Trade and conflict: trends in economic nationalism, unilateralism and protectionism

ABSTRACT

Protectionists have been accused of unraveling the multilateralist world order. The United States pulling out of the Trans-Pacific Partnership Agreement, the renegotiation of the North American Free Trade Agreement, and a series of tariffs imposed by both the US and China threaten global economic integration. Fierce protectionist rhetoric risks gridlocking a fragile trade system that faces rising discontent, especially in light of the recent globalization backlash. American geopolitical hostilities are also influencing trade policies, notably punitive tariff and trade sanctions. Meanwhile, these fears are not limited to trade. The ongoing challenge to American hegemony and rising globalization backlash are dangerous signals of economic unpredictability that could perilously escalate towards outright conflict. This special issue tackles these trends of rising economic nationalism, unilateralism and protectionism to shed light on these vital foreign policy issues and what they mean for middle powers such as Canada.

RÉSUMÉ

Les protectionnistes ont été accusés de démanteler l'ordre mondial multilatéraliste. Le retrait des États-Unis de l'accord de partenariat transpacifique, la renégociation de l'accord de libre-échange nord-américain et une série de droits de douane imposés par les États-Unis et la Chine menacent l'intégration économique mondiale. Une rhétorique protectionniste féroce risque de bloquer un système commercial fragile qui est confronté à un mécontentement croissant, en particulier à la lumière du récent contrecoup de la mondialisation. Les hostilités géopolitiques américaines influencent également les politiques commerciales, notamment les tarifs douaniers punitifs et les sanctions commerciales. En attendant, ces craintes ne se limitent pas au commerce. Le défi permanent à l'hégémonie américaine et le contrecoup croissant de la mondialisation sont des signes inquiétants d'une imprévisibilité économique qui pourrait dangereusement dégénérer en conflit pur et simple. Ce numéro spécial aborde ces tendances à la montée du nationalisme économique, de l'unilatéralisme et du protectionnisme pour faire la lumière sur ces questions vitales de politique étrangère et sur ce qu'elles signifient pour les puissances moyennes telles que le Canada.

KEYWORDS:

• Trade
• conflict
• economic nationalism
• unilateralism
• protectionism

After decades of increased integration and globalization, global trade relationships appear increasingly strained. Restrictive trade measures are not new, but their rapid proliferation has become the norm as governments actively engage in geopolitical conflicts. Trade tensions appear to be increasing as the existing rules-based international order is challenged by the rise of China and economic nationalism in the US and around the globe. The first signal was when the US unilaterally pulled out of the Trans-Pacific Partnership (TPP) and forced the renegotiation of the North American Free Trade Agreement (NAFTA).

Soon after on 22 March 2018, US President Trump imposed tariffs of $50 billion worth on Chinese imports and a day later, Section 232 tariffs on steel and aluminium came into effect, increasing the tariff rates on imports from many countries including Canada. China eventually reacted with retaliatory tariffs on US products compounding fears of “beggar-thy-neighbour” policies, reminiscent of the 1930s Smoot-Hawley Act. Although the “Buy America Act” is hardly new, the “America First” agenda was highlighted when Peter Navarro brazenly put the dangers of a rising China in the spotlight. Concerns over a rising China’s impact on American hegemony have gained bipartisan attention in the US By boldly diving into Allison’s (2017) Thucydides trap, whereby hegemonic powers dread rising powers that inescapably lead to conflict or even war, the escalation of a US conflict with China is worrisome for international stability.

However, the alienation of conventional US allies is at odds with this thesis and points towards a broader malaise regarding globalization and growing multilateralist scepticism. In an era of rising political and economic instability, increasing anti-globalisation sentiments is palpable. Some have attempted to answer the inescapable international relations question of whether protectionist measures, the ensuing escalation of retaliatory tariffs, and rising backlash against globalization are unraveling the multilateralist or liberal international order (Ikenberry 2018, Paris 2018a). Or is the current conflictual climate a simple re-adjustment to counter the perceived excesses of globalized integration?

