Nostalgia and Trade War

Increasingly closer, international, economic interdependence has been propagated and practiced for three decades as an advanced approach to promote comprehensive prosperity. Now it is being criticized more and more by populists and opponents of globalization. Lars P. Feld, a professor of economics at the University of Freiburg and a member of the German Council of Economic Experts (GCEE), has been observing this phenomenon for some time, including in a research project on the effects of refugee migration. Verena Adt asked him what could be expected in the wake of intensifying criticism of globalization.

Does protectionism bring success? Lars Feld has observed that by maintaining a tough position, the US is achieving advances in trade policy.
Photo: Elsenhans – stock.adobe.com

Mr. Feld, former French President François Mitterrand once said in the European Parliament: "Nationalism means war." What does economic nationalism mean?

Lars P. Feld: Economic nationalism means trade war. Yet I would not speak of war in today's situation. What we currently have are trade disputes.

Is US President Donald Trump's "America first" slogan an expression of economic nationalism?

What we experienced of Donald Trump during the campaign and how he now treats heads of state and government are just plain bad manners. Yet he has been surprisingly active in questions of trade policy that he has taken issue with. In recent months I was frequently together with colleagues from China and they told us: "Trump's strategy is far cleverer than you Europeans maintain. We Chinese can't do anything but agree to a new deal." China is indeed a major US creditor, but is seriously exposed as a result. So the Chinese don't have any means to apply pressure. The Americans do, and they're playing it out it mercilessly and in a way purely directed by their national economic interests.

So Trump achieves trade policy successes with his gruff style?  

He's successful because he first imposes tariffs of 250 billion dollars and then asks his trading partners: "What will you give me if I rescind them?" Trump's toughness is moving something, especially in China, where friendliness in negotiations is interpreted as weakness. In March 2019, China passed a new law that opens the country for foreign direct investment. And there are also more serious trade talks again taking place between Europe and the US. At the same time, the US is involved in discussions with Japan. Right now, it looks as if Trump will get results on all three fronts. 

Are we experiencing an example of economic nationalism through Brexit in Europe?

Britain's nostalgia for the Commonwealth is outrageous. What's behind that is the idea that despite the relatively small size of the United Kingdom, it is able to demonstrate economic strength because the British are a special people. This is a peculiar expression of British nationalism, like the one that even former British Prime Minister Winston Churchill is said to have expressed.  But we're still hoping that the British get a second referendum and remain in the EU after all. That would be the best solution.

Can the chaos of Brexit scare other countries critical of the EU, such as Poland, Hungary, and Italy, from striking out on misguided, nationalist courses? 

Unlike the British, the Hungarians and Poles can be brought into line more easily because they're dependent on EU financial aid. And presumably the case of Greece had a major influence on Italy as a deterrent. The Italians noticed that in 2018, when they questioned membership in the currency union in a draft coalition accord. The financial markets took that so badly, that they had to withdraw the proposal. Italy is a big risk for the euro at any rate. Economic nationalism is clearly in play there.

Lars Feld is hoping that the British will hold a second referendum in which the electorate supports remaining in the EU. Photo: Walter Eucken Institut

Criticism of globalization often comes along in a populist guise. Has globalization overwhelmed people?

Globalization is a general term. One element is the internationalization of trade. Beyond that, for many people, Europeanization – giving authority to the EU – is a part of globalization. Migration is a globalization phenomenon as well. The migration crisis in Europe is a problem in many respects. It has caused major difficulties in Italy, and in Spain, even earlier. It worsened the crisis in Greece.  In France, migration is playing a key role in the success of the extreme right led by Marine Le Pen. And it's also what is in part motivating Brexit. As an element of globalization, migration is problematic, no matter how sad that makes liberal economists.

Is migration more of an economic or a societal problem?

Both. Countries with high levels of unemployment are unable to comprehensively take in the migrants. Integration of migrants in Germany's labor market is meanwhile succeeding better than had been expected, even that of poorly-qualified refugees who are unable to speak German.  In this country, integration isn't a labor market problem. It's a sociopolitical issue. 

How strong has the tendency towards nationalist demarcation become within the EU in the meantime? 

The problems that emerged during the euro crisis play a role there. There's high unemployment in Italy and Greece. The rise of the so-called populist parties isn't surprising. Yet in countries like Spain, Portugal, Cyprus, and Ireland, that handled the euro crisis relatively well despite major difficulties, populism is less prominent. 

Is the "yellow-vest" movement in France a populist reaction to globalization?

It has other causes. The impetus for the "yellow-vest" movement was a very high tax burden that was placed on people with low and moderate incomes in France. An additional, planned tax on gasoline was the initial spark for the protest. After that, other malcontents joined the movement.  

There were serious protests in Germany against a new European-American free trade agreement – TTIP, which has since been put on the back burner. Is opposition to globalization gaining ground here, too?

Internationalization of trade and value creation chains would've clearly been advantageous for Germany. They would've massively secured domestic jobs. Yet it's indisputable that we're critical of globalization here too, with respect to trade as well. That's related to the environmental degradation that this system produces. Globalization means lots of transportation and transportation causes emissions. It is precisely from this direction that the harshest criticism of TTIP was pursued.

German Economic Minister Peter Altmaier would like to give special support to German and European industrial champions. Is that astute safeguarding of German economic interests or economic nationalism?

I'm one of the harshest critics of Mr. Altmaier's plans. What's emerged as a national industrial strategy contradicts everything that we're trying to achieve in the social market economy. It's a clear violation of the fundamental principles of our policies on competition.

What should Europe do in order to take countermeasures against the trend towards disintegration?

Become integrated in areas in which the EU can achieve something. That's the entire area of security, right up to national defense. A common army would be the long-term goal, yet it would require political union first. There are nonetheless intermediate steps, such as furthering, already existing joint commands, for example. In addition, more effective, joint crime fighting would be important as well. Organized crime has exploited the internal market for its own purposes and has long since expanded, while in terms of the crime fighting forces to counter that – they're still active on a very small scale only.

Symposium: "Die Rückkehr des ökonomischen Nationalismus? – Protektionismus, Populismus und das Ende der zweiten Ära der Globalisierung?" ("The Return of Economic Nationalism? – Protectionism, Populism, and the End of the Second Era of Globalization?")