A great deal of ink has been spilled about the causes and consequences of the recent rise in economic nationalism. Maybe it’s time to step back and ask whether economic nationalism is even possible in the modern world.
The Economist has an interesting article discussing the British struggle to negotiate a Brexit agreement with the EU:
Dominic Cummings, the former campaign director of Vote Leave, thinks that Brexit is being “irretrievably botched”. Ambrose Evans-Pritchard, a pro-Leave journalist, says that “the quixotic bid for British independence has failed”. On the Remain side, Jonathan Powell pronounces hard Brexit “dead”, killed by the conundrum of the Irish border. . . .
On June 6th Boris Johnson, the foreign secretary, delivered an agonised speech to a group of Conservative donors which was recorded and leaked. Mr Johnson argued that Britain runs the risk of ending up in “a sort of anteroom of the EU” and blamed this unhappy prospect on a combination of insufficient will on the part of the prime minister and strong resistance on the part of the establishment. He claimed that Britain needed a strong leader like Donald Trump—“he’d go in bloody hard”. He called the Treasury the “heart of Remain”. He lamented that Britain was so terrified of short-term disruptions that it would sacrifice long-term gains.
The more conservative Brexiteers advocated a hard break with the EU, which would allow the UK to chart its own course. In their vision, the UK would dump lots of burdensome EU regulations, strike free trade deals with many other countries, and become a sort of Singapore of Europe.
In retrospect, it’s easy to see why they are struggling to implement their vision. Consider the following:
1. While 52% of British voters supported Brexit, not all favored the more libertarian version envisioned by some Conservatives. Brexit also did well in many (northern) Labour areas, as the more socialist wing of the Labour Party has often seen the EU as being a bit too “neoliberal”, to willing to promote free markets and capital mobility.
2. The “establishment” in the UK opposed Brexit to a striking degree. It was opposed by both the Conservative and Labour parties, by big business, labor unions, academics, much of the press, and most people within the bureaucracy.
It’s fine to talk about the “will of the voters”, but precisely what version of Brexit did they support? If it’s the Singapore version, then why do British voters consistently support politicians who favor big government and lots of regulations? The fact is that people voted for Brexit for many different reasons, and under a representative democracy it’s up to the elected representatives to implement the actual policy.
Theresa May called an election soon after Brexit in the hope and expectation that it would strengthen her negotiating hand. But the British electorate delivered a stinging rebuke, as the Conservatives lost many seats, despite facing a Labour leader widely viewed as an extreme, eccentric, Marxist left-winger. The voters didn’t seem to want May to have a strong hand in negotiation, and their decision effectively gave those who favored a “soft Brexit” a veto over the final outcome.
So what does this mean for the US? Consider:
1. In 1979, the UK elected Margaret Thatcher, and in 1980 the US elected Ronald Reagan.
2. In June 2016, the British public shocked pollsters and the establishment by supporting Brexit. In November 2016, the US public shocked pollsters and the establishment by electing Donald Trump.
If the hard Brexit option fails to be enacted and the UK stays 90% in the EU while formally leaving it, would that be an indication of the likely outcome of Trump’s recent trade war? I think the answer is probably yes. The forces of globalization may be too strong for any politician or political movement to overturn. It seems likely that Trump will be forced to back off at some point, and globalization will proceed much as before.
It is possible that the US is able to achieve a few concessions on trade; perhaps our trading partners slightly reduce their trade barriers. But that’s not the sort of hard economic nationalism agenda advocated by Trump supporters like Steve Bannon. A move toward freer trade in China would result in a stronger dollar and even more manufactured imports pouring into America’s rustbelt. It would be a victory for globalization, not economic nationalism.
Think about Trump’s rhetoric. Does he advocate open borders? Obviously not. But he does pay lip service (sincere or not) to the abolition of all tariffs. That’s a tacit acknowledgement that free trade still has the upper hand in terms of intellectual respectability. Even economic nationalists must at least pretend to be globalists.
READER COMMENTS
Hazel Meade
Jun 21 2018 at 4:57pm
That’s a tacit acknowledgement that free trade still has the upper hand in terms of intellectual respectability. Even economic nationalists must at least pretend to be globalists.
That will cease to be the case if politicians keep winning elections on anti-globalist platforms.
B Cole
Jun 21 2018 at 7:23pm
I do not understand this post.
China and Singapore do practice of economic nationalism.
The leaders in China and Singapore do not pretend to be globalists. They readily acknowledge they wish to participate in a global economy, but only on their terms to benefit their own populations.
