The Nine Lives of Economic Nationalism – Part Four of Four

Earlier posts in this series considered the multi-century trajectory of economic nationalism in reaction to empire, the resurgence of import substitution and major-power resource competitions, and the ways in which major-power economic nationalisms have made non-market-based economic development policies more popular than they have been in decades, almost regardless of levels of industrial development or economic size.

This final post considers some likely near futures of economic nationalism and economic sovereignty, with particular attention to AI.

First, the United States. The US was born in a determination to end external imperial dictation of economic policy and has, for the most part, guarded a relative autonomy from other economies ever since. The unification and then expansion of the 13 colonies across the continent integrated conquered territories into a “domestic” economy in a way that had few comparators elsewhere in the world. The resulting extent of US natural resources, from fresh water to arable land to natural gas, also proved to be unique. The US was peculiarly well suited to economic sovereignty, and with large-scale immigration it was able to grow on domestic demand better than anywhere else. Exports therefore accounted for a relatively smaller share of GDP than was the case in other industrial countries.

The constraining factor in the US case was not a lack of petroleum or fresh water or food but labor productivity. This was addressed through numerous means, from transport infrastructure to compulsory public education to industrialized agriculture. It helped that the US economy, unlike other industrialized economies, benefitted from both world wars. Productivity entered a crisis in the 1970s. It was eased, in a way, by the Internet and industrial globalization: your wage might be stagnant but it bought much more. But that improvement depended on production outside the US under working conditions that would be rejected in the US itself.

The extraordinary US investment in artificial intelligence comes from this.  AI holds out the promise of increasing productivity. But will it be global productivity or national productivity? Differently put, will the gains be captured by transnational capital and consumers or by tax-paying domestic markets and citizens? Will it be international or nationalist? Low unemployment, very slow job creation and high government and corporate debt all suggest that, absent an AI productivity miracle, the US will head into recession. That might well make the American people more nationalistic and insistent on economic sovereignty, but economic nationalism will not be able to solve their problems.

Chinese economic nationalism faces other constraints. A shrinking workforce and resistance to immigration mean productivity gains will have to come from labor-saving technology and investment in the non-Chinese global workforce. The first would be economically nationalistic. The second would be more like what US companies did in the 1980s and 1990s, and it could hollow out the Chinese jobs market as it once did the American. This would fuel the popular appeal of economic nationalism but, again, economic nationalism is not likely to be able to solve China’s labor productivity problems. An AI productivity miracle would help China as it would help the US. But it would be a miracle.

AI looks different outside the US and China. Those two countries thoroughly dominate the AI space. In AI terms, most other countries are takers, not makers. Africa’s population, a bit larger than China’s, captures 2.5% of the global AI market and is expected to attract 0.3% of global AI investment. The European Union attracts 7%. Britain, Canada, Israel and India also have significant investment, with Britain’s spend twice that of Canada’s. Nonetheless, the US and China attract 80%, with four fifths of it in the US. If an AI productivity miracle occurs in the existing economic-nationalist environment, it is difficult in political terms to imagine the benefits being rapidly diffused across the globe, since the goal of the investment is roughly the opposite.

AI aside, the resurgence of discredited 1960s-era development economics, from “national champions” and import substitution to infant-industry protection and tariffs, is becoming widespread. These policies were celebrated by the Left half a century ago as a way to withstand US corporate domination. Today their appeal is close to universal. They are even seen in the US as ways to ensure the US domination that they were once meant to block.

The essential point seems to be sovereignty. It is a phenomenon rich in paradox. The US-led Internet boom made possible a globalization that dramatically increased the wealth of once-poor countries, above all China but also India and others. These states could then afford to oppose what had just made them wealthy and to revive policies that had not helped them at all the first time around. China, India and other once-colonized nations wrap this in a rhetoric of anti-imperialism while hurrying to lock up poor-world resources before their once-imperial competitors do.

