Strange Bedfellows: The Dangers of Economic Nationalism on Any Side

Last Friday, the Supreme Court of the United States declared many of President Donald Trump’s tariffs unconstitutional. The court ruled that the 1977 International Emergency Economic Powers Act (IEEPA), under which Trump had been justifying many of his tariffs, does not allow the president to unilaterally issue tariffs. What remains to be seen is how this ruling will impact the coercive power of future tariffs and how they will be justified through alternative avenues. Trump’s immediate pivot to issuing a global 15% tariff, justified under Section 122 of the Trade Act of 1974, demonstrates his unwillingness to let go of tariffs as his main economic tool. Section 122 allows the executive branch to impose tariffs of up to 15% across all trade partners, for up to 150 days unless extended by Congress, when the U.S. faces “large and serious balance-of-payments deficits.” 

What is fascinating about President Trump’s use of the IEEPA, and now Section 122, is that the tariffs are justified as a response to unfair trade practices and a cited “national security” threat of fentanyl imports from Canada, China, and Mexico. But such protectionist measures have been unable to restore the domestic manufacturing sector or balance the trade deficit. While in the case of China, a case for unfair trade practices can certainly be made, the majority of our economic partners have likely not conducted trade in a manner that could justify Trump’s tariffs. Section 122 poses an additional hurdle as balance of payment deficits, which Trump must now prove, are different from general trade deficits that allow executive tariffs under IEEPA. Balance of payment deficit occurs when a country “experience[s] an exorbitant increase in international borrowing costs and lose[s] access to financial markets,” which is certainly not the position the U.S. is currently in. Yet if Trump seeks to use tariffs as leverage in trade deals and to further his geopolitical goals, it makes sense that he would attempt to avoid a slow legislative process by finding a new path to unilaterally impose tariffs. Trump’s rhetoric, that trade with other nations hurts our nation and that tariffs will restore American industry, pervades right-wing discourse. Economic nationalism, where states “protect national economies in the context of world markets,” often goes hand in hand with white nationalism.

Economic nationalism of a similar flavor has permeated global economic and political discourse in the wake of the U.S.-China trade war. The response of many countries, with high and low gross domestic products (GDPs) alike, has been to mirror the protectionist rhetoric of right-wing nationalism emanating from America. The EU, which boasts an overall trade surplus thanks to its service and luxury goods exports, employs similarly nationalistic messaging and responses to aggressive U.S. posturing. There is a risk that nations with trade deficits with China or the U.S. will attempt to decrease their reliance on these great powers by strengthening national industries. The EU, for instance, has been proposing policies that would decrease its reliance on foreign energy and steel, while promoting products with “made in Europe” labels. While the idea of closing ranks or borders remains tempting to insulate from American financial weaponization, middle powers and developing nations should resist that temptation. A better alternative, which some countries in the Association of Southeast Asian Nations have begun to pursue, is strengthening trade between smaller powers to maintain international cooperation while reducing dependence on America.

Though not all forms of nationalism are the same, we should be hesitant to laud the nationalist economic policy or rhetoric that is on the rise. On one hand, the present form of American nationalism comes from a distinctly nativist place and condemns how globalization offshores industrial production. Ironically, many of the effects of globalization are a result of the U.S.’s own actions. Policies like the North American Free Trade Agreement delivered lower prices to Americans, but discontent developed from the uneven distribution of surplus from the newly disaggregated supply chains, especially among middle-class Americans. On the other hand, nationalism arising in nations in the Global South is motivated by the perception of exploitation by institutions and nations controlling the global financial structure. Protectionism in Latin America in the 1970s, for example, was driven by an opposition to the economic and political risks of relying on exporting raw materials and buying consumer goods from richer countries like the U.S. 

Nationalist rhetoric, as it is currently manifesting, is dangerous in both the long and short run. The president of the European Central Bank, Christine Lagarde, recently declared that the EU must “decide what we need to do to be strong by ourselves” by “rely[ing] on the internal trade that we do with each other.” The subtext of her conception of EU strength is that it will be determined by individual industry power relative to other major powers. In the face of an even more volatile international climate, given Trump’s uncertain ability to levy tariffs, this approach seems reasonable. In the short run, this conception of internal strength threatens to spiral into Trumpian nationalism if partnerships outside the EU are not prioritized. In the long run, a less diversified trade network can lead to countries being more, not less, susceptible to economic coercion. 

Economic nationalism in America seems unlikely to immediately shift following the Supreme Court ruling. While the ruling has certainly undermined Trump’s posture of unilateral authority and will likely limit his bargaining power, Trump is not backing down. However, because Trump will have to seek congressional extension for his new tariffs, the body politic will have a chance to check his nationalistic policy. It remains to be seen what a Republican-led Congress, facing impending midterms and voter pressure to reduce prices, will do. 

Revenue and trade rebalancing remain viable goals for the administration, even if economic coercion through tariffs might be weakened. If Trump attempts to diversify the statutes under which he justifies tariffs, his administration will have a higher bar to legitimize them. The ruling might cause Trump to exacerbate his rhetoric and increase animosity towards global collaboration and interconnectedness if he must meet the higher bar to justify tariffs under Section 122. 

Countries might be less willing to give credence to tariff threats and might be stronger in the face of economic coercion. Trump’s willingness to implement tariffs by other means could result in fear of short-term taxation, even if the long-term staying power of the tariffs seems less credible. If anything, Trump’s move to find other methods underscores the volatility of his economic regime, and countries will likely continue to pursue means of becoming less reliant on American trade. However, we should all be wary of the temptation to promote nationalist economic policy, even in the face of a volatile new global order.