The topic of conflict and trade is central to this special issue. Both for academic interest and from a policy perspective, these key ongoing issues in international affairs merit further study. Punitive tariffs and trade barriers have long been tools of economic warfare, enabling states to pressure one another without engaging in kinetic combat. Regardless of the various causal factors, the ongoing challenge to American hegemony and dangerous signals of economic unpredictability could perilously move beyond trade tensions towards hot wars. The implications of conflict hybridization and the increasing usage of unconventional weapons coupled with economic warfare are vital to understanding economic, political and security policy.

Canada’s place in the world is also at stake. Squeezed between the US and China, what does this mean for Canada’s middle-power foreign policy? Its declining international competitiveness and economic might may force Canada to make deals with unconventional allies that do not share its liberal internationalist values (Carment and Nimijean 2019). For Canada, trade renegotiations looked bleak when a lack of alternatives became a possibility of a no-deal for the Canada-United States-Mexico Agreement or CUSMA (Carment and Sands 2019). Canada also faces the peril of an eroding US-Canada relationship overshadowing other key foreign and domestic policy issues (Paris 2018b). Thus far, Canada has tended towards being a reactive deal taker, rather than a proactive deal maker (Dawson 2019). Should Canada opt for its traditional brand of multilateralist engagement (Paris 2018a, Paul 2018) or should it adopt a more hard-power oriented stance? This special issue aims to distinguish the various policy options Canadian foreign policymakers have at their disposal and their role in a shifting playing field.

The rise of illiberal China and the root of trade tensions

In Francis Fukuyama’s (1992) book, The End of History and the Last Man, he (in)famously predicts the rise of Western liberal democracy and an end to Communist authoritarianism. As autarkies during the Cold War period began to open their economies, international trade dramatically increased, especially after the Uruguay Round and the World Trade Organization’s (WTO) emergence. By 2001, the People’s Republic of China joined the WTO to integrate the most populous and soon to be the largest economy into this globalizing process. Many countries embraced a new globalizing world economy in which convergence became a powerful idea, resulting in increased economic connectivity through trade and investment and a general trend towards liberalization (Yergin and Stanislaw 2002). Many economies became more liberalized and integrated as regulatory systems converged. As Thomas Wright, Senior Fellow at the Brookings Institute, aptly notes,

Citizens of other nations believed it, too, including many Russians, Chinese, Indians, and Brazilians. It mattered not whether you were on the left or the right; almost everyone bought into the basic notion of convergence, even if they were unfamiliar with the term. (Wright 2017, p. 1)

The rise of the liberal international order, open borders and free trade, appeared to be a trend unbroken. Yet, behind this veil lay an increasing appeal to populist economic nationalism, protectionism, and anti-globalist sentiments across the globe.

These sentiments stem from an international economic system that is not working for all. Part of the problem rest in the false expectation that China would continue to liberalize both economically and politically after joining the WTO. This has not come to fruition. Promptly after abolishing presidential term limits, Xi Jinping has halted economic reforms in favor of a command and control economy led by state-owned enterprises (Economy 2018). Xi Jinping’s “Belt and Road Initiative” and “Made in China 2025” are two examples of protectionist policies that leverage economic nationalism. As Maçães (2019) writes, “whatever liberal currents there have been in the past, they have been marginalized in the power struggle with China” (p. 174). The economic rise of China is a challenge to US hegemony with far-reaching impacts across the globe.

As China’s economy integrated into the global economic system, a prolonged and a growing US trade deficit loomed. While the benefits of international trade are numerous, many manufacturing jobs were lost due in part to increased trade with China (Pierce and Schott 2016). The negative impact of US-China trade on the American job market was acute, affecting the low-skilled job market the hardest (Autor et al. 2013). The sense that productivity gains have not translated into higher or more stable incomes has also eroded the consensus on pursuing a multilateral free trade agenda. US President Trump’s “America First” agenda appealed to American voters during the election, and now his trade policies against China have gained bipartisan support.

As the US-China trade war rages on, this moment in world economic history may be recorded as a major economic correction or the beginning of the end of the liberal international order. Colantone and Stanig (2018) provide evidence that exposure to Chinese trade shocks is correlated with a rise in anti-globalization backlash. The reaction of citizens and governments around the world is a major theme throughout this special issue.

Middle powers caught in the midst of a global trade war

Global trade tensions will remain the norm and Canada appears to be stuck in the middle. The US extradition request of Huawei’s Meng Wangzhou placed Canada in the middle the US-China trade war and the battle over the future rollout of 5G technologies. On the one hand, Canada had to address Section 232 tariffs imposed by the US, and on the other hand, Canada continues to deal with China’s trade restrictive measures and arbitrary arrest of citizens.