This is the central reason why China’s alternative global-governance schemes will go only so far: they are motivated by economic nationalism. Yet the same is true of US, Indian and European efforts, although European economic nationalism plays out on two levels at once, the national and the supranational. The major EU reform initiatives of 2024 were all premised on consolidating nation-based sectors into a super-nation capable of competing with the US and China.

For investors, at the national (or for the EU, supra-national) level, the play is in policy arbitrage, which is also political arbitrage. At the global level, as between major economic-nationalist actors like China, the US, India and the European Union, it makes sense to hedge with presences in at least two, navigating the relationship in each market among affirmative industrial and financial policy, protection, and market-based competitiveness. (A simpler way to do this, of course, is to invest in multinationals and funds with the proven capacity to do this kind of multi-market navigation themselves.) Beyond that, in countries like Nigeria and Ethiopia, which aim at economic sovereignty but lack much of what is necessary to achieve it, there are opportunities in the state-favored sectors themselves, the import and domestic sectors that provide the necessary inputs (such as electricity and raw materials), and the export sectors that ultimately make imports possible.

Little of this was featured in business school and Adam Smith would be appalled, but for the time being economic nationalism is the way of the world. 

The Nine Lives of Economic Nationalism – Part Three

Part one of this series discussed the roots of modern economic nationalism in anti-imperialism, then went on to consider how US-Chinese economic nationalism has scrambled established ideas about both empire and economics. Part two examined two cases in Africa: the first involved two formerly colonized countries (India and China) competing for dominance of resource extraction in other formerly colonized countries; the second focused on the successful import-substitution (oil refining, cement, fertilizer) companies of Nigeria’s Aliko Dongate and his new, $2.5 billion fertilizer-production deal with Ethiopia. In both posts, the through-line was the defense of national economic sovereignty in a world deeply interconnected through trade.

The third post in the series looks at the blowback created by US-China economic nationalism.

The first case of blowback must surely be the US reaction to Made in China 2025 itself. The original Chinese program was a sovereignty play. China did not want its economic future (green energy, smart manufacturing, biotech, etc.) to be dominated by US companies with massive first-mover and other advantages. Made in China 2025 was a project aimed at economic self-determination. It did not cause much concern at first in the US: President Barack Obama met China’s President Xi Jinping for positive talks in 2016, after the project had been launched, and visited him again in Beijing in 2017 after leaving office. But Trump’s signature economic nationalism, once he settled into the White House in 2017, gradually fastened onto Made in China 2025 as a legitimizing opponent. Much of corporate America and the Democratic Party went along with this, for reasons of their own. The economic nationalism of a still relatively poor country — Chinese GDP per capita in 2015 was less than a third of what it would be in 2025 — begat the economic nationalism of the dominant economy in the world.

The US elaboration of economic nationalism in reaction to, and often in imitation of, Chinese economic nationalism inspired similar reactions elsewhere, most notably in the world’s most populous nation, India. In May 2020, while Trump was still in office, Prime Minister Narendra Modi launched a Made in India campaign. He made free use of a term, swadeshi, deeply resonant of the anti-imperial movement a century before. It was probably Modi’s move, combined with the breakout of border conflict with China (also May 2020) and the ensuing expulsion of Chinese tech companies from the Indian networks they mostly built, that led China to reframe Made in China 2025 in a longer history of anti-imperialism and attempt to rival India as a leader of the Global South.

The die was cast. An economic nationalism, including import substitution and “food sovereignty,” that had seemingly left the world stage in the early 1970s was back, led by the two dominant economies in the world and its most populous nation.

At the same time, the US, China and India all knew that actual isolation from the global economy was impossible in any imaginable near term. Modi’s atmanirbhar (“self-reliance”) coincided with much closer relations with the US and US companies, for example, including military and tech cooperation, right up to Trump’s sudden and wrenching disenchantment with India in August of this year. US economic nationalism was also not just about autonomy in North America. It involved, for example, throttling Chinese export industries and doing whatever was necessary for “locking in dollar supremacy,” in Treasury Secretary Scott Bessent’s words, to preserve “extraterritorial power.” Similarly, Chinese self-reliance (zili gongsheng) developed alongside a lengthening list of quite internationalist projects, from the Belt and Road Initiative to promoting the Shanghai Cooperation Organization as a pseudo-NATO. Each of these large economic powers preached economic nationalism but also practiced internationalisms of various kinds and showed no actual desire to stay contentedly within its borders tending its own gardens.

