Why ‘Protectionism’ is the Word of the Year
A Changing World Order | #WORDSTHATMATTER2018
The United States has built and facilitated a world of increased economic cooperation since the end of World War II. This ended in 2018 when we have experienced a severe shift away from policies that favor international cooperation in favor of policies that favor nationalist interest. The new tariffs are the flagship tool used by President Donald J. Trump in his quest to adjust the world order so it is more favorable to Americans. The shift toward protectionism has ended 70 years of cooperation, changing the course of history forever.
An End to Economic Nationalism
At the end of World War II, the United States and the United Kingdom wanted to increase free trade and economic stability. They had just fought in two World Wars, and they believed the second one was caused by a failure to address economic problems that came out of World War I. To prevent this from happening again, the two countries held conferences throughout 1944 with representatives from across the allied countries.
The most famous part of this conference series was the United Nations Monetary and Financial Conference. The meeting is also known as the Bretton Woods Conference because of it took place at the Mount Washington Hotel in Bretton Woods, New Hampshire. Here, 730 delegates from 44 allied countries met for three weeks to discuss the new global order. That order prioritized the idea of open markets and economic cooperation over nationalistic advancement. It included a commitment from the industrial democratic nations, like the United States, to lower trade barriers like tariffs and to jointly govern the new system.
The Bretton Woods Conference established the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD) (which became part of the World Bank Group). The IBRD was charged with financing the reconstruction of Europe after the war. These institutions are both still active today. The conference also created regulations to help facilitate international trade. Today the World Trade Organization (WTO) is an intergovernmental organization that regulates international trade and tries to prevent trade wars by setting rules for how tariffs are applied. The idea for the WTO was planted during this conference however, it was not created until 1994. The industrial democratic nations agreed to govern these three outcomes from the conference.
In U.S. Treasury Secretary Henry Morgenthau in his closing remarks, he declared that the creation of the IMF and the IBRD marked the end of economic nationalism. National policies would support global trade and not policies that restrict the movement of labor, goods, or capital, like tariffs.
More Peaceful Times
People argue that this economic cooperation has lead to one of the most peaceful times in history since there has not been a war between the world’s leading powers since the end of World War II. Increased economic cooperation and dependency, reduces armed conflicts between world leaders.
As required by its industrial democratic nation status, the United States has been a leader in the Bretton Woods Era and beyond. This leadership position has costs. I learned from The Accidental Superpower: The Next Generation of American Preeminence and the Coming Global Disorder, by Peter Zeihan, the U.S. Navy protects global shipping routes. The U.S. Navy protects all ships regardless of its origin, destination, or ownership safe from pirates. American taxpayers pay for the Navy, but they benefit from its policing in two ways.
First, goods moving between countries let people buy and sell stuff from around the world. Americans buy vegetables out of season from Chile or cheap toys from China. African farmers sell their chocolate for a better price to Europe and North America. In these cases, individuals benefit from trading, but at a higher level, the two economies are now more interconnected. As trade increases between countries business people start to travel and ideas and cultures are shared. This interconnectedness means that a war and conflict between the two countries will harm both. Therefore, they are more willing to work together to solve issues that arise.
Second, since the U.S. Navy polices the international waters, no other country needs a large navy. They might have a small navy to protect their coasts, but it is not as big as the United States Navy. Since navies have played such an important role in international conflicts for centuries having the biggest navy in the world is a military advantage to the United States. This system allows the United States to have the biggest navy, without being in an arms race with other global leaders.
The revival of Economic Nationalism
In 2018, Trump adopted a protectionist slate of policies, which includes the tariffs but also policy actions that question the very institutions that the United States fought to create. In addition to openly questioning the free trade policies, Trump’s new protectionist agenda is filled with policies that favor domestic production and specific domestic industries and not free trade and globalism.
Trump has put tariffs on solar panels, washing machines, steel, aluminum, and Chinese goods. Many countries facing tariffs have brought dispute settlement cases to the WTO. The WTO will decide if the tariffs were applied correctly under international law. Meanwhile, Trump is considering additional tariffs on autos that enter the United States.
In response to previous tariffs, countries around the world have enacted counter-tariffs against U.S. imports. Trump’s tariffs apply to goods that come from our allies as well as our enemies. The tariffs on allies are straining relationships and forcing them to find new trading partners. These actions are increasing the United States’ business and diplomatic isolation.
Right now, the news, businesses, and consumers are focused on the economic impact of the tariffs. Will the tariffs cause inflation or the next recession? How much will the tariffs cost American households? How many jobs will be gained or lost? But, eventually, the discussion will turn from the present economic impact to the long-term impact of these new policies on the world economic system that was created 70 years ago.
Unions and Blocs
This shift toward more protectionist policies is happening in Europe as well as the United States. The United Kingdom co-led many parts of the Bretton Woods Conference and in 2016 the British people voted to leave the European Union, commonly called Brexit. This move will weaken the European Union, but a weaker union does not directly translate to a return of wars that plagued the continent for centuries. The terms of Brexit and its impact on the British economy will be important. Economic losses may dissuade other countries from leaving the Union too.
While the West struggles with cohesion, the East, led by China, is embracing a more interconnected world. China sent representatives to the Bretton Woods Conference but was not an industrial democratic nation. Now, China is taking a more proactive role in governmental and economic affairs with its Belt and Road Initiative, a development strategy where China is investing in infrastructure and investment projects throughout Europe, Asia, and Africa. The goal is to “enhance regional connectivity and embrace a brighter future”. Outside of China, many people see this as a push for dominance in global affairs and a China-centric trading network. Much like the United States position over the last 70 years.
A New World Order
Could the Belt and Road Initiative replace the global order created by the Bretton Wood Conferences? Will the Chinese version of communism combined with capitalism replace the industrial democratic system that arose from World War II? Possibly. But it seems even more likely if the United States retreats and surrounds itself with protectionist policies instead of staying engaged and fighting to maintain a world order that has had so many global benefits.
More Reading
Interested in learning more about the Bretton Woods Conference? Benn Steil’s The Battles Of Bretton Wood talks about the drama and personal conflict that took place during the Conference.
