The Rising Influence of Economic Nationalism

In a previous article on Discourse, Henry Thomson and Michael Hechter argued that the global economy has entered a new, uncertain phase as economic nationalism replaces the neoliberal policy consensus. But what is economic nationalism, and why is it suddenly ascendant today?

We are entering a new era of nationalist politics and economic policymaking. But this ideology is not new: Economic nationalists have argued for almost 200 years that trade and immigration policy do not just create winners and losers, they also protect and promote national cultures and identities.

Economic nationalism has reemerged today because of both long- and short-run socio-political developments. Deep structural changes, such as the growth of the welfare state and the erosion of organized labor, left the working class atomized and ripe for appeals to national identity instead of economic self-interest. Additionally, shocks such as the global financial crisis and recession, China’s rapid rise to dominate the global manufacturing sector and surges of uncontrolled immigration have triggered the emergence of new nationalist political movements, such as Brexit and the Trump presidential campaign. More recently, the COVID-19 pandemic and mounting geopolitical antagonisms between the U.S. and China and Russia are increasing the chances that economic nationalism will play a significant role in our politics for the foreseeable future.

Three Schools of Political Economy

As a school of thought and policy playbook, economic nationalism stands alongside the other three big “isms” of international political economy—mercantilism, liberalism and Marxism—even if it has often been poorly defined and understood by scholars.

Mercantilists were the original theorists of the international economy. In their view, the purpose of trade was to maximize the state’s wealth and power. By controlling and directing markets—through trade restrictions and entities such as the British East India Company—the state should accumulate precious metals and commodities, construct war industries and generally enhance its ability to dominate its rivals on the international stage. The mercantilists’ wisdom went unquestioned until the dogma of the “mercantile system” met its first, devastating critic in Adam Smith.

After Smith published his “Wealth of Nations” in 1776, liberals rejected the idea that trade should be steered to serve the interests of the state. Instead, they thought governments should step aside and let free trade and free markets propel the world to prosperity, personal freedom, democracy and even interstate peace. For liberals and their late-20th-century neoliberal successors, trade serves the private interests of individuals and companies that organize and compete to shape government policy to their own advantage. This view of the international economy predominated under the British Empire during the 19th century, under American hegemony after World War II and especially after the collapse of the Soviet Union in 1991.

Karl Marx and Friedrich Engels did not develop a theory of the international economy, despite famously rousing all “workers of the world” in their 1848 “Communist Manifesto.” But their disciples, after Lenin’s 1917 “Imperialism” treatise, did. They argued that global flows of trade and capital are instruments of exploitation of the working class by capitalists, and of the poorest nations by the richest. Free trade and free markets should be viewed with intense skepticism and often opposed as nefarious (neo)colonial propositions. Despite the collapse of Soviet communism, the Marxist critique of international capitalism has never gone completely out of fashion—as regularly illustrated by left-wing protests against meetings of the World Trade Organization or G7 through the present day.

The nationalist critique of Adam Smith predates Marx’s, with Friedrich List’s “National System of Political Economy,” published in 1841. List, born in southwest Germany and a naturalized American citizen, was a civil servant, professor, journalist, farmer and entrepreneur who rejected liberalism’s “boundless cosmopolitanism” and “dead materialism.” For economic nationalists, global well-being and private prosperity are subsidiary to the wealth, power and autonomy of culturally distinct national societies.

There is an important distinction here between mercantilists’ promotion of state interests—that is, those of sovereign institutions—and List’s conception of the nation as a set of individuals united by a shared culture. Like Alexander Hamilton, who was an important influence, List rejected the notion that developing countries, such as 19th-century America and Germany, should accept their status as agricultural producers and adopt free trade with the more advanced Britain. Instead, he called for those nations to protect and invest in technologically advanced industries and infrastructure. Tariff and import substitution policies should allow distinct national societies to flourish and become rich and powerful.

Compared with liberalism and Marxism, economic nationalism has long been the poor stepchild of international political economy: Championed by neither the U.S. nor the USSR during the Cold War, it became a pejorative shorthand for policies that deviated from liberal orthodoxies—and was often attached to restrictions on trade or investment against the advances of economic globalization.