Yet if major-economy economic nationalism in practice had a strong internationalist cast, it was nonetheless nationalistic in terms of the barriers erected against foreign participation in domestic economies. It was also exceedingly transactional, before Trump’s re-election and all the more so after. Friendly meetings at the beginning of September of this year among Modi, Putin, and Xi were often spun — not least by China — as evidence of an emerging international unity when faced with US trade and security policies. But there were no principles involved beyond sovereignty itself, and each of these actors, as well as Trump, has shown himself able to switch sides at will, and to switch back again.

So the sensible conclusion for countries in the rest of the world is to avoid alignment with any of these changeable states and to pursue their own self-sufficiency (“economic sovereignty”) — because you really never do know any more when your foreign supply chains will be reshaped by political policies over which you have no influence.

Economic nationalism fosters more economic nationalism. The unpredictability created by economic nationalism among major players — including the European Union with its quest for “autonomy” and resistance to becoming a US tech “colony” — has come to outweigh the profound efficiency costs. Better to slog through building your own fertilizer or cement industry or AI “stack” than give up what autonomy you have to politicized global markets.

The fourth and final post in this series will consider the future of economic nationalism.

The Nine Lives of Economic Nationalism – Part Two

Part one of this post discussed the roots of modern economic nationalism in anti-imperialism, then went on to consider how US and Chinese policies of economic nationalism over the past decade have scrambled established ideas about both empire and economics. The US-China model of economic nationalism, combining a desire for economic autonomy within the state’s borders and one for the projection of economic power outside them, has been embraced by powers both formerly imperial and formerly colonized. It is an episode in a very long history.

Two recent developments exemplify this. The first has to do with Indian-Chinese competition and Africa. India (and others ) now aims at securing African resources to compete with, and avoid dependence on, China. Writing in The Hindu, Samir Bhattacharya of the Observer Research Foundation argued, “African nations are growingly asserting their rights to value-added development. The old model of raw resource extraction in exchange for infrastructure or investments is no longer tenable in a region demanding agency, accountability, and economic sovereignty. … By challenging opaque contracts, enforcing environmental standards, and demanding value addition, they are redrawing the terms of engagement. If these trends continue, African countries are poised to reshape the global supply chain for minerals and their role within it, moving from exporters of raw materials to integral partners in the emerging green economy. This change would come at the expense of China’s long-standing dominance in the African mining sector.”

Bhattacharya neglected to mention that competing with China to secure African raw materials for Indian industries, with the goal of ending Chinese dominance of African mining, is Indian policy. And that policy is not solely motivated by a wish to help African nations achieve greater “agency” and economic sovereignty. Nurturing the economic sovereignty of Ghana or the Democratic Republic of Congo is not in itself a leading goal for Indian policy. Nonetheless, the language is important because it marks the enduring significance of anti-imperial politics when negotiating contracts with African states — and because it shows two former very large colonized nations competing to show which is less imperial in its motivations than the other. They would not be bothering to do that if it didn’t promise to improve business.

A century and a half ago, empires themselves competed in roughly this way, each claiming to be more liberal than its competitors — or, in the case of the Japanese empire circa 1910, claiming to be the champion of other non-white peoples, or at least Asian peoples, in rallying “the yellow races against the white as a common enemy,” as a Japanese professor put it in 1918. China and India in Africa today are marketing themselves in ways that stretch back to the late 19th century.

