companies. It was the case of Colombia in the second part of the 20th century. 

A third major problem regarding economic nationalism is that it leads to confrontation with friends and foes alike. For a simple reason, the logic of nationalism tends towards imperialism or, at least, geopolitical hegemony. This is why the president has treated Canada and Mexico, two close economic partners of the U.S. for decades, as enemies. The same is true of Denmark, a member of the European Union since the 1970s, or Panama, whose relationship with the U.S. has been close even when Latin America was dominated by powerful anti-U.S. governments. 

Ultimately, a nationalist sees the world as “either them or us.” In Trump’s view, the most important players are the major powers: the U.S., China, Russia, and maybe one or two others. Foreign relations become subordinate to the goal of controlling as much territory as possible. Here, geopolitical and economic reasons tend to be intertwined. Greenland is clearly an economic temptation for Trump, given its vast resources, but it is also a territory in which he sees Russia and, eventually, China gaining influence if he doesn’t dominate it first. 

Carving up the world among major powers means that having good relations with what used to be friendly countries is no longer attractive. The U.S. needs to bring them to heel because they are to be part of its zone of influence. This hegemonic view of the world is patrimonial in that it entails a confusion between public and private interests. When Trump wants to turn Gaza into a real estate venture, he is not thinking of it as a president but as a real estate mogul who owns a piece of land. Geopolitical hegemony means doing whatever you want in a territory that answers not even to your administration but personally to you, the patrimonial chief of the country. 

Some areas are less easy to control than others. It is easier to threaten Canada with American statehood than it is to say the same thing to the 27 countries that make up the European Union. In that case, the immediate objective is to reduce them to irrelevance. Once reduced to irrelevance, they might become a hegemonic target lest China or Russia get there first.

I don’t intend to exhaust all the dangers of economic nationalism here, but for now, let me add one more—the risk it might eventually pose to the rule of law and elected government. Because economic nationalism comes into conflict with free-market and small-government policies, the end result is likely to be at least partial failure. Once things turn sour, the economic nationalist blames domestic and foreign enemies he or she accuses of boycotting government policies. 

The inevitable corollary is the search for scapegoats. Taking action against them—and against the laws that protect them—becomes imperative.