Economic Nationalism

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21 Aug, 2024

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Economic nationalism is an ideology that revolves around efforts to promote and safeguard a nation's economic interests within the global context. It can be understood as a set of practices and policies aimed at nurturing and defending a country's economy in the face of international competition and economic challenges.

It seeks to protect and promote their country's domestic industries. It can involve implementing trade barriers such as tariffs and quotas to shield domestic producers from foreign competition. The aim is to maintain or enhance the competitiveness of domestic businesses and preserve jobs.

Economic Nationalism Definition

Economic nationalism theory is an economic and political ideology or policy approach that emphasizes the interests of a nation's economy above those of other nations.
A key focus of this ideology is the preservation and creation of jobs within the nation. Protecting domestic industries aims to ensure that employment opportunities are available for the local workforce.
This ideology emphasizes protectionism and national interests, while economic liberalism promotes open markets and global integration.

Economic Nationalism Explained

Economic nationalism is an economic and political ideology that prioritizes a nation's economic interests above those of other nations and emphasizes government policies and interventions to achieve these objectives. It involves a range of practices and policies to protect and promote a country's domestic industries, workers, and resources in the global economic arena.

The rise of economic nationalism has deep historical roots, stemming from the mercantilist system of the 17th and 18th centuries. However, it gained prominence after World War I when nations sought to insulate their economies from external pressures. Notably, it saw a resurgence in the mid-1930s within fascist Italy and Nazi Germany.

This ideology seeks to foster national economic development, emphasizing material welfare, power, and sovereignty. It typically involves control over economic relations with other nations, protectionist measures, and government intervention. It has been used as an alternative approach during economic and political disruption.

It places significant emphasis on mobilizing internal resources and driving economic growth. In developed regions, it aims to enhance material well-being and social integration, while in less developed areas, it plays a crucial role in economic modernization. This approach may favor public enterprises and government-led industrialization.

Views on economic nationalism vary. Some associate it with collectivism and protectionism, viewing it negatively. Others argue that it is essential for shielding economies from uncertainty and the adverse effects of international economic interdependence.

The theory of economic nationalism has evolved, influenced by struggles for independence, colonial economic development, and shifting global economic conditions. It has experienced phases of openness and protectionism, with countries and regions adopting variations of these policies to achieve their economic goals.

Examples

Let us look at some examples to understand the concept better.

Example #1

In a hypothetical scenario of economic nationalism in a country called Econovia, the government enacts protectionist policies to safeguard its domestic industries and preserve national identity. They impose tariffs on imported goods like automobiles, electronics, and textiles, making foreign products more expensive and encouraging the purchase of locally-made alternatives.

Additionally, the government provides financial support through subsidies and tax incentives to strengthen domestic industries, particularly manufacturing. Buy Local campaigns persuade consumers and businesses to prioritize domestic products. This combination of protectionist measures and support for domestic industries reflects Econovia's commitment to bolstering its economic self-sufficiency, preserving cultural identity, and generating employment opportunities within its borders.

Example #2

Former President Donald Trump recently spoke to nonunion auto workers in Michigan, sharing his vision for bolstering economic nationalism. During his speech, he expressed concerns about specific policies, especially the shift toward electric vehicles, which he believed might impact American auto industry jobs.

This event occurred during ongoing strikes by tens of thousands of auto workers, leading to the temporary closure of significant automaker plants. President Joe Biden visited the United Auto Workers' picket line in a show of support, endorsing the workers' demand for a 40% pay increase over the next four years.

Trump's speech illustrates economic nationalism, highlighting how leaders can use economic policies to protect national interests and address issues within crucial industries.

Future Prospects

In the wake of the Asian Financial Crisis of 1997-98, there were concerns that economic nationalism would resurface as a reaction to pressures from the International Monetary Fund (IMF) and the World Bank to open up protected Asian economies. Some countries like Malaysia, Indonesia, and Thailand resisted these international pressures, asserting that such organizations were trying to dismantle their protectionist policies and limit state intervention in their domestic economies. However, the global financial crisis of 2008 and 09 presented a different challenge.