Of course, from an economic-nationalism perspective, on the ground in Lagos or Kinshasa, the key point is not to find more comrades for a united anti-imperialist front but to secure investment that can bring local production out of the raw-materials trap and advance it up the value chain. Just as Americans on both continents in 1800 did not want London, Lisbon or Madrid to keep them forever digging in the mines, felling the forests or laboring on export-oriented farms, the inhabitants of less-developed countries today do not want only to produce petroleum or cocoa or strategic minerals for refinement elsewhere. But actual transfers of intellectual capital, such as production methods, are not simple or easy. They often require a great deal of “agency” from local actors. Such actors will not always be loyal followers of mainstream economic theory.

A remarkable recent example is the deal struck at the end of August between Dangote Group, of Nigeria, and the government of Ethiopia. The story of Aliko Dangote, sometimes called the richest black man in the world, is well known, but in brief: Born in 1957 to a wealthy business family, Dangote was educated in a madrasa and public schools, then at Cairo’s celebrated Al-Azhar University. He began importing cement to Nigeria in the 1970s but his biggest business was in sugar refining. He formed the idea that he would lead in freeing Nigeria, and perhaps Africa, from dependence on imported refined materials — the classic post-imperial goal. When a friend became president of Nigeria, Dangote seized the moment. He acquired formerly state-owned cement plants and established a highly successful cement business, expanding to production elsewhere in Africa. His efforts were self-consciously mocking, in a gentle way, the Smithian economic doctrine that there was no point in Nigeria developing its own cement industry because it could import cement from countries that already excelled at cement production. Such “import substitution,” popular in the 1960s, had become deeply out of international favor. Dangote did it anyway and was hugely successful. By 2024 Nigeria was a net exporter of cement.

Petroleum is the biggest industry in Nigeria, but it has long been mainly a matter of exporting raw materials for refinement elsewhere. Dangote became a major player in oil refining, such that in 2024 Nigeria was a net exporter of petroleum products for the first time in decades. His other major sector has been fertilizer, which uses natural gas as its main input. Nigeria has immense natural-gas deposits. The $2.5 billion deal with Ethiopia last month involves Dangote (with a 60% share) developing Ethiopia’s fertilizer capacity using Ethiopian natural gas.

On X, Ethiopia’s prime minister, Abiy Ahmed, framed the deal as one ensuring “food sovereignty” and “food security.” Ethiopia currently enjoys neither, and the Trump administration’s cuts in food aid — Ethiopia had been the single largest recipient — made matters worse.

“Food sovereignty” has been a recurring issue in both US and, especially, Chinese economic nationalism. Now that their rivalry has so disrupted international markets, the reliability of food imports has gone down for everyone. The same is true of strategic-minerals imports, now such an important focus of Indian Africa policy. Indeed, one could say that US-China economic nationalism has created a world of economic nationalisms. The repudiated “import substitution” of yesteryear has returned, not from preference (or ideology) but from a necessity created principally, if unintentionally, by the policy decisions of the world’s two largest economies. One nearly certain result will be increased production outside of the US and China that will provide new competition to those dominant countries.

The next post in this series will look at how economic nationalism came to dominate the international scene.

The Nine Lives of Economic Nationalism – Part One of Four

To say that economists think poorly of US President Donald Trump’s economic policies is to understate matters. Most see him as an unhappy combination of a 19th-hole savant and that student — there is one in every classroom — who insists on the rationality and inevitability of socialism. President Trump differs from the student in that his own guiding star is economic nationalism rather than socialism.

But, as many have pointed out since the administration decided to take a 10 percent stake in Intel and cull 15 percent of Nvidia’s and AMD’s China revenues, economic nationalism and socialism are not so far apart. Each leans toward state self-sufficiency and tends to involve state control of the means of production. Both involve the state imposing its priorities on the market. Economists since Adam Smith in The Wealth of Nations (1776) have seen such state control as less efficient than market allocation of resources. Thus, in part, economists’ anxieties about Trump policy. 

This four-part series will look at how economic nationalism has persisted despite its theoretical irrationality. The question is significant for investors because investments are often based on assumptions about economic maximization in free markets. Economic nationalism confounds such assumptions and complicates investment. It might also make the global economy’s “weaponized interdependence,” in Henry Farrell and Abraham Newman’s phrase, exceptionally dangerous. This series tries to assess that threat.