While global growth and interconnectedness have continued to increase, the momentum to cooperatively liberalize international trade has stalled. The rules-based system of international trade is under siege by larger economies better positioned to weather the storm such as the US and China. The WTO’s dispute settlement system has broken down because no new judges were appointed to the Appellate body, preventing continued arbitration (Economist, November, 2019). Yet, the WTO remains critical to Canada and other middle powers for ensuring a rule-based trading system, particularly a functioning binding dispute settlement mechanism.

Although the US-China trade war appears to be dominating media coverage, countries around the world continue to sign free trade agreements. After the US pulled out of the TPP Japan forged ahead with the signing of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, including seven ratified members (Australia, Canada, Japan, Mexico, Singapore, New Zealand and Vietnam). Additionally, on 1 February 2019 the Japan EU Economic Partnership Agreement entered into force. Countries continue to buttress the rule-based trading system with new trade agreements.

Fitting the special issue into wider debates on nationalism, unilateralism and protectionism

This special issue contributes to the literature vis-à-vis the ramifications of recent isolationist and protectionist policies worldwide. This issue builds upon two previous special issues that appeared in this journal about the Canadian foreign policy brand (Nimijean, 2018) and the slowdown of globalization as well as its challenges for Canadian foreign policy (Donaghy & Roussel, 2018). The special issue consists of five articles from emerging scholars and two policy commentaries from an established scholar and a Canadian diplomat.

Interdisciplinary submissions from diverse backgrounds, whether empirical or theoretical, were received to fit the analytical eclecticism required to respond to such a far-reaching and influential topic. The purpose of this special issue is, therefore, to foster an eclectic and cross-disciplinary discussion that aids policymakers in bridging the gaps between policy and academia.

Have isolationist trends put an end to the “golden era” of multilateralism and transnational institution building? The authors differentiate the impacts of rising protectionism from those of economic nationalism. Hubert Rioux examines the nature of two competing forms of nationalism in the United Kingdom. While Britain seeks to regain economic independence from the EU through a prolonged Brexit process, it vehemently opposes the similar secessionist independence of Scotland from the UK. He notes a critical distinction between economic nationalism and protectionism. As such, economic nationalism should not be reduced to neo-mercantilism but rather a correction of the perceived excesses of liberalization and integration.

Preston Lim discusses the ongoing Sino-Canadian Huawei dispute over the arrest of Meng Wanzhou on 1 December 2018 while in transit at Vancouver International Airport. He uses this case to delve deeper into the underlying reasons for Canada’s stronger and more abrasive stance towards China amidst heightened protectionism. The ensuing tensions have been marked by Canada’s “hot-and-cold” tactics whereby policy has gone back and forth between diplomatic engagement and a hard-line approach.

Are recent trends a credible threat to the liberal international order? Despite these tensions, numerous trade negotiations have flourished on the sidelines of trade conflicts and renegotiations. Insofar as the liberal international order is concerned, Deborah B.L. Farias argues that recent protectionist trends consist of a simple re-adjustment rather than an overhaul of multilateralism and globalization. She shows that US protectionism has fostered an appetite for more trade creation and negotiations, as exemplified by the recent EU-MERCOSUR trade agreement. Although trade barriers are running rampant, the case can be made for the diversification of trade through the formation of new partnerships and agreements.

Kim-Lee Tuxhorn studies the micro-foundations of popular support for potential alternative trade agreements in light of the NAFTA renegotiations. Using population surveys, he assesses the causal relationship NAFTA negotiations have on public support and interest regarding a potential Canada-China Free Trade Agreement (FTA). He uncovers two main causal mechanisms to explain why NAFTA negotiations have garnered public support for additional FTAs: the greater distribution of benefits and threatening Canada’s access to the American market. These findings shed light on the unlikely trade creation effects that mercantilist-style protectionism can fuel abroad.

