The Rise of Economic Nationalism Ushers In an Era of Uncertainty

Millions of Chinese entered the middle class and free trade reigned supreme. The end of the Cold War meant the end of history, then Donald Trump took center stage

By Henry Thomson and Michael Hechter

Economic policymaking in developed democracies has become difficult to decipher. Why, after Democrats harshly criticized the Trump administration’s trade tariffs on China, is the Biden administration keeping most of these measures in place and even expanding plans to prevent imports of Chinese steel? Why, after experts’ cries that President Trump was supposedly dismantling the liberal international order, does President Biden continue his hardline stance toward the World Trade Organization and refuse to appoint new members to its appellate body, which mediates international trade disputes?

The explanation for these puzzling phenomena is a new nationalist era of politics and economy policymaking emerging not only in the developed world but globally. Under this new economic nationalism, appeals to national identity increasingly trump those to individual economic self-interest. Liberal orthodoxies predominant since the end of World War II are increasingly disregarded as voters and governments trade off the efficiency of economic globalization against the vision of greater autonomy for their nation-state.

The rise of this nationalism is an important shift in the politics of the world economy. For three decades, globalization has been steered predominantly by liberal ideas that had seen off the Cold War challenge of Marxism. Today, attacks on the open world economy come not only from the left—which has always denounced what it sees as the exploitation of low-income workers in developing countries—but also from those on the right who are supposed to be among the greatest benefactors and supporters of globalization. That is what makes the emerging era of economic nationalism new and surprising to politicians, scholars and commentators who had grown comfortable with a long-standing consensus on the benefits of open international markets.

The Chinese Miracle

When Deng Xiaoping became the leader of the Chinese Communist Party in 1978, China was an overwhelmingly rural country. Only 1 in 5 Chinese lived in cities. Three-quarters of a billion peasants labored in agricultural collectives to meet quotas handed down by state bureaucrats. They produced barely as much food as they had in the early 1950s. After nearly three decades of Maoist rule—including the upheavals of land redistribution, collectivization, the Great Leap Forward and the Cultural Revolution—China’s economy was stagnant at best.

By the time of Deng’s ascent, a few plucky local party officials had begun to experiment with ideas questioning the very foundations of China’s socialist economy. But they did so in secret, fearing reprisals from party bosses who had punished reformers in the wake of the Great Leap Forward in the early 1960s. Their experiments—to allow households, rather than collectives, to lease land and fill state production quotas—caused an immediate surge in food production. They were so successful that the party had to take notice.

In 1956, under Mao, the party had collectivized the entire Chinese peasantry in a burst of revolutionary mobilization. Under Deng, it reversed course almost as quickly, if less coercively. Two years after Deng blessed the household responsibility system as “consistent with socialism” in 1982, almost all Chinese peasants were able to plant, harvest and profit free from the strictures of collectivized agriculture.

Choosing Prosperity

The popular faces of neoliberalism are Ronald Reagan and Margaret Thatcher, staring down strikes by coal miners, railway workers and air traffic controllers to check labor unions and speed up a trend toward deregulation and lower taxes among Western democracies. But Deng and the reformers in the Chinese Communist Party were the ones who truly epitomized the triumph of neoliberalism: the belief that the path to prosperity runs through markets and trade—even if the party didn’t sign up for the notion of a small state focused on upholding private property rights.

China’s agricultural reforms lifted hundreds of millions of peasants out of poverty and drove a historic economic transformation. By 2001, when China joined the World Trade Organization, millions of private farms and trading entities had replaced the previous central plan for agriculture. Special economic zones open to international trade and investment, such as Shenzhen’s, were fast becoming huge manufacturing hubs. China’s rural population had shrunk by a quarter, and output per capita had increased fivefold.

Bringing markets and prosperity to communist China was the ultimate, if unanticipated, achievement of the neoliberals, who after the fall of the Berlin Wall and the defeat of the Soviet Union appeared to be leading a march toward “the end of history,” as Francis Fukuyama famously put it. A combination of liberal democracy and capitalist enterprise was the apparent end point of the political-economic organization on which humanity was converging. It might take a while, but it seemed that even China would join the club as it extended its trajectory of market reform into the political sphere.

Meanwhile, among democracies, economic globalization was almost universally accepted as key to sustained economic growth. Market skeptics in traditional social democratic parties were elbowed aside as leaders of a center-left “third way” such as Bill Clinton and Tony Blair supported greater economic integration through the North American Free Trade Agreement, the European Union and the WTO.

