For nearly four centuries, the world economy was on a path of ever-greater integration that even two world wars could not totally derail. This long march of globalization was powered by rapidly increasing levels of international trade and investment, coupled with vast movements of people across national borders and dramatic changes in transportation and communication technology.
According to economic historian J. Bradford DeLong, the value of the world economy (measured at fixed 1990 prices) rose from US$81.7 billion in 1650, when this story begins, to US$70.3 trillion in 2020 – an 860-fold increase.the most intensive periods of growth corresponded to the two periods when global trade was rising fastest: first during the “long 19th century” between the end of the French revolution and start of the first world war, and then as trade liberalization expanded after the second world war, from the 1950s up to the 2008 global financial crisis.
Now, however, this grand project is on the retreat. Globalization is not dead yet, but it is indeed dying.
Is this a cause for celebration, or concern? And will the picture change again when Donald Trump and his tariffs of mass disruption leave the White House? As a longtime BBC economics correspondent who was based in Washington during the global financial crisis, I believe there are sound ancient reasons to worry about our deglobalized future, even once Trump has left the building.
Trump’s tariffs have amplified the world’s economic problems, but he is not the root cause of them. Indeed, his approach reflects a truth that has been emerging for many decades but that previous US administrations – and other governments around the world – have been reluctant to admit: namely, the decline of the US as the world’s number one economic power and engine of world growth.In each era of globalization since the mid-17th century, a single country has sought to be the clear world leader – shaping the rules of the global economy for all. In each case, this hegemonic power had the military, political and financial power to enforce these rules – and to convince other countries that there was no preferable path to wealth and power.
But now, as the US under Trump slips into isolationism, there is no other power ready to take its place and carry the torch for the foreseeable future. Many people’s pick, China, faces too many economic challenges, including its lack of a truly international currency – and the lack, as a one-party state, of the democratic mandate needed to gain acceptance as the world’s new dominant power.
while globalization has always produced many losers and also winners – from the slave trade of the 18th century to displaced factory workers in the American Midwest in the 20th century – history shows that a deglobalized world can be an even more risky and unstable place. The most recent example came during the interwar years, when the US refused to take up the mantle left by the decline of Britain as the 19th century’s hegemonic global power.
In the two decades from 1919, the world descended into economic and political chaos. Stock market crashes and global banking failures led to widespread unemployment and increasing political instability,creating the conditions for the rise of fascism. Global trade declined sharply as countries put up trade barriers and started self-defeating currency wars.## From Colbert to Trump: the lessons of mercantilism and free trade
In the 17th and 18th centuries, France, under the guidance of ministers like Jean-Baptiste Colbert, pioneered a model of globalization based on state control, protectionism and mercantilism. Colbert believed that a nation’s wealth was fixed and that the goal was to maximize its share of it, primarily through a positive balance of trade. This involved encouraging domestic industries through subsidies and tariffs, restricting imports, and building a strong merchant marine.
France achieved initial success in the 17th century both on land and sea against the Dutch.But ultimately, its state-run French Indies company was no rival to the ruthless, commercially driven activities of the Dutch and British East India companies, which delivered enormous profits to their shareholders and revenues for their governments.
Indeed, the huge profits made by the Dutch from the Far Eastern spice trade explains why they had no hesitation in handing over their small North American colony of New Amsterdam, in return for expelling the British from a small toehold of one of their spice islands in what is now Indonesia. In 1664,that Dutch outpost was renamed New York.
After a century of conflict, britain gradually gained ascendancy over France, conquering India and forcing its great rival to cede Canada in 1763 after the Seven Years war. France never succeeded in fully countering Britain’s naval strength. Resounding defeats by fleets led by Horatio Nelson in the early 19th century, coupled with Napoleon’s defeat at Waterloo by a coalition of European powers, marked the end of France’s time as Europe’s hegemonic power.
But while the French model of globalization ultimately failed in its attempt to dominate the world economy, that has not prevented other countries – and now President Trump – from embracing its principles.
France found that tariffs alone could not sufficiently fund its wars nor boost its industries. Its broad version of mercantilism led to endless wars that spread around the globe, as countries retaliated both economically and militarily and tried to seize territories.
More than two centuries later, there is an uncomfortable parallel with what the results of trump’s endless tariff wars might bring, both in terms of ongoing conflict and the association of rival trade blocs. It also shows that more protectionism, as proposed by Trump, will not be enough to revive the United States’ domestic industries.
The ideology of free trade was first spelled out by British economists Adam Smith and David Ricardo, the founding fathers of classical economics. They argued that trade was not a zero-sum game, as Colbert had suggested, but something all countries could mutually benefit from. According to Smith’s classic text, The Wealth of Nations (1776):
If a foreign country can supply us with a commodity cheaper than we ourselves can make, better buy it off them with some part of the produce of our own
From Colonial Exploitation to Protectionism and Neoliberalism: A History of Global Economic Shifts
Britain’s rise to global dominance in the 18th and 19th centuries wasn’t simply about innovation and free trade, but also about exploiting colonies as a source of cheap labor and secure raw materials as well as a large market for Britain’s manufactured goods. But that was still not enough for its avaricious leaders: Britain also made sure that local industries did not threaten its interests – by undermining the Indian textile industry, such as, and manipulating the Indian currency.
