“The result almost everywhere was a turn inward in trade, finance and investment. In Southern, Central, and Eastern Europe, Japan, and Latin America, governments imposed high trade barriers, defaulted on their foreign debts, left the gold standard, and slapped on capital controls.
“Governments in these nations also typically began to play a more directive role in economic affairs, sometimes nationalizing large portions of the economy. The Soviet Union, which had jettisoned capitalism in 1917 but permitted some aspects of a market economy to persist, shut down these vestiges and embarked on a forced march toward industrialization under central planning. The order of the day was autarky—a classical Greek term recoined to mean a purposive economic policy of national self-sufficiency: trade protection, capital controls, an inconvertible currency. This was usually carried out by an authoritarian government—fascist in Central and Eastern Europe, communist in the Soviet Union, nationalists in Latin America—as almost all the preexisting democracies were swept away.
The new autarkic governments changed direction toward heavy-handed intervention in the economy and international economic relations, so much so that the policy was sometimes, and with some justification, called ‘neomercantilist.’ Yet developing and semi-industrial countries could hardly be faulted for falling back on their own resources: international trade dropped by two-thirds between 1929 and 1932, international finance was dead in the water, and the gold standard had largely been abandoned by its strongest proponents. The autarkies could, with some reason, argue that their turn inward was driven by the failure of the global capitalist economy.” (THE MODERN CAPITALIST WORLD ECONOMY: A HISTORICAL OVERVIEW, Jeffry A. Frieden)
IN his book, excerpted above, the author describes what was then the prevailing economic order of the day.
Characterized by maximization of local output--something that can only be done by closing one’s economy to outside players and competition--it was partly responsible for starting the two world wars, the end of the second one which finally ushered in free trade and a new world economic order. Close to three-quarters of a century later, the world is back again at trying to create borders and walls, and promote isolationism.
Two of the most significant ones are in full display, and playing out before our very eyes. Trump disguises it by his “Make America Great Again” slogan. When knitted together by his wall-building and tariff-imposing rhetoric, and actions against his neighbors and erstwhile trade partners, it is clear that he is taking the United States inside its shell, eschewing global trade and immigration.
Britain, with its much talked about Brexit problem is also facing the same issue. Two years ago, the British--I should add that it was by a very narrow majority--voted in favor of getting out of the European Union and European Customs Union. And ever since that time, Britain has never been the same again, and nor will it be the same since.
At the crux of the problem are the same arguments that mercantilists of a century ago put forth to justify why they choose isolationism versus globalism. Witness how Trump unilaterally blames China for America’s economic woes, and threatening trade barriers as a deterrent. What has happened is that both sides have now dug in their positions, no one seemingly willing to compromise.
Brexit is a very similar situation, that the “outsiders”--that is, citizens of other countries within the EU--are being held responsible for the UK’s difficulties.
Neo-mercantilism and a renewed call for the return to nation-states, which veer away from the global economic system, are fraught with dangers. Just as isolationism eventually led to internecine fighting among neighbors, Trump’s MAGA and the UK’s Brexit could yet prove to be trigger events that may cause potential conflict, the scale of which most of the world has not seen in quite a long while.