Adam Smith argued that, whether inside a state or between states, producers should specialize in what they already do best. Trade would then ensure that the best products at the lowest prices would reach customers and the overall economy would produce the most and best for least. Restraining trade would by definition reduce efficiency.

That was a leading reason why Smith and most economists after him were anti-imperialist. To take over territory, people and resources and bend them to making things the imperial center wanted, rather than what they might do best, ran contrary to market economics. The American revolutions, from Buenos Aires to Haiti to Boston, were led by people who wanted to take control of production away from empires. Settler colonialism was, in this sense, a school for radicalism.

It was also, of course, a school for economic nationalism. Newly ex-colonial states like the US appreciated that their former masters had a head start in developing the most productive technologies and business methods. The point of anti-imperial revolution circa 1800 was not simply to exchange formal domination for informal subordination by superior economies. Economic nationalism was animated by the desire for sovereignty: the business of states, so to speak, rather than of businesses. Restraints on trade, in the service of economic nationalism, always operated alongside their opposite, namely free trade. This was true in the 18th century as it is today. It was a feature, not a bug, of modernity.

The first Trump administration, running contrary to modern economic theory, embraced such an economic nationalism and the restraints on trade designed to advance it. The proximate cause was China and its set of policies gathered under the name of Made in China 2025 (launched in 2015). If the state-controlled 18 percent of humanity known as China was going to structure its economy to further its own economic nationalism, then the US was going to do the same. Tellingly, in arriving at Made in China 2025, Chinese economic thought took the anti-imperial US economy of the late 19th century as one model in combining restraints on trade with a conditional embrace of free-market forces, both aimed at the political goal of economic sovereignty and the historical goal of catching up to the modern world’s first movers, which were primarily empires. (Industrializing, imperial Japan circa 1890, one of whose aims was unfortunately supremacy over imperial China, was a similar and powerful model, especially for non-Europeans.)

As Trump’s and then Joe Biden’s economic policies developed, it became clear that China and the US were jointly reconfiguring the global economy to advance their respective economic nationalisms. What neither the US nor China seems to have anticipated was that this dynamic would solidify among other large economies as well, from the European Union to India, to create the global economy we have now, raising up sovereignty and self-sufficiency at the sacrifice of overall economic efficiency. Such an economy is inherently conflictual as well as inefficient. Indeed Adam Smith’s economics was an important inspiration for 19th-century peace movements: a reduction in economic sovereignty was thought to create an interdependence and frequency of cross-border exchange that would tend to reduce interstate conflict. Smith would have seen today’s worldwide rise in military spending and investment as a dead weight on the economy. He would have seen today’s goal of economic self-sufficiency as hopeless and misguided. But the relationship between economic nationalism and economics is complicated. Businesses of many different kinds now find they have to negotiate both simultaneously.

The next post will look at two recent examples of how complicated, and unexpected, such negotiations can be.

What Is “Human” Intelligence?

By Dee Smith

The most common, and probably most important, type of intelligence is known as OSINT (Open Source Intelligence). It involves collecting information in the public domain and in “gray” sources that can be exploited legally but might not have been intended, by the originators of the information, for public access: subscriber-only databases with address and legal-action histories, for example; alumni websites; social media accounts; PDFs on personal websites; websites like Glass Door or RateMyProfessor; conference schedules, or materials on the dark web.

OSINT has always been important. Probably the single most significant intelligence-collection activity in World War I was acquiring, reading, and analyzing newspapers in enemy and neutral countries. After World War II, the new CIA took over the Foreign Broadcast Information Service (FBIS, pronounced “fibbis”), offering invaluable digests of radio and eventually television broadcasts around the world. The Internet transformed the OSINT world: CIA folded FBIS into a new Open Source Center in 2005, recognizing that the channels for OSINT were proliferating. OSINT has become more crucial than ever for both private intelligence agencies like SIG and for government intelligence services. It requires skill and knowledge to find and filter the most important data — “Googling” is only a start — and then know how to put the pieces together to reveal hidden patterns and indicators, the things people do not expect you to know or want you to know.