Economic tools in conflict have gained quite a bit of attention in light of the ongoing trade war. Dani Belo, moving beyond issues of trade and isolationism, he expands on the topic of the conflict hybridization by explaining how a blend of economic tools and more conventional kinetic weapons are used by Russia and China. His findings prove crucial in understanding modern conflicts between nuclear-armed states and the novel combinations of unconventional arsenals at their disposal. This contribution thereby widens the scope to understand the interplay between economic, political and military policy.

Finally, two policy commentaries offer contrasting insights into foreign policy stances. On the one hand, Randolph Mank's colorful depiction of a chaotic power shift Eastward disparages Canadian efforts of flocking to allies whilst its interests are trampled. Squeezed between heavyweights, Canada has largely been unable to stand-up for itself. He proposes ramping up Canada’s ability to stand up to greater powers through both traditional middle-power soft power as well as an increase in hard power. The author suggests that Canada can only defend its interests by enhancing Canadian military capacity as a vital deterrent to impending foreign policy pressures and rebalancing its traditional role as a multilateralist middle power. On the other hand, Manjiao Chi and Liang Qiao argue that China should portray itself as a defender of the multilateralist system and rules-based international trading system. However, Chi and Qiao are quick to point out some of the problems with this strategy, primarily China’s lack of allies on the international stage. Together, these commentaries mark significant departures from both states’ traditional stances and offer compelling insights into the international relations possibilities and decisions that lie ahead.

Conclusion

Although it may be alarmist to posit that the liberal international order is at its end, it would be a great disservice to students of international affairs to disregard the profound impacts the current trade standoffs may yield in the long-run. The backlash against the excesses of globalization and the boiling over of cumulative years under the threat of a rising hegemon will have profound implications for the readjustment of foreign policies. For middle powers such as Canada, this will mean having to choose between arduously defending multilateralism or increasing one’s coercive power as a means to stand one’s ground. As the Economist (January, 2019) put so eloquently, this period of “Slowbalization” will surely reverberate across the entire global trade architecture, and is a significant departure from the past couple decades of seemingly unending globalization and US-China convergence.

Moving forward, it will be important to properly distinguish economic nationalism from protectionism as described by Rioux using the case study of Scottish independence and Brexit. However, as Farias puts it, this could merely be an adjustment and US trade protectionism could even lead to trade creation across different geographies. Chi and Qiao contend that China could reinvent its image as a state pursuing barrier-free trade. Albeit a fundamental departure from its past and current stance on trade, these insights from Chinese scholars are a crucial contribution to a debate that has largely been studied from a US viewpoint in Canada. Moreover, keeping in mind Tuxhorn’s findings that free trade negotiations breed popular support for international trade, it will be vital to see if the converse also holds. However, one thing is clear, the hybridization of conflict and economics is more apparent than ever and, as Belo suggests, it is used differently across geographies.

The diverse and far-ranging arguments put forth in this special issue offer many insights into the foreign policy decisions that lie ahead. Whether this means Canada, as a middle power, must abandon its multilateralist brand or double-down on preserving the liberal international order, various policy options exist within an ever-changing global context. Canadian policymakers may also opt for a mix of the two, engaging in “hot and cold” tactics as described by Lim or even a more hard-power approach described by Mank, to dissuade greater powers from pushing Canada around. The main contribution of this issue is to highlight these numerous policy options and elucidate debates about trade and conflict. We hope academics, policy practitioners, policymakers, students of international affairs, and other interdisciplinary readers of this journal will gain more insights into these issues – particularly given the emphasis from a Canadian foreign policy perspective.

Acknowledgements

The guest editors would like to thank David Carment, Editor of the Canadian Foreign Policy Journal, for his assistance and guidance preparing this special issue. We would also like to thank Karla Cisneros Rosado for her contributions during the submission process and her comments and suggestions when drafting the introduction. Finally, we would like to thank the anonymous peer reviewers for their efforts and the excellent feedback they provided to all the submitting authors, including those that did not make it into this special issue.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes on contributors

Samuel MacIsaac is a PhD candidate at the Norman Paterson School of International Affairs (NPSIA), Carleton University. His most recent work has focused on Canadian immigration trends, remittance channel decision making, forced migration in conflict zones, and the effects of trade on skill acquisition.

Buck Duclos is a PhD student at the Norman Paterson School of International Affairs (NPSIA), Carleton University. His research focuses on the link between migration and outbound foreign direct investment flows.

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.