Which strikes me as a completely reasonable position to take.
Philo
Jun 21 2018 at 8:28pm
“. . . but only on their terms to benefit their own populations.” Well, since participating in international commerce will *of course* benefit the Chinese and Singaporean populations, this is a quite insignificant “but.”
Benjamin Cole
Jun 22 2018 at 9:13pm
Well, I do not know if anyone is reading anymore, as this blog is old in blog-years, and I have told by Scott Sumner I do not know what I am talking about. Nevertheless undaunted, I offer the following—
What is economic nationalism?
Is it not Sino state-planning and mercantilism economic nationalism? What about Beijing capital controls? Sino belt-and-road initiatives also appear to be geared to funneling commerce through China. Increasing Han hegemony over Tibet appears to be nationalistic, as well as Sino imperialism in the South China Sea.
Okay, I think we can posit China practices economic nationalism (very intelligently, in many cases). If not, then I do not know what the term means, and we get deep into the semantics woods.
Okay, trickier case: How about Singapore?
Singapore at ground level is nearly unrecognizable from popular myth-making.
The government owns all the land. More than 80% of population lives in government-built housing. Singapore operates government investment corporations.
And much more.
Here is an interesting headline from yesterday:
ExxonMobil starts up world’s largest resin plant in Singapore
The Business Times-Jun 20, 2561 BE
These two new plants fall under a multi-billion dollar expansion project atExxonMobil’s integrated manufacturing complex in Singapore.
Why are there giant petrochemical plants in Singapore, on government land?
There is an entity entitled The Singapore Economic Development Board.
https://www.edb.gov.sg/en/how-we-help/incentives-and-schemes.html
They offer everything under the sun to entic businesses to locate in Singapore…including—-
“[Singapore]Land Intensification Allowance (LIA)
The Land Intensification Allowance (LIA) aims to promote the intensification of industrial land use towards more land-efficient and higher value-added activities.”
Then also:
“[Singapore] Tax Incentives
Pioneer Certificate Incentive (PC) & Development and Expansion Incentive (DEI)
The Pioneer Certificate Incentive (PC) and the Development and Expansion Incentive (DEI) aim to encourage companies to grow capabilities and conduct new or expanded economic activities in Singapore. Companies that carry out global or regional headquarters (HQ) activities of managing, coordinating and controlling business activities for a group of companies may also apply for the PC or DEI for the HQ activities.
—-30—
Free job training too, and much more.
Okay, so let’s ask the question: Why did Singapore induce the building of giant petrochemical plants on government land?
The city-state is smart, and does not over-tax businesses. So it wanted tax revenues, but that was probably a wash in terms of what they gave up to get the plants.
The answer: Singapore wanted the good-paying jobs, for its residents, and the other income for its contracting firms.
The key: At bottom, Singapore wanted the income associated with plant location.
When Trump says he wants industry to move to the US, he is saying as much. Trump is an economic nationalist.
Singapore is not?
Hazel Meade
Jun 21 2018 at 10:55pm
“Economic nationalism” is really something of a misnomer, since what it really means is “manipulating domestic taxes on imported goods, so as to benefit some citizens at the expense of others”. Calling it “nationalist” is mistaken, since it doesn’t actually benefit the nation versus foreign countries. It benefits domestic busineses and harms foreign businesses, but in domestic markets only. China can’t collect taxes outside it’s jurisdiction, it can only collect taxes in China. And America can’t tax steel purchased by the Chinese, it can only tax steel purchased by Americans.
Warren Platts
Jun 22 2018 at 8:14am
We could, and we should, impose tariffs on our exports, such as natural gas. After all, exports raise prices for domestic consumers. One of our comparative advantages is cheap energy. Exporting cheap energy ruins this advantage. However, the Constitution explicitly bans export tariffs.
Hazel Meade
Jun 22 2018 at 9:54am
That’s beside the point. America can’t tax products that China sells to Europe or vice versa. It can only tax products sold by or to Americans. Consequently the harms of such taxation fall primarily on Americans, and only indirectly on foreign companies. Europe can keep selling steel at market prices to Brazillians. Only Americans have to pay more for it.
Hazel Meade
Jun 22 2018 at 10:44am
Also, export taxes on energy are also harmful, since Americans also benefit from importing goods that are made with cheaper energy. In general, net global economic efficiency is increased when the market is permitted to allocate resources, including energy, as the market tends to more optimally allocate resources. Consequently, both Americans and foreigners benefit most when market forces are permitted to determine where goods are produced and sold.
