Liberalism, Neoliberalism and Economic Nationalism
The Evolution of Liberalism
Liberalism has not died, but has continuously evolved in response to economic crises, social change, and political pressures. Although its principles have been challenged at different moments in history, liberalism remains one of the most influential traditions in international political economy and continues to shape global economic institutions and policy debates.
Classical Liberalism and Its Principles
Classical liberalism emerged in the late eighteenth century with thinkers such as Adam Smith and David Ricardo. It is based on the belief that free markets and free trade are the most efficient ways to allocate resources and promote economic prosperity. Smith argued that when individuals pursue their own self-interest within competitive markets, their actions can unintentionally benefit society as a whole. For classical liberals, the role of the state was limited but essential: governments were responsible for providing justice, national defense, basic public goods, and rules that ensured fair competition. At the same time, Smith warned that monopolies and corruption could distort markets, showing that economic freedom depends on strong moral and institutional foundations. Ricardo reinforced classical liberalism through the theory of comparative advantage, demonstrating that countries gain from trade by specializing according to relative efficiency rather than absolute productivity.
Keynesian Response and Embedded Liberalism
The limits of classical liberalism became evident during the Great Depression of 1929, when markets failed to self-correct and mass unemployment spread across industrial economies. In response, John Maynard Keynes argued that government intervention was necessary to stabilize capitalism and prevent economic collapse. By managing overall demand through public spending in recessions and restraint during periods of growth, states could reduce instability without abandoning markets. After World War II, these ideas shaped the Bretton Woods system, which combined open international markets with national welfare states and economic regulation. This model, often described as embedded liberalism, allowed governments to pursue trade liberalization while protecting social stability and employment under U.S. leadership.
Neoliberalism and Its Consequences
During the 1970s, economic stagnation and high inflation weakened confidence in Keynesian policies and encouraged a return to market-oriented ideas. This shift led to the rise of neoliberalism, inspired by thinkers such as Friedrich von Hayek and Milton Friedman. Neoliberalism emphasized deregulation, privatization, reduced public spending, free trade, and strong protection of private property. These policies were implemented by leaders such as Ronald Reagan and Margaret Thatcher and later spread globally through international institutions and policy frameworks. While neoliberalism promoted market integration and growth, it also contributed to rising inequality, weakened labor protections, and greater financial instability, problems that became particularly visible during the global financial crisis of 2007–2008.
Comparing Liberal Traditions
Both classical liberalism and neoliberalism share a strong belief in markets, competition, and trade as drivers of economic efficiency. However, they differ in their understanding of the state’s role. Classical liberalism accepted a limited but necessary state that provided public goods and maintained fair competition, whereas neoliberalism sought to minimize state involvement more aggressively, often reducing social protection. Classical liberalism also placed greater emphasis on ethical and institutional constraints on markets, while neoliberalism focused more narrowly on efficiency and market outcomes.
Concluding Observations on Liberalism
In conclusion, liberalism has not disappeared but has transformed over time. From classical liberalism to Keynesian liberalism and neoliberalism, it has shown a strong capacity for adaptation. Recent crises have renewed debates about the limits of markets and the role of the state, suggesting that liberalism remains a dynamic and evolving framework rather than a dead ideology.
Mercantilism and Economic Nationalism
Modern economic nationalism is deeply rooted in the principles of mercantilism. At its core, mercantilism views the international economy as a competitive arena in which states seek power, security, and independence rather than mutual gains. Economic activity is not seen as an end in itself, but as a tool to strengthen the nation-state. These ideas continue to shape contemporary economic nationalism, especially in a globalized and geopolitically tense world.
Zero-Sum Trade
One key mercantilist principle that feeds modern economic nationalism is the zero-sum view of trade. Mercantilists believe that one country’s economic gain necessarily comes at the expense of another, since global wealth is seen as limited. This logic contrasts with liberal ideas of mutual benefit and encourages governments to prioritize national production, restrict imports, and protect domestic industries. As a result, trade policy becomes a political weapon rather than a cooperative instrument, reinforcing nationalist narratives about winners and losers in globalization.
State-Centered Approach
Another central element is the state-centered approach to the economy. Mercantilism assumes that markets cannot be trusted to deliver national prosperity or security on their own. Therefore, the state must actively intervene to guide economic outcomes in line with national interests. In modern economic nationalism, this is reflected in policies such as tariffs, subsidies, industrial policy, and the protection of strategic sectors like energy, technology, and defense. Economic security becomes closely linked to national security, especially in times of crisis or geopolitical rivalry.
The Trump Example
A clear contemporary example of mercantilist-inspired economic nationalism is the United States under Donald Trump. Trump openly rejected liberal trade theory and embraced a zero-sum understanding of international trade, repeatedly claiming that U.S. trade deficits meant that other countries were “winning” at America’s expense. His administration imposed high tariffs on imports from China, the European Union, and other trading partners, with the stated aim of protecting American jobs, reducing dependence on foreign supply chains, and restoring economic sovereignty.
Contradictions and Policy Effects
However, Trump’s approach was deeply contradictory and largely harmful. While he presented his policies as a defense of national interests, they lacked the strategic coherence traditionally associated with mercantilism. Classical and neomercantilist approaches emphasize long-term planning, coordinated industrial policy, and a strong state capable of directing economic development. In contrast, Trump relied on unilateral and ad hoc tariff measures, undermined alliances, and weakened multilateral institutions such as the World Trade Organization. His frequent attacks on globalization were also inconsistent with his own global business interests, highlighting the political rather than strategic nature of his economic nationalism.
Impacts of Aggressive Economic Nationalism
The impacts of Trump’s policies were significant and largely negative. Tariffs increased costs for consumers and firms, disrupted global supply chains, and provoked retaliation from countries such as China and members of the European Union. Rather than restoring U.S. economic strength, these measures contributed to global trade fragmentation and increased uncertainty, while failing to deliver sustained industrial revival. This case illustrates what scholars describe as a more aggressive or malevolent form of mercantilism, where short-term political gains are prioritized over systemic stability.
Other Countries and Strategic Approaches
Other countries have also adopted economic nationalist policies in recent years, often in response to globalization and crisis. China, for example, uses state-led industrial policy and strategic protection to secure technological leadership and reduce external dependence. While more coordinated than the U.S. case under Trump, this approach still reflects mercantilist concerns about power, security, and vulnerability in an interdependent world.
Concluding Observations on Mercantilism
In conclusion, mercantilist principles continue to fuel modern economic nationalism by promoting a zero-sum view of trade, prioritizing state intervention, and linking economic policy to national power and security. While these ideas can sometimes support development and resilience, recent examples—especially the Trump administration—show that aggressive and poorly coordinated economic nationalism can undermine global cooperation, increase instability, and ultimately harm both national and international economic outcomes.