Nationalism may be fine, but protectionism isn’tIn the name of attaining self-sufficiency, several industries have been haphazardly protected with subsidies and tariffs.
Political ideologies can primarily be segmented into liberal versus conservative, or, left versus right. Increasingly these days, another battlefront has taken the centre stage—that of globalism versus nationalism, or, free trade versus protectionism. Merriam-Webster defines globalism as ‘a national policy of treating the whole world as a proper sphere for political influence’ and nationalism as ‘loyalty and devotion to a nation’. The Cambridge Dictionary goes one step further, defining globalism as ‘the idea that events in one country cannot be separated from those in another and that economic and foreign policy should be planned in an international way.’ Similarly, free trade means just what the name implies—countries trading with each other with as few restrictions or limitations as possible. Protectionism is the other side of the coin, with countries trying to protect their local industries using tariffs etc. At the risk of generalising too much—globalists are free traders, while economic nationalists tend to be protectionists.
Nationalism in the upswing
In recent years, there has been a palpable rise in nationalism. Under Donald Trump as president, the United States has seen an increase in nationalism. The US currently is in the midst of a trade war with China, with tariff threats dangled in front of several other countries, Mexico being the most recent one. Across the Atlantic, a referendum was held in June 2016 to decide whether the United Kingdom should leave or remain in the European Union; the leave vote won by 51.9 percent. The so-called Brexiteers, not enamoured with the customs union and single market that comes with the EU, want to go it alone. In recent years, nationalist and far-right parties have exceeded expectations in European elections, including in Italy, Hungary, Spain, Finland and Austria. Most recently, in European parliament elections in late May, pro-EU parties won about two-thirds of the seats, although far-right Euroskeptics saw strong gains, most notably Britain’s Brexit Party (Nigel Farage), France’s National Rally (Marine Le Pen) and Italy’s Northern League (Matteo Salvini).
In Nepal, the then leftist alliance’s victory in the 2017 elections arguably was a direct beneficiary of a nationalistic wave that swept the country. On September 20, 2015, the Constitution of Nepal was passed by the Constituent Assembly with 90 percent approval. Soon followed protests by the Madhesi people, who demanded specific changes to the constitution. New Delhi asked Kathmandu to take Madhesi interests into consideration. Right away, imports of petroleum, cooking gas and other essentials from India slowed to a trickle, reviving bad memories of 1989 when a similar blockade lasted for months. This time around, it lasted over four months. The perception that the blockade had the blessings of New Delhi helped fan an anti-India sentiment. Instead of giving in to protesters’ demands, the KP Oli government sought help from China to cope with shortages. The public rallied around his outreach to the northern neighbour, rewarding his party in 2017 elections.
The nationalistic fervour that Oli and his party rode back then was different from the one that is sweeping across particularly the US and Europe. In the latter, nationalists tend to be on the right side of the liberal-conservative pendulum. In Nepal, they voted for communists, although the use of the word communist here is more of a misnomer. But then again, does anyone practice pure Marxism in this day and age? Does even China? Karl Marx and Vladimir Lenin must be rolling over in their graves. With all that said, Nepal’s communists obviously lean left. From this standpoint, the nationalistic fever that caught Nepal back then was more along the lines of patriotism, with the blockade-stricken public deciding it was time politicians got serious about opening up access to the north and rewarding the then CPN (UML) for taking that initiative.
Nationalists in Europe and the US increasingly tend to be protectionists. Dissatisfaction about the effects of globalisation is on the rise. Before Mikhail Gorbachev announced the dissolution of the then Soviet Union in 1991, the world was divided into East and West. Not much trade took place between the two blocs. Post-Cold War, companies increasingly went global, concepts such as the economies of scale and comparative advantage took roots, and things became much more competitive. Last year, for example, the Volkswagen Group sold 10.8 million cars globally, operating 122 production plants in 31 countries. This helps local economies; uplifting living standards. China has essentially become the world’s factory, although in recent years global outsourcing increasingly has shifted to countries with lower production costs like Vietnam.
Globalisation and free trade have done wonders to the world. But it is not perfect. No system is. Particularly in the wake of the 2007-08 global financial crisis, tensions have risen over economic inequality. Wealth creation is increasingly top-heavy. The rich-poor gap has widened. This has given rise to far-right politicians, who fan the flames of nationalism and protectionism. And odds are that it will get worse before it gets better. Post-crisis, major central banks aggressively eased, deploying both conventional and unconventional tools. The global economy stabilised, but it always struggled to get back on a sound footing. Throughout the recovery, leverage grew. Once again, growth is sputtering, with major central banks increasingly dovish, but their conventional monetary quiver lacks sufficient arrows. They are also focused on the wealth effect, trying to drive up prices of stocks, which again benefits the rich more than the poor. The likely end result of all this is more protectionism down the road.
Protect emerging industries
Protectionism is not a route Nepal can afford to take. If it must go down that path, it has to be to protect emerging industries with potential—those that can one day compete internationally. Instead, in the name of attaining self-sufficiency, several industries have been haphazardly protected with subsidies and tariffs. It is in the private sector’s DNA to try to protect its own turf and advocate for higher tariffs. It is the policymakers’ job to realise that this is how zombies are born. If anything, in order to cut its massive trade deficit, Nepal needs to boost exports. For that, it needs access to international markets. The markets will only open up for our country if Nepal reciprocates. Importantly, despite the prevailing trend abroad, nationalism does not have to equal protectionism. In fact, if channelled properly, it can be a positive force. As living standards have risen, Nepalis have been spending billions annually vacationing overseas. Can any politician—or policy, for that matter—arouse public sentiment to forego foreign travel for domestic tourism? If this was achieved, it would be an example of nationalism best at work.
Pandey worked in the securities industry in the US for two decades. He tweets at @hedgopia.