For many years now, all the major forces in business, technology and finance have been pushing in the direction of ever closer global integration. The achievements have ranged from regionally limited trade pacts such as NAFTA, Mercosur and ASEAN to the European Union and its crowning triumph, the creation of a currency union in the Eurozone. New supranational organizations were set up to handle cross-border issues, among them the World Trade Organization as successor to the General Agreement on Tariffs and Trade, the G-20 group and the International Criminal Court. International business benefitted greatly from the process.
Of late, though, there are more and more indications that this process is reversing and giving way to a wave of nationalism. This is showing itself in the abruptly and in many cases unexpected increase in stature of politicians conveying the message that they are defending the interests of their own countries against unfair competition and other interference from others. This has already led to an increase in international tensions and has greatly complicated the attempts that are still being made to further cross-border cooperation, whether it be on trade, or on taxation, or on general development.
The new trend is evident in Asia, where China is aggressively pursuing national interests in the East and South China Seas to the perceived detriment of other countries, from South Korea and Japan to Vietnam, the Philippines and Indonesia, and where a Hindu nationalist, Narendra Modi, has won a sweeping election victory in India. It is visible in the big gains nationalist parties have made in the elections for the European parliament, with France’s National Front and the Britain’s United Kingdom Independence Party (UKIP) scoring noteworthy successes.
There is the fact that Scottish nationalists came awfully close to winning a plebiscite on independence from the UK and that Russia’s President Vladimir Putin is using increasingly combative nationalistic rhetoric to justify his annexation of Crimea and his trouble making in the Donetsk and Luhansk regions of Ukraine. There is also a growing trend in many countries, in Europe and elsewhere, to restrict immigration and pass laws that are intended to dissuade employers from hiring non-nationals.
Depending on the country, there are varying reasons for the nationalistic outbursts. In Western Europe, high levels of immigration and the tendency to blame many social ills on immigrants play an important role. In Asia it is a shifting power balance that has put China into the driver’s seat and has encouraged a focus on historic grievances. In Russia, lingering disappointment with the collapse of the Soviet Union and economic as well as political humiliations along with an avid desire to regain big-power status have been underpinning much of the Putin regime’s encouragement of nationalism. In the United States, a series of geopolitical setbacks abroad, the threatening rise of ISIS and labor complaints about outsourcing of jobs have been working together to drive policies pursuing national interests, above all.
Looking ahead, there will be a number of markers on the road that will tell whether the new trend toward nationalism will continue and strengthen or whether is it but a temporary aberration. In Europe, it will be, among other things, the ability of the Eurozone to hang together and cope with the problems of Greece that will be indicative. So will be the election fortunes of Marine Le Pen’s National Front in France, those of UKIP in the UK, and those of Alternative fuer Deutschland and PEGIDA Patriotische Europaer gegen die Islamisierung des Abendlandes (Patriotic Europeans against the Islamization of the West) in Germany and perhaps Austria. In Russia, it will be the question of whether Putin can ride the nationalist wave he has created and expand his territorial ambitions beyond Ukraine to, say, the Baltic nations.
But above all it will be the success or failure of the negotiations on the Trans-Pacific Partnership (TPP), an ambitious trade agreement linking the United States, Japan and ten other countries (together accounting for 40% of global GDP). For that accord, time is now of the essence. There is not much room left to complete it before the US becomes deeply involved in a presidential election campaign that will make progress virtually impossible until after 2017. The TPP is an ambitious project, seeking agreements on contentious reforms covering intellectual property, the treatment of state-owned companies and environmental as well as labor standards. It also aims to create unanimity among countries at very different stages of development, from Peru and Vietnam to Australia and the United States.
While it is pending, competitive undertakings are making headway. One is the China-led Asian Infrastructure Investment Bank, which is being created as a rival to the US-led World Bank. A number of close US allies have applied to become founding shareholders, ignoring the Washington argument that the institution will become a threat to global standards. Another is the fact that China, presently excluded from the TPP talks, is in negotiations with 15 other countries, including the 10 members of ASEAN as well as India and Japan, on what is coming to look more and more like a rival trade agreement.
The fate of the TPP currently hangs on whether or not the US Congress will grant the Obama Administration “Trade Promotion Authority,” or fast-track negotiating authority. If the answer turns out to be no, no other country in its right mind will waste time, effort and political good will to reach an agreement that can then be picked apart clause by clause by our solons on Capitol Hill. Some think it would be no big loss if the TPP were assigned to the dust bin of history. What they ignore, though, is that with the Doha initiative having largely failed and the prospects of a global trade deal under the WTO having faded away, the next-best arrangement would be one linking the US, the world’s largest market, with the world’s fastest-growing region, Asia and the Pacific.
Contrary to a myth widespread in the US that recent trade agreements, including NAFTA, have hurt jobs and wages and widened income inequality, free trade almost invariably leads to greater overall prosperity. With regard to the TPP, the critics have exaggerated and distorted the economic costs of the accord while all but ignoring the benefits. The deal matters because, if it falls by the wayside, yet another avenue – and currently one of the most critical ones – toward improved internationalization will be closed and the already spreading nationalism will be given additional encouragement.
[April 6, 2015]