President Donald Trump has said the central tenant of his movement is to put America first. This is in stark contrast to the globalization we have seen since World War II, and this attitude is not unique to the United States.
Economic nationalism is on the rise across Europe (the British recently voted to leave the European Union) and throughout the developed world. At the core of this movement is a reaction the increased immigration from lesser developed countries, put into hyper-drive by the rise of radical Islam and Islamic terrorism.
So what exactly is “globalization” and what might be the consequences of the rise of economic nationalism?
The current world economic order was established at a conference held at Bretton Woods, New Hampshire as World War II was drawing to a close.
It was attended by delegates from 44 allied nations, and it’s purpose was to promote free trade by establishing a banking system to facilitate and regulate international financial transactions and to promote free trade.
The conference led to the creation of the International Monetary Fund (the IMF) and the General Agreement on Trade and Tariffs, which has now morphed into the World Trade Organizations (the WTO).
At the time, it was widely believed the collapse of global trade was a major cause of the Great Depression. Congress had passed the Smoot-Hawley Act following the stock market crash of 1929 in an effort to help U.S. farmers and manufacturers by protecting them from foreign competition, but it had the opposite effect.
The Act increased already high tariffs on imports to the U.S. by an average of 20%, triggering retaliation by other countries. Over the next four years, world trade declined by two-thirds, leaving U.S. factories shuttered and farmers without export markets for their crops.
Going into WWII, the average tariff on imports to the U.S. was 60%. Following the Bretton Woods Conference, the average tariff fell to around 12%, and by the end of the century it was around 5%. As the tariff walls fell and multination trade agreements were negotiated, global trade soared.
In 1950 it was a mere $62 billion.
The industrial infrastructure of England, Germany, and Japan had been largely destroyed during the war, leaving the U.S. as the sole industrial super-power in the world. But by the 1960s, Germany and Japan had rebuilt and modernized their industrial sectors and were producing high-quality products such as automobiles, appliances and construction equipment in competition with the U.S., and the value of world trade increased ten-fold.
In the 1990s, China and other Asian nations began to industrialize. Trade expanded to include components of manufactured goods (and not just the finished products), and complex supply chains were developed that stretched around the world.
Automobiles, for example, were now “world cars” made with components manufactured in many different countries and shipped to one point, where they would be assembled in the final product. This integration of global production further expanded trade, and, by 2008, the value of goods traded between nations had increased another twenty-fold, exceeding $16 trillion dollars.
Globalization has allowed nations to specialize and multinational corporations to produce high-quality products more efficiently and for less.
This was great for consumers. We love our giant flat-screen TVs, high-quality automobiles, computers and ubiquitous cell phones. But not everyone was happy with the new global economy.
Labor unions opposed it, because it meant their members had more competition for their labor, not just from imported automobiles but from foreign automobile companies assembling their product in the U.S. with non-union labor.
Environmentalists also hated it, because when they tried to impose stringent regulations on U.S. companies, many of those companies simply moved their factories to less-regulated countries, where they assembled their products and shipped them back to the U.S.
Violent anti-globalization protests occurred overseas on a regular basis to disrupt meetings of the World Trade Organization (WTO) and the International Monetary Fund (IMF), but they first hit the headlines in the U.S.in 1999, when an estimated 40,000 union members and environmentalists converged on Seattle to protest a meeting of the WTO.
Seattle police did not anticipate the militancy of the protestors, things got out of hand, and the protesters ended up trashing downtown Seattle and causing an estimated $20 million in damage. If you don’t recall this, Google “the Battle in Seattle” or check out videos of it on YouTube.
The anti-globalization movement is more firmly rooted in left-wing organizations similar to “Occupy Wall Street,” but it has also had support from right-wing nationalist groups concerned about world government and the loss of national identity. That is the element Donald Trump tapped into during his presidential campaign and it has some overlap with Bernie Sanders supporters, though the two factions have very different goals in mind.
Globalization is largely responsible for the prosperity we have enjoyed since World War II.
The big question—and big fear—is what will happen to the global economy if you smash its organizational infrastructure.
If the U.S. raises its tariffs on imports, will global trade wars break out as other nations retaliate? What will it do to inflation in the U.S. if imported goods suddenly cost 20% more, as well as the imported components that go into goods manufactured in the U.S.?
The U.S. is $20 trillion in debt, and much of it is held by our foreign trading partners. What will happen if the market for U.S. debt dries up because our trading partners do not have the currency to buy it any more? Half the federal government’s revenue comes from borrowing abroad; what happens to interest on our federal debt soars?
These are not just concerns for the nation; they are vital concerns for Louisiana and especially Southwest Louisiana.
On a per-capita basis, Louisiana exports more goods than any state except Washington (which has Microsoft and Boeing), largely due to our petrochemical and agricultural industries.
It’s been a while since I have done the calculations, but I would estimate that 40% of what is produced in Southwest Louisiana is sold in foreign markets.
The global economy is very complex: if you are going to have brain surgery, you don’t want the doctor to show up with a chainsaw.