A loss of faith in the global economic model, the rise of populist nationalism, the challenge of alternate systems, the retreat to protectionism, bilateral trade wars and power politics; this may not be history repeating itself but it does have worrying parallels to the past.
As Trump categorises the EU, NAFTA and China as trade enemies, and tariffs return as the weapon of choice across the global economy, it is worth considering that we may have, scarily, been here before. Economists can show empirically that protectionism and trade tariffs do not even create more wealth for the countries imposing these policies, let alone across the global economy. According to the IMF the current trade war may end up costing the world $430bn. Yet the ideologies supporting such protectionism and economic power policies are regaining ground across the political spectrum, from the left, mistrustful of an economic system they think supports a global elite, to the right who think that it is being exploited in favour of groups and countries other than their own. We haven't had a real challenge to the de-facto Western liberal free trade concept, victorious with the defeat of Nazi Germany, since the collapse of the Soviet Union. It is perhaps helpful to consider this triumph and the history of rise of the last challengers to the global liberal economic system, as new challenges arise. Whilst we must acknowledge that the process has been less than ideal and that we should always ward against abuses, we must continue to recognise that the liberal global free trade system, flawed and a work in progress as it may be, has led us to the present, the most affluent and peaceful global state of affairs in all human history.
Modernisation, driven by industrialisation from 1815 onwards, led to this creation of wealth and peace. However, no period of change is without issues. Indeed, change and challenge on a societal and cultural level inevitably leads to a retreat to the ethno-national base. Rapid industrialisation and increasing global trade fostered immigration, development and competition to the established, developed or larger nations. The school of national economists, such as Alexander Hamilton in the US or Friedrich List in Europe, pioneered the idea that national industries required the protection of tariffs and barriers for their home markets to sustain acceptable growth. The developing economies at the end of the 19th Century such as the US, Germany, Japan and Russia all adopted policies in line with these ideas. An unforeseen outcome, however, was the unexpected return of empire building. Yet there was a direct causal link. If external markets were subject to tariffs then only the internal market could be relied upon and nations should strive for self-reliance. The controllable market therefore had to be large and resource-rich enough.
With hindsight the markers of what was to come were all there; a retreat to ethno-national exceptionalism, distrust of foreigners and fear of exploitation, desire to control directly, or be seen to, the national economy on its own terms. The protectionist policies were rationalised to extend across all national industries, giving preferential treatment to domestic over foreign. The theory being that shutting out or penalising foreign goods and services would protect and nurture home grown wealth and prevent exploitation. This economic ideology cyclically reinforced and was reinforced by a cultural ideology along similar lines. This is an example of Realist thought, that all nations compete against each other naturally, inevitably and indeed beneficially to the national collective.
Fear in the system grew that the global economy would become closed, as it was carved into spheres of influence and direct control instead of becoming more open to all as per the liberal economic mantra. For example, the politicians in Britain, who traditionally exemplified free trade ideology, by 1900 considered that the challenge to their economic competitiveness so great that Britain should abandon its traditional free trade policy and consolidate a protectionist trading zone. If this was to be the trend of the future so too should all the great powers consolidate and expand their own protectionist sphere. This fear and shift in ideology became a self-fulfilling process as the European powers began to expand their influences along protectionist lines; Africa was carved up and a similar partition of China was just down the line. As the twentieth century began, Imperial Germany held the view that its continued economic growth was being limited by the size of its sphere and that only with the creation of a greater European sphere and the transfer of colonies to it could it gain necessary and sufficient space in which to grow and parallel the expansive economic areas of Britain, the US and Russia. If this expansion could not be achieved peacefully force would become necessary. So the rising tensions and fear of loss of wealth and control lead directly to the confrontations that began the First World War.
The First World War, however, did not remove the advocates of these protectionist ideologies. And by the end of the 1920s The Great Depression and general global economic downturn accelerated these tendencies. By 1932, Britain abandoned any pretence of its previous free trade ideology and embraced 'Imperial Preference'. The US imposed wide ranging tariffs in the wake of the 1929 crash, despite all the evidence showing that they were counter-productive. In Germany Hitler linked the idea of the intrinsic need for a self-sufficient greater Germany to his racial and nationalist world views. In Japan, relying heavily on trade because of its size and lack of natural resources, they saw a world system that imposed barriers and restrictions on trade as requiring them to gain their own self-sufficient sphere. In a nation-first world, national wealth depended on national strength, and national strength reinforced national wealth and so on. The retreat from economic liberalism empowered and then became empowered by a rise in anti-liberal, anti-democratic political ideologies and populist national agendas. So the liberal democracies of 1920s Germany and Japan gave way to nationalism and authoritarianism. Even in Britain and the US, these nationalist protectionist ideologies held significant support even on the outbreak of war.
The outcome of the trend of protectionism, rising nationalist agendas and a loss of faith in the liberal economic model at the end of the 19th and early 20th centuries led to the two world wars. Then the US was able to underpin the whole system, defeat the authoritarian alternatives and the world grew more affluent and more peaceful. Now it is the US who are the leaders actively seeking to disrupt the free trade system wholesale, with Trump and his advisers believing that from its global leadership position it can dictate terms without meaningful repercussions. However, with the rise of China and a new non-liberal alternative that could drive a new world order, and the growing resurgence of nationalist ideologies of perceived beneficial self-protection in Europe, we should all be asking where does the world go this time if the US, with Europe in tow, continues along this path and how much will it end up costing us all.