BC
Jun 23 2018 at 3:33pm
Warren’s comment is priceless. I was just going to say that “economic nationalism” and the related “anti-foreign bias” is not about policies that favor one’s own nation vs. foreigners. It’s a *psychological* bias that makes one more likely to favor a policy if it’s *rationalized by an anti-foreign argument*. So, nationalists favor tariffs on Chinese steel if the stated purpose is to help US producers compete against Chinese producers. However, if one said that we ought to impose the same exact tariff to help poor Chinese consumers from being outbid on steel by rich Americans, then the nationalists would oppose the tariff and say that globalists should stop putting Chinese consumers above Americans. Nationalists claim American import tariffs are pro-American, but Warren’s comment implies that an *economically equivalent* Chinese export tariff on the same good would be pro-Chinese!
Nationalists rely on the same unfalsifiable privilege hypotheses as Social Justice Warriors. With SJWs, every policy is an example of wealthy, cis-het, white male privilege. With nationalists, every policy is an example foreign privilege.
mbka
Jun 22 2018 at 10:25am
What a bizarre assertion. Singapore lives and breathes trade. It started as a trade hub. Its port is one of world’s largest by trade volume. Its international airport rakes in something like 4% of GDP by itself. If Singapore is not the epitomy of globalization, then nothing is.
Of course the Singapore government works for the benefit of its citizens, and yet, the proportion of foreigners in the population is near 40%. Translated to the US population, that would call for, uh, near 120 million foreigners. In actuality the US has about 13% foreign born population (40 million) … but near half of those are citizens.
So if you take trade and immigration as proxies for globalization, Singapore beats the US handily. The result is some of world’s highest per capita GDP, and near nil unemployment. So Singapore must be doing something right.
Scott Sumner
Jun 22 2018 at 2:28am
Ben, I don’t think you know what economic nationalism is. Singapore’s government is a strong supporter of globalization.
Max Goedl
Jun 22 2018 at 4:23am
“…killed by the conundrum of the Irish border…”
What’s the conundrum? Neither the UK nor the Irish government want a hard border. The only question here is whether the EU will force Ireland to put up a hard border in the event of no deal. But that’s a EU-Irish dispute, not a EU-UK one.
Naturally, the Remainers in Parliament and in the media as well as the EU negotiators want to paint a picture that Brexit is oh so complicated, but all the alleged complications people are talking about seem to me entirely mental. If you will it, it is no dream.
Warren Platts
Jun 22 2018 at 8:26am
Not at all. That is merely a statement of an ideal, sort of like saying it would be nice if we abolished all wars. Which begs the question of what to do when your country is invaded by armored divisions. Is it best to practice “unilateral peace” under such circumstances? Yet we practice “unilateral free trade” despite the fact the very phrase is an oxymoron.
Given the fact that our trading “partners” are recalcitrant, dyed-in-the-wool mercantilists, the best strategy is one of reciprocation. Better the Nash equilibrium than the chump equilibrium.
Miguel Madeira
Jun 22 2018 at 9:51am
“Better the Nash equilibrium than the chump equilibrium.”
Let’s imagine this super-simplified scenario:
EU Protectionism
EU Free Trade
US Protectionism
(1,1)
(3,2)
US Free Trade
(2,3)
(4,4)
(benefit of US, benefit of EU)
Where/Why US Protectionism / EU Protectionism is a Nash equilibrium compared with US Free Trade / EU Protectionism?
Miguel Madeira
Jun 22 2018 at 9:55am
[Ignore my previous comment – was a failed attempt of drawing a matrix]
Let’s imagine this super-simplified scenario:
US Protectionism /EU Protectionism – both win 1
US Free Trade / EU Protectionism – US wins 2, EU wins 3
US Protectionism / EU Free Trade – US wins 3, EU wins 2
US Free Trade / EU Free Trade – both win 4
Where/Why US Protectionism / EU Protectionism is a Nash equilibrium compared with US Free Trade / EU Protectionism?
Hazel Meade
Jun 22 2018 at 10:02am
Again, you are writing as if the harms of tariffs fall primarily on foreign companies. They don’t. Tariffs are taxes imposed on Americans when they buy from foreign companies. The foreign companies can still sell to other markets besides America. But the market price increases for American consumers, which raises costs for Americans and reduces overall economic efficiency in the American market. It’s worth noting that the countries with the lowest trade barriers (unilaterally lower tariffs) tend to be the most prosperous economies in the world. That’s because it’s always to the advantage of your own consumers to buy products as inexpensively as possible, as it leaves more resources left over for other purchases. Americans who buy “cheap crap from China” can afford to spend more on everything else. American companies that buy cheap steel from China, or Europe, or Canada, make cheaper products for export. The harms are systemic, and similar in kind to other ways in which governments raise prices artificially to benefit some citizens over others.
