Doing Economic Nationalism the Right Way

With the United States leading the way, the world seems to be entering a new era of economic nationalism, as many countries prioritize their domestic social, economic, and environmental agendas over free trade and multilateralism. While President Joe Biden’s approach is more measured and open to international cooperation than Donald Trump’s was, it nonetheless raises concerns among economic liberals, who see echoes of a 1930s-style return to protectionism and autarky.

But “economic nationalism” is one of those scare terms that economic liberals use to discredit practices they don’t like. As with any ideologically loaded label, it hides more than it reveals. After all, economic nationalism comes in many different forms, some harmful and some beneficial. Moreover, some of the leading theorists of economic nationalism, such as Alexander Hamilton and Friedrich List, were political liberals.

Though economic nationalism can backfire when taken to extremes, so can economic liberalism. When applied judiciously in pursuit of legitimate domestic goals – such as building economic strength and reinforcing a sense of national purpose – it can be beneficial without necessarily harming other countries.

Economic nationalism frames the economy primarily in terms of the nation, much like political nationalism does with the polity. The economy exists primarily to serve the nation, just as the nation-state pursues the national interest.

Neither formulation has much content until we start to define what “serving the nation” or the “national interest” means. Focusing on the national economy can be perfectly benign, as well as compatible with significant degrees of openness to international trade and finance. According to conventional economic theory, it is in a country’s own interest to adopt free trade. A government that pursues autarky will forsake the benefits of specialization, miss out on frontier technologies, and lose access to foreign capital.

As the economic historian Marvin Suesse argues, economic nationalism therefore wavers between two somewhat contradictory impulses: the temptation to restrict economic exchange with other countries in order to advance national independence; and the desire to expand and leverage international links in the service of national economic growth and development.

In recent times, no one has done a better job of combining these impulses than the “developmental” states of East Asia. Japan, South Korea, Taiwan, and, most spectacularly, China have all relied on a mix