Acton Institute Powerblog

What are the unintended consequences of economic nationalism?

Protectionist policies are, on the surface, attractive. Through state means, they promise to protect industries and workers as well as boost a country’s industrial production. But like most top-down solutions, there’s a catch; the government has a knowledge deficiency. “No one knows what technological innovation or entrepreneurial insight will upend the present economic landscape in America—or any other country,” explains Samuel Gregg in an article in Law & Liberty. “Nor can such developments be anticipated by economic nationalist policies.” Evidence proves that when protectionist policies are implemented and a country is shielded from competition, this will impede a country’s ability to adapt to changes in an industry, likely resulting in economic loss down the road.

By examining the past results of economic nationalist policies in various countries, Gregg shows how supposed solutions like tariffs and subsidies have hurt nations. Negative repercussions of protectionist policies can be seen in France, Japan and the United States:

A prime example is the Smoot-Hawley 1930 Tariff Act. In Peddling Protectionism: SmootHawley and the Great Depression (2011), Irwin demonstrates that increasing tariffs on over 20,000 imports not only resulted in higher prices for American consumers during the Great Depression; it also provoked retaliation against America, thereby hurting those American businesses which produced for foreign markets. As a consequence, Irwin states, “America’s share of world trade fell sharply in the 1930s.”

Gregg does address issues of trade with authoritarian governments, such as China: “By all means, America should confront authoritarian mercantilist states like China that, among other things, steal intellectual property and routinely violate WTO rules. A concern for free trade, not to mention justice, demands aggressive action in these areas,” he says. “In the long-term, however, economic nationalism damages the common good of those countries which embrace it. That’s the paradox which economic nationalists need to address.”

Read: How economic nationalism hurts nations

Caroline Roberts

Caroline Roberts is a managing editor at the Acton Institute and produces Acton's weekly podcast, Acton Line.