The End of ‘The End of History’

How jarring, then, when Donald Trump announced his candidacy for president with a fierce attack on free trade and America’s engagement with the Chinese economy. To be fair, his opposition to globalization had been gestating a long time: In the 1980s, Trump complained to Oprah Winfrey on TV that Japan exploited the free trade system to “dump everything right into our markets … knock the hell out of our country.” He told Piers Morgan in 2011 that “China is just ripping us left and right … they’re taking our jobs.” And Trump was far from alone, as illustrated by the presidential campaigns of Pat Buchanan and Ross Perot, the “Battle for Seattle” protests against the 1999 WTO conference, George W. Bush’s steel tariffs and the Occupy Wall Street movement.

But it was one thing for a celebrity real estate developer to hold these economic views; it was quite another for the Republican nominee for president to see trade in such zero-sum terms: “When was the last time anybody saw us beating, let’s say, China in a trade deal? They kill us.”

More disorienting were Trump’s views on immigration, especially illegal immigration. Trump broke completely with the right’s traditional preference for immigration to contain wage growth and lower costs for employers. He descended on Laredo, Texas, in his private jet to tout a U.S.-Mexico border wall and bask in the concentrated attention of an incredulous national press corps.

An Ally in the U.K.

Moreover, Trump was not alone in railing against globalization. He seemed to capture and embody a new zeitgeist in opposition to prevailing economic orthodoxies. As his presidential campaign picked up steam—taking the lead in Republican primary polls in July 2015 and accepting the party’s nomination a year later—the Brexit campaign surged to a surprise victory in the June 2016 referendum in the U.K. Another eccentric outsider and long-standing opponent of European integration, Nigel Farage, was able to bundle people’s  opposition to trade and immigration into a majority in favor of “taking back control” from the EU’s supranational governance structures in Brussels.

The zeitgeist that Trump and Farage were both tapping into was a new economic nationalism, a movement appealing to collective national identities rather than the economic self-interest of individuals or companies, with the goal of maximizing the autonomy of the nation rather than economic growth.

To be clear, economic nationalism is nothing new. From Alexander Hamilton and Friedrich List through Hermann Göring to the bureaucrats of Japan’s Ministry of International Trade and Industry, thinkers and policymakers have long defied liberal doctrines of free trade. Their goals have ranged from protecting infant industries to subjugating neighboring states in preparation for war, and they have sometimes been spectacularly achieved.

Economic nationalism has been an ideological current against the tide of liberalism since globalization’s infancy in the 18th century. Nationalists favor cultural politics, and they mobilize cross-class coalitions that blow up the familiar distinction between left and right or the owners of labor and capital. They pursue expansive programs to construct infrastructure such as railway networks and coordinate the development of manufacturing and military industries, and they do so in the name of the nation instead of specific classes, companies or interest groups.

Nationalists Around the World

But the rise of contemporary economic nationalism has come as a surprise. Only 10 years ago, these ideas were confined to the political fringes; now they are mainstream. The new nationalism is also not confined to the U.S. and Britain. In post-communist Eastern Europe, a generation of nationalist leaders has diverged from the neoliberal “big bang” policies of the 1990s.

Exemplified by Victor Orbán in Hungary, they have re-nationalized key industries, embraced state-led workforce activation campaigns, and provided generous new support for the elderly and families with children. In the former East Germany, the nationalist Alternative für Deutschland has won support with its opposition to European integration and immigration since 2013. In China, the high tide of market reform has ebbed under Xi Jinping, with policies such as the Belt and Road Initiative and the doctrine of “dual circulation” aiming to reduce his country’s integration into the global economy.

Economic nationalists might seem to have a lot in common with left-wing opponents of globalization, whose radical demonstrations at meetings of the WTO, G-7 and other pro-trade organizations have been making headlines for decades. Bernie Sanders in the U.S. and Jeremy Corbyn in the U.K. have called for withdrawal from the WTO and the EU and supported the nationalization of industries. But there is an important distinction. Critiques of globalization from the left revolve around class-based grievances: Critiquing unfettered immigration due to fears of lower domestic wages, for example, or opposing trade because lower labor standards in developing countries raise fears of job losses at home. Although the working class might be defined as very large and almost contiguous with the nation—the “99% versus the 1%”—it is still based on economic interests rather than culturally defined national interests.

Five years on from the watershed election of 2016, economic nationalism appears to be here to stay. There are few signs of a return to neoliberal orthodoxies and the pursuit of economic globalization. Class-based politics have ceded center stage to culture-based politics and competing appeals to national identity.