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Foreign Policy

Economic Nationalism in the Asia-Pacific and Potential Remedies

Oct 10, 2019

East Asia is a powerful testament to the relevance of nationalism in world politics. National humiliation, historical amnesia, victimization narratives and the like normally grab today’s headlines, but it’s often forgotten that East Asia’s rapid modernization would have probably been less spectacular without well-rooted nationalism and powerful nation-states. Even Marxist historian Eric J. Hobsbawm, who made a name for himself for pointing that nation-states and their paraphernalia were “invented traditions,” suggested that Northeast Asia was made up of rare examples of ethnically homogenous proto-nation-states. Meiji Japan’s rapid industrialization for the sake of a “rich nation and a strong army” (fukoku kyōhei) was fed by economic nationalism. And the Japanese state has remained integral to capitalist development in the post-war years, in no small part thanks to widespread top-down moral suasion campaigns embraced by grassroots movements. Japan’s neighbors eventually emulated its modernization blueprints: from South Korea’s Park Chung-Hee’s October Restoration — explicitly named after the Meiji Restoration — all the way to late Qing China and Xi Jinping’s industrial policies aimed at “wealth and power” (fuqiang).

Nationalism has served post-war East Asia’s catch-up under a US-led multilateral and open economic order, which would include China by the late 1970s. But nationalism can be a double-edged sword, as economic pies shrink and great power rivalry resurfaces. In fact, scholars and commentators have identified a set of interconnected external and internal causes behind the decline of the so-called international liberal order. Far from the Panglossian dreams of the early 1990s, the latest globalization tidal wave ended up empowering the rise of potentially revisionist autocracies, such as China, and – when accompanied by the twin-evils of unfettered liberalization and financialization – it stranded large portions of high-income countries’ middle classes and widened socio-economic inequalities. Rentier capitalism, secular stagnation (in more mature economies), identity politics and the return of Great Power competition have reinforced today’s Hobbesian backlash against globalization, made up of protectionist and souverainist temptations, populist strongmen, and political involution: today’s trends showcase the bad side of economic nationalism.

What can be done to solve the situation? As analysed elsewhere, free trading and open Western economies must rectify China’s economic practice, but the most important homework is at home. A new social compact that reforms today’s capitalism’s distortions is in order: these are of the gravest impact on liberal democracies. Interestingly, a slowly growing Japan may again be a trend-setter, now as a potential cure to the dark side of economic nationalism in the wider context of the turbulence in Western liberal democracies. Japan experienced two lost decades marred by economic stagnation, and Abenomics’s structural reform arrows pale in comparison to its ultra-expansive monetary and fiscal ones, which have allowed Japan to grow again. Indeed, Abenomics’ neo-Keynesian tools are now carefully studied as secular stagnation ensnares OECD economies: to fight the risks of deflationary spirals and prop up lacklustre demand, and to offset higher private savings compared to investment, there’s a growing chorus of voices calling governments and central banks to push for more generous fiscal spending and bolder monetary policies. We’re witnessing these trends within the European Union, with the return of the European Central Bank’s quantitative easing and negative interest rates, the advent of a new Commission bent on public (green) investments, industrial policies aimed at EU-wide champions, and boosting an EU-wide fiscal budget. This Neo-Keynesian wave is hitting also the United States, where major Democratic Party candidates have placed federal-backed healthcare reforms front and centre of the primary election’s debates. Sensing a more hostile atmosphere, even big US businesses recently announced − through the 2019 Business Roundtable − a desire to give back to societal stakeholders, and trim back on profit-maximization for its shareholders.

In many ways, the US-China clash is premised on the dark side of economic nationalism from both side of the Pacific. Trump’s willingness to prioritize the rectification of major US economic imbalances through a naïve mercantilism has matched with the US security establishment’s concerns with China and hawkish economic nationalists now sitting in the White House. This combination of factors has translated into a heavy-handed China policy, in turn emboldening hawks in Beijing, which is unwilling to make a meaningful deal. In short, both sides believe that the counterpart is weaker than it meets the eye: China smells Trump’s weakness, especially after the Democratic Party’s decision to push forward on impeachment, while White House officials believe that sputtering Chinese growth will convince Chinese Communist Party officials of the merits to cave in to US pressure. Due to economic frictions, China is doubling down on fiscal expenditure and investment incentives for its high-tech industries and, with a view on the long term, Xi Jinping has called for an era of “self-reliance” in the development of new technologies. Meanwhile, as tit-for-tat protectionism of the 1930s reminds us, nationalism can easily feed into a zero-sum spiral of distorted market and unfair trade practices met with import tariffs, beggar-thy-neighbour policies and so on. Rather than blaming powerful economic counterparts for their own malaise, western democracies and China alike may well want to study Japan’s pragmatic remedies to ameliorate the slippery slope of present-day economic nationalism. Make no mistake: calls for economic decoupling or self-reliance, like earlier ones for autarky and economic self-sufficiency, will make us all poorer and exacerbate the risks of war.

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