Image by the Prime Minister’s Office.

Brexit, Donald Trump and the growing nationalism wave sweeping across the Western world represent a new political backlash against globalisation, which might seriously threaten the world liberal economic order and global security.

In her much-anticipated speech on 17 January, UK Prime Minister Theresa May announced her plans for a “Hard Brexit”, which will end Britain’s membership in the EU and the European Single Market. The rhetoric of closed borders that had driven the campaign could no longer be ignored. Nationalism is back, and has gained ground outside the UK. Indeed, both “Brexit” and Donald Trump may be the first symptoms of globalisation’s retreat.

To begin with, the whole Brexit campaign was a successful call for a less “global” UK. That meant ending the country’s openness to immigrants, its membership in a regional union and its adherence to shared laws and institutions. Not without logic, European newspapers ridiculed May’s newly envisioned “Global Britain”, which they dubbed “Little Britain”. Although freer movement of goods, services, capital and persons brings economic efficiency, globalisation also brings vulnerability and risks. The vivid memory of the recent global financial crisis, global migration and transnational terrorism made “Little Britain” appealing to many voters.

Financial markets promptly reacted to Britain’s decision. In the wake of the referendum, investors scrambled to sell sterling, causing the British pound to hit a 31-year low against the dollar. Moreover, Theresa May’s announcement to leave the single market further raised concerns over reduced trade and investment flows with the Old Continent, increased non-tariff barriers and the unknown future of the City of London. Certainly, new bilateral agreements could restore confidence in the long run, but these might not offset Britain’s lost privileged relationship with the world’s largest market. For now, investors panic as the UK shuts its back door to the global political economy.

On the other side of the Atlantic, President Trump based its campaign on a similar nationalist rhetoric, although the economy here was at the very centre of the debate. For Trump, Mexican undocumented workers are guilty of “stealing” low-skilled jobs in the US and, to stop them, he has insisted on building a wall along the southern border. Trump has also accused China of being a “currency manipulator”, thus of keeping the yuan cheap to encourage Chinese exports and make US products less competitive on the market. Similarly, American companies that employ cheap labour abroad should fear new tariffs to sell back in the US. As in Britain, terrorism, security and immigration were key themes in Trump’s campaign.

The message behind this is that a less globalised America will make it “great again”. Yet few were able to predict that Trump’s powerful statements would lead him to the White House, and that, once in office, he would follow through on them. Indeed, in the wake of the election results, stock markets closed slightly positive, with investors betting on Trump’s promises to spur growth and a likely revision of his anti-trade rhetoric. Yet no revision occurred. “Beginning today, the United States of America gets back control of its borders”, he reasserted right away as President, after signing his first executive order withdrawing the US from the Trans-Pacific Partnership (TPP)—as promised.

Economics seems to have failed us again. Neither Donald Trump’s foreign policy approach nor Britain’s idea of leaving the EU made much economic sense. Yet precisely for this reason, experts failed to foresee either. In both cases, the majority of voters (or at least many in the US) were less concerned about the economic inefficiency of raising barriers than about national identity and security at a time of serious global risks. Even the TPP and the TTIP (deals aimed at further reducing barriers to trade and investment with Asia and Europe) were economically reasonable proposals, though the fear of losing domestic jobs and national sovereignty prevailed. Sometimes, political analysis is crucial for anticipating dramatic events that are economic by nature.

What’s Next?

Needless to say, the extent and implications of globalisation’s retreat remain unclear. As for the scale of the phenomenon, much will depend on Trump’s foreign policy, on whether his enemies (especially China) will retaliate, and on how many more will turn to populist politics the world over.

Free trade areas and economic unions, like NAFTA and the EU, are particularly in danger. Trump has already announced that he plans to re-negotiate NAFTA, and imposing a 20% tax on Mexican imports to pay for the wall is not exactly in line with the terms of the agreement. In Europe, populist parties are threatening the future of the union, while some experts warn the Italian banking system might be harbouring a new, fatal Eurozone crisis.

The implications for the world order are also scary. Indeed, governance and cooperation on areas such as the environment and international finance (to name but two) could be particularly hurt, especially in light of Trump’s greater support for oil drilling and financial deregulation. One problem with this is that the 2010 Deepwater Horizon oil spill in the Gulf of Mexico and the 2008 financial crisis, two of the most catastrophic events of the last nine years, are more likely to repeat themselves.

Yet America’s unwillingness to maintain its role as a global leader will not only threaten multilateral institutions, but also geopolitical relations, security and stability. A question that matters here is whether China is going to take on that role—a question that has divided Chinese domestic interest groups for years. So far, the powerful state-owned enterprises and the governors of the wealthy coastal provinces have benefited from China’s bilateral approach to international trade and finance, and have opposed the internationalisation (and appreciation) of the currency. However, President Xi Jinping’s recent pro-globalisation speech at the World Economic Forum might highlight a change.

Certainly, the 70-year-old, US-led liberal economic order has begun to falter, and only time will tell whether it will stand or fall.

Image courtesy of the Prime Minister’s Office.