Balancing global free trade and nationalism

In an increasingly interconnected global economy, the tension between global free trade and nationalism has become a prominent issue. Free trade advocates argue for the removal of barriers to allow for the unfettered exchange of goods and services across borders. In contrast, nationalists prioritise protecting domestic industries and jobs, often advocating for tariffs and other trade barriers. This article explores the dynamics between global free trade and nationalism, examining whether they can coexist and how each can be protected in the current economic landscape.

Global free trade is founded on the principles of comparative advantage, which suggests that countries should specialise in producing goods where they have an efficient edge and trade with others to maximise economic welfare. For instance, Brazil might focus on exporting coffee, while Germany specialises in high-end automobiles. This specialisation allows each country to produce efficiently and trade for goods it does not produce as effectively.

Free trade proponents argue that this leads to increased economic growth, lower prices for consumers, and innovation driven by competition. For example, the North American Free Trade Agreement (NAFTA) facilitated trade between the United States, Canada, and Mexico, leading to significant economic growth and lower prices for consumers in these countries. International institutions like the World Trade Organization (WTO) have been instrumental in promoting free trade through multilateral agreements and dispute resolution mechanisms. The WTO's role in adjudicating trade disputes helps maintain a predictable trading environment, fostering global economic stability.

Nationalism, in the context of trade, emphasises the protection of domestic industries from foreign competition. This protectionist stance is often driven by concerns over job losses, trade deficits, and the perceived erosion of national sovereignty. For instance, the United States (US) under President Donald Trump imposed tariffs on Chinese goods to protect American manufacturing jobs and reduce the trade deficit. Similarly, the UK's Brexit movement was partly fuelled by a desire to regain control over trade policies and reduce dependency on the European Union.

Policies such as tariffs, quotas, and subsidies are employed to shield local businesses and preserve economic self-sufficiency. For example, India's Make in India initiative aims to encourage local manufacturing through subsidies and incentives, reducing reliance on foreign imports. Recent political movements in various countries have underscored a growing scepticism towards globalisation and a preference for policies that prioritise national interests. These movements reflect a broader sentiment that global trade can sometimes undermine local economies and national security.

The conflict between free trade and nationalism is evident in the debates over trade agreements, tariffs, and immigration policies. Free trade critics argue that it can lead to the outsourcing of jobs, wage stagnation, and increased economic inequality within countries. For example, the relocation of manufacturing jobs from the U.S. to countries with lower labour costs has led to significant job losses in certain American industries, fuelling discontent with free trade policies.

On the other hand, excessive nationalism can lead to trade wars, reduced market access, and inefficiencies from lack of competition. The trade war between the US and China, characterised by reciprocal tariffs, disrupted global supply chains and led to increased costs for businesses and consumers in both countries. Moreover, such protectionist measures can result in domestic industries becoming complacent and less innovative due to the lack of competitive pressure.

* Balanced trade policies: Governments can design trade policies that incorporate both free trade and protectionist elements. For example, the European Union’s Carbon Border Adjustment Mechanism (CBAM), set to be implemented in 2026, is designed to levy tariffs on imports from countries with lower environmental standards. This ensures that foreign competition adheres to environmental standards, protecting domestic industries from unfair competition while promoting global environmental sustainability.

* Strengthening domestic industries: Investing in education, infrastructure, and innovation can enhance the competitiveness of domestic industries, making them more resilient in the face of global competition. For instance, the United States' CHIPS and Science Act of 2022 provides substantial funding for semiconductor manufacturing and research to reduce dependency on foreign suppliers and bolster domestic technological innovation and infrastructure.

* International cooperation: Multilateral organisations and trade agreements can play a role in balancing the interests of free trade and national sovereignty. The Regional Comprehensive Economic Partnership (RCEP), which came into effect in January 2022, involves 15 Indo-Pacific countries and aims to promote transparency, address unfair trade practices, and facilitate dialogue among member nations to build a more inclusive global trade system.

* Social safety nets: Implementing robust social safety nets and retraining programs can support workers displaced by globalisation. For instance, Singapore’s SkillsFuture initiative provides citizens with credits to pursue a wide range of approved courses, facilitating lifelong learning and helping workers transition between jobs without severe economic hardship.

The coexistence of global free trade and nationalism in the world economy is complex but possible. By adopting balanced trade policies, investing in domestic competitiveness, fostering international cooperation, and ensuring social protection, countries can navigate the challenges posed by these conflicting ideologies. The goal should not be to protect one from the other, but to find a harmonious balance that leverages the strengths of both to promote sustainable economic growth and social well-being.

Policymakers, businesses, and citizens alike must engage in informed discussions about the future of trade. By understanding the benefits and drawbacks of both free trade and nationalism, we can work towards a more equitable and prosperous global economy.

This article is authored by Ananya Raj Kakoti and Gunwant Singh, scholars of international relations, Jawaharlal Nehru University, New Delhi.