The Fall of Class Struggles and Rise of the Culture Wars

Why, then, with such a long intellectual tradition and its recent history of neglect, do we see the rise of a new economic nationalism in many advanced democracies today? We all like to think of ourselves as emancipated, autonomous citizens, but politics fundamentally occurs among groups. Most voters have neither the time, interest nor motivation to weigh rationally the merits of competing party platforms. Instead, they take their cues from the social groups and organizations with which they identify. Individuals’ attitudes toward trade or immigration, for example, follow the views of the social classes, political parties or cultural groups that are most important to them, not their raw self-interest.

Labor unionists, for example, might oppose free trade not simply because it could force them to change jobs, but because their union leaders portray it as a threat to all members. Citizens might oppose immigration not because they think immigrants will make demands of their local schools and hospitals, but because these Americans identify with a social group whose status would be threatened by newcomers.

Groups mobilizing around class and culture compete. When organizations based on social class (such as labor unions) are strong, individuals’ political views are more likely to reflect their economic self-interest; when they are weak, individuals’ views are more likely to be determined by membership in various status groups such as ethnicity or nationality. Affiliation with a political party is often based in, or strengthened by, a more fundamental allegiance to a class-based or cultural group. Social democratic and labor parties originally drew their strength from the organized labor movement, for example, and divisions among Protestants and Catholics were the cultural cleavages that long underlay mass political parties in Europe.

Real-world forces outside the ivory tower have caused a shift from class-based to culture-based politics. Appeals to national identity replaced material well-being when grassroots working-class organizations lost their ability to mobilize voters on behalf of shared economic interests.

At the conclusion of the 20th century, advanced democracies’ working classes stood disintegrated among the rubble of a century of class-based mobilization. Unions—the great institutional edifices of the labor movement—had crumbled, encompassing less than 10% of the American private sector workforce. The core benefits provided by these organizations had long since been supplanted by the welfare state. Rather than rely on their union for wage bargaining, healthcare, pensions and unemployment insurance, working-class communities received these benefits directly from central governments. Ironically, the welfare state, that great achievement of the social democratic movement, had caused a decades-long atrophy of workers’ allegiance to grassroots workers’ organizations.

As workers abandoned unions, social democratic and labor-affiliated parties embraced free markets and educated high-income voters, and their electoral base weakened. Because parties of the center-left were no longer reliably under the control of the working class, this politically pivotal voter bloc that determines the outcome of many elections was ripe for appeals to culture, not dollars and cents. When workers were buffeted by events like the 2008 financial crisis and recession and the sudden surge of manufacturing imports from China after 2000, long-standing allegiances to social democratic parties also wavered. Economic nationalists, who cannot be faulted for a lack of political opportunism, stood ready to make these appeals, and did so in dramatic fashion in 2016.

If economic policymaking has become difficult to comprehend due to the rise of economic nationalism, it is because the groups that once mobilized working-class voters in their economic self-interest no longer do so. The reasons for labor unions’ decline are various: the displacement of manufacturing by the service sector; globalization and outsourcing; and neoliberal policies that undercut organized labor, to name just a few.

It is difficult, but not impossible, to imagine new grassroots organizations emerging to harness lower-income voters in the name of their material well-being and wrench them away from their new nationalist sensibilities. But after the COVID-19 pandemic halted international travel and disrupted global supply chains for more than a year, and with Russia summarily evicted from the world economy after its invasion of Ukraine, all signals point to long-lasting setbacks for globalization.

Looking Forward, Culture Is Key

Culture has largely displaced class as the key to the politics of advanced democracies, but too few politicians have caught on—with the critical exception of economic nationalists. Indeed, their attention to cultural politics will likely be vindicated in the future. Given migratory pressure due to climate change and declining fertility rates in developed countries, heated debates around immigration won’t cool off anytime soon. Although many despair at the prevalence of “culture war” issues, politics is likely to revolve even more around questions of identity and values in the future than today. The current nationalist realignment could be as transformative and durable as the rise of the organized working class in the late 19th century, and politicians who do not grasp the shift risk the same irrelevance that overtook Europe’s aristocratic ruling classes.

Growing ambivalence toward economic problems is by no means an unadulterated positive: Stagnating living standards and rising costs of pensions and healthcare are only some of the myriad material challenges looming over our politics. The question is, can economic nationalists of various stripes buck their reputation and deliver solutions to these pressing problems?

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