In reality, globalization in that era was about domination of the world economy by a few rich European powers, meaning that much global economic advancement was curtailed to protect their interests. Under British rule between 1750 and 1900, India’s share of world industrial output declined from 25% to 2%.
But for those at the center of Britain’s global formal and informal empire, such as the middle-class residents of London, this was a halcyon time – as economist John Maynard Keynes would later recall:
For middle and upper classes … life offered, at a low cost and with the least trouble, conveniences, comforts and amenities beyond the compass of the richest and most powerful monarchs of other ages. The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole Earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep.
US model: protectionism to neoliberalism
While britain enjoyed its century of global dominance,the United States after its foundation in 1776 embraced protectionism for longer than other major western economies did.
The introduction of tariffs to protect and subsidize emerging US industries had first been articulated in 1791 by the fledgling nation’s first treasury secretary, Alexander Hamilton – Caribbean immigrant, founding father and future subject of a record-breaking musical.
The Whig party under Henry Clay and its successor, the Republican Party, were both strong supporters of this policy for most of the 19th century. even as US industry grew to overshadow all others, its government maintained some of the highest tariff barriers in the world.
Tariff rates rose to 50% in the 1890s with the backing of future president William McKinley, both to help industrialists and to pay for generous pensions for two million civil war veterans and their dependants – a key part of the Republican electorate. It is no accident that President Trump has festooned the White House with pictures of Hamilton, Clay and McKinley – all supporters of
## Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System
The dollar’s ascent to global dominance wasn’t accidental. Following World War II, the United States possessed a unique advantage – a robust economy largely unscathed by conflict, and a vast gold reserve representing over half the world’s total. This allowed the US to establish the dollar as the world’s reserve currency at the 1944 Bretton Woods conference, a system where other currencies were pegged to the dollar, which in turn was convertible to gold. This arrangement bestowed upon the US what economist Valéry Giscard d’Estaing famously termed an “exorbitant privilege.”
The stable value of the dollar also made it easier for the US government to sell Treasury bonds to foreign investors,enabling it to more easily borrow money and run up trade deficits with other countries.
The conditions were set for an era of US political, financial and cultural dominance, which saw the rise of globally admired brands such as McDonald’s and Coca Cola, as well as a powerful US marketing arm in the form of Hollywood.
Perhaps even more significantly, the relaxed, well-funded campuses of California would prove a perfect petri dish for the development of new computer technologies – backed initially by Cold War military investment – which, decades later, would lead to the birth of the big-tech companies that dominate the tech landscape today.
The US view of globalization was broader and more interventionist than the British model of free trade and empire. Rather than having a formal empire, the US wanted to open up access to the entire world economy, which would provide global markets for American products and services.
The US believed you needed global economic institutions to police these rules. But, as in the British case, the benefits of globalization were still unevenly shared. While countries that embraced export-led growth such as Japan, south Korea and Germany prospered, other resource-rich but capital-poor countries such as Nigeria only fell farther behind.
#### From dream to despair
Though the legend of the American dream grew and grew, by the 1970s the US economy was coming under increasing pressure – in particular from German and Japanese rivals, which by then had recovered from the war and modernized their industries.
Troubled by these perceived threats and a growing trade deficit, in 1971 President Richard Nixon stunned the world by announcing that the US was going off the gold standard – forcing other countries to bear the cost of adjustment for the US balance of payments crisis by making them revalue their currencies.
That had a profound effect on the global financial system: Within a decade, most major currencies had abandoned fixed exchange rates for a new system of floating rates, effectively ending the 1944 Bretton Woods settlement.
The end of fixed exchange rates opened the door to the “financialization” of the global economy, vastly expanding global investment and lending – much of it by US financial firms.
This gave succor to the burgeoning
Will Trump’s Policies Revitalize the US Economy?
Yet Trump’s key policies will ultimately do little for those he aims to help. High tariffs to protect US jobs, expulsion of millions of undocumented immigrants, dismantling protections for minorities by opposing DEI (diversity, equality and inclusion) programs, and drastically cutting back the size of government will have increasingly negative economic consequences in the future. These actions are very unlikely to restore the US economy to its previous dominant position.
Long before he first became president, Trump hated the US trade deficit – he’s a businessman, after all – and believed tariffs would be a key weapon for maintaining US economic dominance. Another key part of his “America First” ideology was to reject the international agreements central to the United States’ postwar approach to globalization.
Though, during his first term, Trump (having not expected to win) was unprepared for power.
By his second attempt, conservative thinktanks had spent years outlining detailed policies and identifying key personnel who could implement them.
