8. Foreign Trade

Foreign trade occurs once products, services, or capital cross international borders. The level of external trade is an indicator of the ways in which a given economy wishes to promote its exports and organize its imports.

Nationalism

Alongside political nationalism, economic nationalism argues that the economy of the nation should be prioritized, that citizens should buy products manufactured in their own state to support its industry, and that foreign economic competition is threatening. Dating back to the writings of Alexander Hamilton and Friedrich List, economic nationalism is still a very significant force in the modern world, as the nation-state remains the dominant political organization. Proponents of economic nationalism promote protectionist measures, i.e. the implementation of trade barriers such as tariffs in order to reduce imports and enhance exports. That way, once the nation´s exports exceed its imports, it achieves a positive trade balance (also called trade surplus). These measures, so they argue, can protect industries and secure local jobs. Additionally, they can be particularly beneficial for infant industries, i.e. emerging industries which lack the economies of scale (see economics part) available to their foreign counterparts. Shielded from competitors, those industries can then focus on achieving an absolute advantage, i.e. the ability to create a bigger quantity of goods and services with the same inputs as their competitors (and, hence, being able to sell them at a lower price).

Globalism

Where economic nationalists prioritize the nation, economic globalists prioritize the connections between nations. Proponents of globalism emphasize that people have access to a much bigger range of consumer products at lower prices, including larger quantities of cheaper food. This dynamic, they argue, can only be achieved by removing trade barriers such as tariffs and quotas as only open borders can distribute this wealth across the world. Hence, globalists promote free trade, for example through the implementation of bi- or multilateral free trade agreements. Globalists do not regard a negative trade balance (also called trade deficit) as catastrophic. Even if a nation´s imports exceed its exports, so they argue, trade with other nations creates an economic co-dependence that hinders political conflicts. Additionally, this trade enables countries to make use of the comparative advantage, a concept dating back to the writings of 19th century political economist David Ricardo. Ricardo argued that while the absolute advantage focuses on the absolute cost to produce a good or service, the comparative advantage focuses on the opportunity cost (see economics part) to do so. If, as globalists argue, nations now focus on producing the goods that provide the lowest opportunity costs for them (due to factors such as having a high endowment of certain resources), they can trade with each other the goods they do not produce. In the end, so they say, both nations will be better off, so trade barriers should be opposed.

Debate on Foreign Trade

Globalists point out that the globalization of the 20th century led to a drastic increase of wealth in certain parts of the world (most considerably western states). However, nationalists see this produced wealth as a process that led, and leads to the deterioration of local industries and to the decline of domestic employment opportunities as many businesses chose to outsource their industries in order to profit from cheaper labor in other parts of the world. Additionally, so they argue, these other parts of the world often fall victim to exploitative dynamics caused by globalization. Thereby, free trade agreements would pave the way for some countries to exploit other countries´ resources and hinder the development of their infant industries. This argument also gets supported by more socialist-minded thinkers that claim that the unequal distribution of wealth across the world is an integral part of the capitalist system. Confronted with this argument, economic globalists point out the positive social aspect of globalization as, according to them, open borders lead to a successive rise of labor standards and the decline of economic inequality. On the other hand, nationalists criticize its damaging aspects, most notably the immense political power of multinational corporations and severe environmental damages.