Economic Nationalism Will Be Detrimental to Global Economic Growth

After a long and tedious history, Economic Nationalism (a focusing on domestic interests and following protectionist policies) had been shelved my most countries. The world was moving towards globalization. Over the past few years, however, there has been a resurgence of economic nationalism worldwide. Even countries that had previously espoused free trade-oriented policies, like the US, Germany, and UK, are moving towards protectionism.

It is often presented as a panacea for a nation’s economic woes, promising job creation, industrial protection and enhanced self-sufficiency (as Trump would also have us believe). Yet, a closer examination reveals that this approach is fundamentally flawed and highly detrimental to global economic growth. Paradoxically, it can harm the very domestic economy it seeks to uplift.

Myths That Propagate Economic Nationalism

Proponents of economic nationalism often appeal to patriotic sentiments, arguing that supporting national industries equates to loving one’s country and that foreign entities are inherently exploitative or pose a threat to national sovereignty. However, the reality is that while protectionist policies might offer short-term relief to specific domestic industries by making foreign goods more expensive, this benefit is often fleeting and comes at a significant cost.

Trade barriers raise production costs, making domestic products less competitive internationally and potentially leading to job losses in export-oriented sectors. Plus, shielding industries from competition stifles innovation and efficiency, as businesses lack the incentive to improve or adapt. Inefficient industries, propped up by state support, become a drain on national resources rather than the engines of growth.

Countries should focus on providing businesses with a conducive environment to flourish. Trying to achieve national self-sufficiency in a globalized world is an inefficient, unattainable, and undesirable goal. Nations thrive by specializing in areas where they have a comparative advantage and trading for goods and services they produce less efficiently. Economic nationalism disrupts these natural efficiencies, leading to inferior quality goods being produced, limited consumer choice and a less diverse economy.

Even worse, by fostering an “us vs. them” mentality, international partnerships that are crucial for technological advancements are undermined.

Free Flow of Resources Fuels Global Economic Growth

The foundation of modern globalization is the principle of free flow of goods, resources and manpower across national borders. This concept, often championed as “free trade” and “free movement,” brings a multitude of benefits that drive global economic growth and improve living standards worldwide.

Free Flow of Goods

The free flow of goods is the bedrock of free trade. Nations can specialize in producing what they do most efficiently and at the lowest opportunity cost. By trading these goods, both countries obtain a wider variety of products at lower prices than if they tried to produce everything domestically. Lowering trade barriers makes imported goods cheaper, which directly benefits consumers, increasing their purchasing power, offering a wider array of goods, and allowing them to buy more and higher-quality products.

Moreover, increased competition from foreign suppliers forces domestic producers to become more efficient, innovate, and adopt new technologies to remain competitive. This continuous pressure to improve leads to overall economic dynamism and productivity gains. Meanwhile, businesses flourish because they are no longer limited to their domestic market. Access to a global consumer base fosters economies of scale, increased production, revenue growth and the creation of more jobs.

Free Flow of Resources

International trade facilitates the exchange of ideas, technologies and best practices. As goods move across borders, so do the embedded knowledge and innovations, leading to a faster spread of technological advancements globally.

Global trade also helps capital flow naturally to areas where it can earn the highest return and be most productively employed. This means investment goes to countries and industries with strong growth potential, leading to more efficient global resource allocation and higher overall economic output. Foreign Direct Investment (FDI) brings much-needed capital to developing countries, funding new businesses, expanding existing ones, and creating employment opportunities. This inflow of capital can also stimulate domestic investment.

The free flow of capital also encourages the development of robust and sophisticated financial markets, which are essential for mobilizing savings and channeling them into productive investments.

Free Flow of Manpower

Free cross-border movement of people means countries with labor shortages in specific sectors can attract skilled or willing workers from countries with labor surpluses. This helps to fill critical gaps, maintain economic activity and prevent wage inflation that could stifle growth. This enables better matching of skills to demand, which, in turn, leads to higher overall economic output.

In addition, migrant workers often send a significant portion of their earnings back to their home countries. These remittances are a crucial source of foreign currency and income for many developing nations, contributing to poverty reduction and economic stability.

Finally, these workers gain new skills and experiences in their host countries, which they can then bring back to their home countries, contributing to human capital development. This also facilitates the transfer of knowledge and ideas.

In essence, the free flow of goods, resources and manpower creates a more interconnected and efficient global economy. It allows nations to leverage their unique strengths, fosters competition that drives innovation, provides consumers with more choices at lower prices, and allocates capital and labor to their most productive uses. While there are legitimate challenges to manage, the overall benefits of such openness far outweigh the perceived advantages of economic nationalism, ultimately leading to greater prosperity for all.