Is economic nationalism sustainable?
The answer is no, according to Gary Gereffi, director of the Duke GVC Center. “National economies can’t be self-contained industries. They have to tie in to other parts of the world. We can re-think relationships, but we need to find a partnership model,” he said.
Gereffi articulated this point of view during an April 5th event organized by the Duke International Association entitled US Election, Brexit & Globalization. Giovanni Zanalda, Director of the Duke University Center for International and Global Studies, and Alexander Rosenberg, Duke Professor of Philosophy, joined Gereffi for the panel discussion.
Gereffi provided context on three different waves of globalization that have set the stage for the current rise of economic nationalism.
· 1945–1990: Following World War II, the Bretton Woods Conference led to the creation of the International Monetary Fund, the World Bank and other institutions to promote stability of exchange rates and financial flows in the aftermath of the war. This was key to reconstruction and a means for the West to contain communism in the Soviet Union and China.
· 1990–2008: This intense period of globalization was triggered by the fall of the Berlin Wall, the subsequent collapse of the Soviet Union and economic liberalization in China and India. This ushered in the Washington Consensus, which emphasized the opening of developing countries to global markets. As the name implies, this was led by the United States. This period led to the rise of the BRICs: Brazil, Russia, India and China.
· 2009 — current: The strong economic growth from the previous period came to a screeching halt with the 2008–2009 global economic recession. Imports and exports slowed while uncertainty about what worked in the past rose in prominence among certain groups. Although the Washington Consensus model was discredited, there was no obvious successor.
The current era of globalization has led to an inward turn for many countries, according to Gereffi. If the United States were to become more insular in line with some of Donald Trump’s rhetoric from the 2016 presidential campaign, it would create a leadership vacuum in maintaining established trade agreements (like NAFTA), international alliances (like NATO), and the broad United Nations system that underpins the global economy as we know it. Such a move inward also doesn’t mean more jobs from the US perspective.
“Frequently a US company is dealing with international production networks where the assembly of finished goods is moved offshore, while key components or subassemblies are provided from the US,” said Gereffi. “Running a company like that means knowing how to manage global supply chains involving a variety of firms. Many US companies that initially focused on making everything at home have no idea how to manage this form of coodinated production where cross-border logistics need to be very precise and the financing is decentralized. Also, even if the same companies that left the US now return, they are likely to bring back far fewer jobs than before because production was probably more labor-intensive in the earlier period.”
Raising tariffs on imports could have negative ramifications on the US (as well as the exporting country). Many companies have set up regional and global production networks to make finished products using a large proportion of imported parts. Case in point: a car has about 30,000 distinct parts and an iPhone has hundreds of parts, many of which are not available in the US supply chain.
“If you try to raise taxes on all the inputs that are made in different countries, you’re not only affecting the parts producers abroad, but also the final goods producers in the US,” explained Gereffi. This is true for the US automobile industry, where 40 percent of the $20 billion in auto parts imported from Mexico are US-made parts and components.
While economic nationalism is not sustainable, Gereffi believes that actions need to be taken to support those who might view themselves as impacted negatively by globalization. In industrialized nations, the most vulnerable groups often are workers whose skills and experience are rendered obsolete by new technology at home or low-cost imports from abroad.
“Globalization creates winners and losers and in the United States we don’t have a strategy for the losers,” he said. “How do we re-build workforces among certain industries? We haven’t paid enough attention to this.”
As a reference point, Gereffi highlights that 25% of Germany’s workforce is in manufacturing, while in the US it is just 9%. The discrepancy is due to Germany’s emphasis on re-training employees to cutting edge technologies.
“For the US to rebuild manufacturing, it requires creative thinking,” he concluded.