The Perils of Economic Nationalism and a Proposed Pathway to Trade Harmony

Abstract

In a sharp break from past policy, the United States has announced and is implementing a policy of economic nationalism in the name of political populism that seeks strict border controls over all forms of economic factors of production, products, services, investment, and people. The avowed purpose of this policy is to protect national security and to change the balance of trade to favor the United States This article argues that this policy of economic nationalism, on its face, is contrary to accepted rules, procedures and principles of international law and threatens irreparable harm to the multilateral system of trade and investment developed under American leadership since World War II. Moreover, because economic nationalism flies in the face of accepted economic principles and experience, it cannot attain its stated goals.

International economic imbalances facing the United States can best be addressed by employing macroeconomic tools and using established multinational economic forums. Although the new United States’ policy of economic nationalism is directed at all U.S. trading partners, even against close allies such the European Union, Canada and Japan, a particular target of this policy is Chinese trade and investment. China’s emergence as a great economic power cannot be substantially impeded by U.S. unilateral actions. The rise of China can best be managed by (1) renewed emphasis on the existing rules of the multilateral trading system; (2) confronting China with new regional trade and investment rules agreed by the United States and its allies, principally the Trans-Pacific Partnership Agreement (TPP) and the Transatlantic Trade and Investment Partnership Agreement (T-TIP); (3) a new “Trump Round” of trade negotiations at the World Trade Organization (WTO); and (4) continued bilateral engagement.

Keywords: Economic Nationalism, International Trade, International Law, World Trade Organization, Multilateralism, China

JEL Classification: K20, K33, K34