SaveyourSelf
Jun 22 2018 at 10:57am
Hazel Meade, your work is excellent. I love reading your posts.
My local city council, last night, voted to increase a “city payroll tax” from 0.625 to 1.15%. I spoke to them before the vote and explained that the promotion given to firefighters and policemen from the increase in tax was funded by a demotion to everyone else in the city. It occurs to me–after reading your explanations–that tariffs must function the same way. Tariffs create a short term, relatively large net gain to a few businesses paid for by short, medium, and long term losses to everyone else in society. I’m tempted to say “relatively small losses” to everyone else in society, but I’m not sure that would be accurate, since the long term responses to an increase in transaction costs that tariffs and taxes produce are so complex and multifaceted. I suspect the long term outcome would be the same as that produced by monopoly power in a market, where everyone is worse off in the long run, even the monopolists.
Jon Murphy
Jun 22 2018 at 11:41pm
Absent heroic assumptions, the losses to consumers outweigh the benefits to producers.
Scott Sumner
Jun 22 2018 at 1:18pm
Warren, No, our trading partners are not “mercantilists”. I know that Donald Trump makes this claim, but it’s not true. For the most part they have the same low tariff rates that we do.
As for your war metaphor, it makes no sense. Trade is a positive sum game whereas war is a negative sum game. Unilateral free trade makes a lot of sense, and those countries that practice it are among the richest in the world.
michael pettengill
Jun 22 2018 at 3:27pm
No, trade is zero sum. To import a billion dollars in goods you must produce and export a billion in goods.
That means in both, workers must produce a billion in goods they must not consume to gain the benefit of work. However, they get cash to buy imports.
Trump sees US trade with China as negative sum, while Milton Friedman sees the trade deficit as positive sum:
US workers produce and consume a billion in goods, plus, China workers produce a billion in goods that US workers also consume. Friedman saw this as a gift to US workers/consumers from Asian governments, China and Korea in the 70s.
Increased productivity from investment and division of labor does not violate zero sum, even though more is produced AND consumed. An economy where workers produce twice as much but consume the same is not possible for long.
Apple using China to produce goods sold at US worker prices results in hundreds of billions in cash lent to government paid to people to buy and consume without working (Social Security). It’s like Apple and governments have virtually added Americans to Chinese worker households, consuming Chinese goods. In exchange the Chinese workers get IOUs promising US workers will virtually take them in when they get old. Zero sum. Unless, like Trump, governments promote default on debts owed workers (wealth redistribution).
Note, the US government has prohibited other governments from defaulting on debt originally owed to US workers (pension funds), but bought at steep discounts by speculators, while actively seeking to default on US government debt to workers anywhere, but especially US (union) workers.
Hazel Meade
Jun 22 2018 at 4:14pm
What would you rather consume?:
a) The 500 widgets you make in a day.
b) A variety of other goods that you purchase with the money you make from selling the 500 widgets you made.
if you answered b, then you think trade is positive sum.
Trade is always positive sum because value is subjective. In any exchange, the subjective value of the goods you are buying is always greater than the subjective value of the goods you are selling. Otherwise, nobody would ever trade anything. Trade is positive sum because goods are permitted to find their way to the people that value them most, resulting in a net higher utility across society.
Jon Murphy
Jun 22 2018 at 11:05pm
Michael: To say something has costs is not the same as saying it is zero-sum. Indeed, the very fact that trade has costs is evidence of it being a positive sum game
Tom Brown
Jun 22 2018 at 1:22pm
https://twitter.com/thunderf00t/status/1009827020195364865?s=19
michael pettengill
Jun 22 2018 at 2:31pm
I’m guessing saying “we can’t let that government dictate how we live” is the root of economic nationalism.
E.g., Germany by ECB dictating how much debt/money printing Greece can do. EU dictating vehicle standards in UK. California dictating CAFE standard implementation US wide. China dictating CAFE standards for US exported cars sold in China.
The argument often made for exiting the Euro/EU is Greece, Spain,, Italy should not be under the thumb of the ECB heavily controlled by its richest member Germany. Except, the same complaints are made about the IMF for many nations in similar condition to Greece.
