In contrast to 2016, the new year has opened with relative stability in global financial markets. A year ago, markets experienced considerable turbulence in the context of the US Federal Reserve’s decision to lift interest rates by 0.25 percentage points, a sharp downturn in the price of oil, and a plunge in bank shares.
Thus far in 2017, it has been all quiet on the financial front, with US markets continuing to hover around the record highs they reached in December in the surge triggered by Donald Trump’s victory in the US presidential election.
Behind the appearance of relative calm, however, major shifts have taken place that will have far-reaching consequences, not just for financial markets, but for the world economy more broadly.
One of the most significant features of 2016 was the rise of economic nationalism and the growth of right-wing nationalist and populist movements. The turn to economic nationalism is reflected in many areas of the world, but has found its sharpest expression in the “America First” policies espoused by incoming President Trump and the appointment to his cabinet of figures who openly advance this agenda, with China designated as one of the central targets.
The shift in orientation by the US ruling class has profound historical significance. One of the lessons drawn by the American ruling elites following the disasters produced by the decade of the 1930s, when the division of the world economy into currency and trading blocs led to World War II, was the need to base the post-war order on free trade, with protectionism eschewed at all cost.
What was called the “liberal” trade agenda was itself based on, and underwritten by, the unchallenged global economic…