The collapse of the US mortgage markets, and subsequent banking failures highlighted the shortcomings of financial deregulation and the dominance of market fundamentalism in global markets. Global trade plummeted significantly after 2008, with European and US countries experiencing severe trade contractions. Some countries, including India, Russia, and Brazil, temporarily increased tariffs to address economic challenges.

Nevertheless, governments hesitated to fully embrace this ideology, given the complexities of intertwined global economies, interdependence through trade and investment, and the substantial influence of multinational corporations and banks. Additionally, various models of economic nationalism failed to gain strong traction, as neo-liberalism and free market capitalism continued to dominate despite the financial crisis.

While this ideology was discussed, there needed to be more political will to completely disentangle national economies from the global economic network. Ultimately, the G20 organization played a role in reducing tensions among world economies, highlighting the challenges of fully embracing economic nationalism in a highly interconnected global environment.

Pros And Cons

Economic nationalism, like any economic policy, has pros and cons. Its impact can vary depending on the context and how it is implemented.

Let us understand the advantages of this ideology.

Protection of domestic industries: Economic nationalism can protect and nurture domestic industries, safeguarding jobs and fostering economic growth in key sectors.
Preservation of national identity: It can help maintain cultural and industrial heritage by prioritizing domestic goods and services, preventing foreign influences from dominating the market.
Job creation: Economic nationalism aims to create and preserve jobs within the country by supporting domestic industries and reducing dependence on imports.
Economic autonomy: It asserts economic sovereignty, allowing nations to make independent economic decisions without excessive external influence.
Balancing trade deficits: For countries with chronic trade deficits, economic nationalism can help address this imbalance by limiting imports and promoting exports.

Let us understand the drawbacks of this ideology.

Reduced economic efficiency: Protectionist measures like tariffs and quotas can lead to inefficiencies, higher consumer prices, and decreased economic growth.
Trade tensions: It can trigger trade tensions and trade wars with other nations, harming global economic stability and cooperation.
Retaliation: When one country implements protectionist policies, other nations may respond with their tariffs and barriers, leading to a cycle of trade restrictions.
Global supply chain disruption: In an interconnected world, this ideology can disrupt global supply chains, making it difficult for industries to source necessary inputs.
Hindrance to innovation: Protectionism may stifle competition and innovation by shielding domestic companies from outside competition.

Economic Nationalism vs Economic Liberalism

The difference between economic nationalism and economic liberalism is as follows.

Economic nationalism prioritizes national interests, domestic industries, and self-sufficiency. In contrast, economic liberalization emphasizes free markets, globalization, and minimal government intervention.
Economic nationalism supports government intervention and subsidies to protect and nurture domestic industries. In contrast, economic liberalization promotes limited government involvement in economic affairs, focusing on market forces.
Economic nationalism aims to reduce trade deficits by limiting imports and promoting exports. In contrast, economic liberalization views trade deficits as a less critical concern and may focus more on overall economic growth.

Frequently Asked Questions (FAQs)

1. Is economic nationalism same as mercantilism?

While economic nationalism and mercantilism prioritize a nation's economic interests, they differ significantly. Mercantilism focuses on accumulating precious metals and achieving a positive trade balance through colonial policies. At the same time, economic nationalism involves protectionism, government intervention, and a focus on preserving national identity and economic self-sufficiency.

2. Who is the pioneer of economic nationalism?

Economic nationalism's roots can be traced to various historical developments, but it gained prominence in the aftermath of World War I. While there isn't a single pioneer, figures like Friedrich List, who advocated for economic protectionism to boost national industries in the 19th century, laid the groundwork for economic nationalist ideas.

3. How did liberalism lead to economic nationalism?

The transition from economic liberalism to economic nationalism occurred in response to changing economic and political circumstances. Liberalism's emphasis on free markets and globalization led to concerns about the impact on domestic industries and jobs. It, coupled with economic disruptions like the Great Depression, prompted a shift towards economic nationalism, prioritizing protectionism and government intervention to safeguard national interests.