Only by a nation becoming isolationist, zero trade, can banking be completely free of an IMF or ECB, and can you be free of product standards in other nations.
Brexit was sold as a free lunch: The freedom of isolationism (no cost of international order), but unlimited benefits of imports, or free travel.
Tanstaafl.
For every benefit there is an equal cost. Zero sum. Oddly, two people might find the same thing differently, one as cost, the other as benefit. Say an immigrant neighbor with kids is a cost to one who focuses on their differences and taxes, while a benefit to another who likes the diversity and sees the kids as lawn mowers and errand runners in the short term, and employees and taxpayers in the future. And immigrant means a black family from Detroit into an older, aging, white suburb.
Jon Murphy
Jun 22 2018 at 11:39pm
That can’t be given that the point of economic nationalism is for the government to dictate how we live via tariffs and the like.
That’s not zero-sum. That’s positive sum. I give something up in exchange for something I value at least equal, if not more. The same is true with the other guy. We both benefit. The game is positive sum. It’s only be zero-sum if for one person to benefit, the other must necessarily lose (note this is not the same as paying a cost)
Benjamin Cole
Jun 22 2018 at 9:17pm
Well, I do not know if anyone is reading anymore, as this blog is old in blog-years, and I have told by Scott Sumner I do not know what I am talking about. Nevertheless undaunted, I offer the following—
What is economic nationalism?
Is it not Sino state-planning and mercantilism economic nationalism? What about Beijing capital controls? Sino belt-and-road initiatives also appear to be geared to funneling commerce through China. Increasing Han hegemony over Tibet appears to be nationalistic, as well as Sino imperialism in the South China Sea.
Okay, I think we can posit China practices economic nationalism (very intelligently, in many cases). If not, then I do not know what the term means, and we get deep into the semantics woods.
Okay, trickier case: How about Singapore?
Singapore at ground level is nearly unrecognizable from popular myth-making.
The government owns all the land. More than 80% of population lives in government-built housing. Singapore operates government investment corporations.
And much more.
Here is an interesting headline from yesterday:
ExxonMobil starts up world’s largest resin plant in Singapore
The Business Times-Jun 20, 2561 BE
These two new plants fall under a multi-billion dollar expansion project atExxonMobil’s integrated manufacturing complex in Singapore.
Why are there giant petrochemical plants in Singapore, on government land?
There is an entity entitled The Singapore Economic Development Board.
https://www.edb.gov.sg/en/how-we-help/incentives-and-schemes.html
They offer everything under the sun to entic businesses to locate in Singapore…including—-
“[Singapore]Land Intensification Allowance (LIA)
The Land Intensification Allowance (LIA) aims to promote the intensification of industrial land use towards more land-efficient and higher value-added activities.”
Then also:
“[Singapore] Tax Incentives
Pioneer Certificate Incentive (PC) & Development and Expansion Incentive (DEI)
The Pioneer Certificate Incentive (PC) and the Development and Expansion Incentive (DEI) aim to encourage companies to grow capabilities and conduct new or expanded economic activities in Singapore. Companies that carry out global or regional headquarters (HQ) activities of managing, coordinating and controlling business activities for a group of companies may also apply for the PC or DEI for the HQ activities.
—-30—
Free job training too, and much more.
Okay, so let’s ask the question: Why did Singapore induce the building of giant petrochemical plants on government land?
The city-state is smart, and does not over-tax businesses. So it wanted tax revenues, but that was probably a wash in terms of what they gave up to get the plants.
The answer: Singapore wanted the good-paying jobs, for its residents, and the other income for its contracting firms.
The key: At bottom, Singapore wanted the income associated with plant location.
When Trump says he wants industry to move to the US, he is saying as much. Trump is an economic nationalist.
Singapore is not?
Lorenzo from Oz
Jun 23 2018 at 7:34pm
I am a bit distressed that the concept of gains from trade seems to have passed folk by so completely.
Scott: Equating the EU with globalisation seems rather otiose. Australia is rather globalised, yet not in the EU. If the UK adopted the same policies as the Australia but was completely separated from the EU, would it be therefore “less” globalised?
Lorenzo from Oz
Jun 23 2018 at 8:11pm
The EU seems to have decided to go to war with a major element in globalisation: the online world.
https://juliareda.eu/eu-copyright-reform/
Thaomas
Jun 24 2018 at 12:38pm
It depends on whether the bad results of restricting trade can be blamed politically on the opponents of restricting trade. And in politics anything is possible.
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