There are many other types of intelligence collection: IMINT (Imagery Intelligence), which includes airborne and space-borne imagery; ELINT (Electronic Intelligence): SIGINT (Signals Intelligence), including interception of electronic signals during transmissions; and MASINT (Measurement and Signature Intelligence), which analyzes “signatures,” such as the thermal signatures of particular weapons, or the distinctive electronic signals sent by particular technologies. At SIG, we employ any of these techniques that are needed for a specific project that can be legally deployed. SIGINT, for example, is generally not legally permitted in the private sector.

There is one important collection method I have left out, which is HUMINT, or Human Intelligence. Essentially, this means collecting information from people. Sometimes it is also called active intelligence, because it often involves interacting with people, as opposed to passive methods like OSINT or IMINT. Broadly speaking, HUMINT is another way to discover the information environment around a subject and also what is sometimes called their “pattern of life”. It is most useful in combination with OSINT and other intelligence techniques.

HUMINT practices range from discussions, interviews, and interrogations (not necessarily what that word implies in the Hollywood sense, but structured questioning of subjects of investigation using specific methods and techniques), to clandestine elicitation and observation. The latter includes everything from “secret shoppers” to private-eye-type surveillance on the ground to what is sometimes called “cloaked elicitation” — such as discovering and calling “off-sheet” references for a potential employee (that is, finding people they have worked with whom they did not volunteer as references). Surveillance intersects with HUMINT, ELINT, and other means, and is sometimes considered a separate technique, although many people categorically include it under HUMINT, as do I.

HUMINT is the oldest intelligence practice. It is becoming more important, but also more difficult. The reason it is becoming more important is that electronic information is becoming more and more sequestered — for reasons of privacy, security, and state concern for “data sovereignty” — and less and less dependable, due to data pollution.

The reader may wonder why such invasive techniques as HUMINT are used in private business contexts. The primary reason is to avoid costly or otherwise damaging mistakes. A pension plan, for example — investing, say, $100 million of other pensioners’ money into an operating company or fund — wants to know if the principals of that prospective investment have histories of deceptive business dealings, bankruptcies, litigation, or other negative indicators, as well as to understand their general operating characteristics (how they do business). HUMINT is one tool that can provide intelligence on these questions that cannot be obtained in any other way.

There are debates in the industry about what is and is not permissible, even if it is legal. For example, opinion and practice regarding intelligence on competitors can be divided into two camps: “competitive intelligence” and “competitor intelligence”. The latter uses any legal techniques to obtain information. The former places ethical guidelines around certain practices. Imagine that you happen to be sitting on a plane next to someone who works for a direct competitor. If you ask probing questions about their work without disclosing that you are working for one of their competitors, that would not be allowed under the generally accepted rules of competitive intelligence. However, those rules would generally allow some such questions, if you had disclosed your association before asking the questions.

The most confusing challenge is that laws, regulations, and policies and best practices surrounding intelligence vary widely from place to place and are constantly changing. A well-run private intelligence agency has to have one or more employees dedicated primarily to keeping up with these changes as well as other security and best-practices-related matters. Government intelligence operations, as arms of a sovereign state, are typically not so constrained, although in democratic societies there is usually legislative oversight.

HUMINT also includes espionage techniques, for example cultivating contacts (“assets” or confidential informants). These are individuals who knowingly provide information of various kinds for various reasons, including payment, personal beliefs and allegiances, blackmail, and coercion. They have inspired numberless fanciful novels and movies, but  have played important roles throughout history.

Such clandestine operations are becoming much more difficult, however, because of electronic surveillance and tracking. Recruiting and protecting assets is increasingly difficult to do. They have very limited roles in private intelligence, primarily in fraud investigations and when doing fraud prevention through deep dives on the reputations and practices of individuals and companies.

But however challenging HUMINT collection is, increased state control of data, among other factors, is fragmenting and siloing the OSINT data array, leaving HUMINT to rise once again in importance.