[IMPORTANT: Make this 4 times longer with much more detail]
Essay Isolationism Won’t Make Anyone Great Again The world will come together once it realizes fragmentation makes everyone poorer. January 7, 2025, 12:03 AM Comment icon View Comments ( 2 ) By Raghuram G. Rajan , the Katherine Dusak Miller distinguished service professor of finance at the University of Chicago Booth School of Business. An illustration shows a wall made up of stacked shipping containers with a line of immigrants peering up at it from below. Álvaro Bernis illustration for Foreign Policy My FP: Follow topics and authors to get straight to what you like. Exclusively for FP subscribers. Subscribe Now | Log In U.S. Foreign Policy United States China Donald Trump’s reelection as U.S. president is sending shockwaves around the world, but his victory is just the latest episode in a continuing saga. The old Western consensus in favor of globalization started breaking down in the 1990s and early 2000s as emerging markets began realizing its benefits. It accelerated with the global financial crisis, the COVID-19 pandemic, and growing geopolitical tensions. Now, with Trump’s promises to increase import tariffs across the board, the richest, most powerful country in the world is turning against the global order it built, and it is not alone in doing so. The world is fragmenting, slowly but surely—global trade as a fraction of GDP has been flat since the financial crisis, and foreign direct investment has fallen. Meanwhile, the number of trade restrictions that countries have imposed annually has grown more than tenfold since 2010. Why is the United States rejecting the system it created, and why is this pattern emerging across the industrialized world? Some reasons are well known, but they need to be knitted together. And as global challenges that require cooperation, such as climate change and migration, mount, countries will eventually want to draw together again. The Winter 2025 FP magazine cover includes an illustration of Donald Trump holding segments of a broken rollercoaster as cars go through a loop above his head. A headline says: Trump World. This article appears in the Winter 2025 issue of Foreign Policy magazine. D onald Trump’s reelection as U.S. president is sending shockwaves around the world, but his victory is just the latest episode in a continuing saga. The old Western consensus in favor of globalization started breaking down in the 1990s and early 2000s as emerging markets began realizing its benefits. It accelerated with the global financial crisis, the COVID-19 pandemic, and growing geopolitical tensions. Now, with Trump’s promises to increase import tariffs across the board, the richest, most powerful country in the world is turning against the global order it built, and it is not alone in doing so. The world is fragmenting, slowly but surely—global trade as a fraction of GDP has been flat since the financial crisis, and foreign direct investment has fallen. Meanwhile, the number of trade restrictions that countries have imposed annually has grown more than tenfold since 2010. Trending Articles Trump’s Ambitious Week One Agenda He has pledged to take immediate action on issues from border security to trade. Powered By Advertisement Trump’s Ambitious Week One Agenda X Why is the United States rejecting the system it created, and why is this pattern emerging across the industrialized world? Some reasons are well known, but they need to be knitted together. And as global challenges that require cooperation, such as climate change and migration, mount, countries will eventually want to draw together again. As the disappearance of comfortable middle-class jobs for moderately skilled workers has upended the prior economic and political consensus, the blame has been placed on trade competition. Everyone can see when the local manufacturer closes down and shifts operations to Eastern Europe, Mexico, or China. Yet the more significant killer of routine jobs, by far, is technological change, whether it is the tax accountant losing her job to a software program such as TurboTax or an autoworker displaced by a machine. This is true even in emerging markets—as in India, where much of cellphone assembly, the quintessential low-skill manufacturing job, is now done by machines, not by workers. Artificial intelligence promises yet more disruption. It is hard, however, to protest steady technological change. Politically, the foreign producer offers an easier target. As technological progress hollows out jobs in the middle, global competition for the manufacturing jobs that remain has increased. It used to be that the developed-country worker was far more productive because they were better educated and skilled and had access to better infrastructure, more capital, and more intellectual property. Their higher productivity once offset the higher wages they were paid. This is no longer true in a growing number of sectors: The rest of the world is catching up to, even leapfrogging, the developed world. For instance, Chinese electric vehicles are often better and cheaper than EVs made by traditional Western manufacturers because they are designed from the bottom up around the digital core and do not attempt to wrap the new technology around the old motor car. Workers in many emerging markets use the same machines and often work longer for less pay, which is why Apple has not manufactured anything itself since 2004, instead outsourcing manufacturing to firms, such as Foxconn, that produce in the emerging world. It is hard to point to any large developed-country government in the post-financial crisis era that has made citizens confident about the future. Technological change and foreign competition for the remaining “good” jobs have also become more salient politically because comfortable middle-class jobs for the moderately skilled were typically filled by men, often from the majority group. They are the ones who are seeing the greatest relative fall in status, especially as today’s good jobs entail more intellectual and less physical work and women are far more able to compete. And unlike the victims of technological change in the past or those in less democratic countries, they are vocal and can organize politically. That, according to the AP VoteCast survey of more than 120,000 voters, 60 percent of white men (versus 53 percent of white women), 48 percent of Latino men (versus 39 percent of Latina women), and 25 percent of Black men (versus 10 percent of Black women) voted for Trump is consistent with which groups are most dissatisfied with continuity, though there are other explanations, of course. There is no surefire way to move more workers from precarious jobs to good jobs in the face of technological change. Experimental policies to help workers adapt will take time to show results, and it will take more time for successful experiments to be rolled out widely. A cautionary note is that through the first Industrial Revolution ending in 1840, workers’ wages stagnated in Britain—a phenomenon termed “Engels’s pause.” Only subsequently did livelihoods improve. Worryingly, it is hard to point to any large developed-country government in the post-financial crisis era that has made citizens confident about the future—and that’s even though unemployment across the developed world is at historical lows. A black and white photo shows two rows of workers in hats leaving together as they lay railroad tracks. Chinese and Filipino migrant workers lay railroad tracks at Stevens Pass in the U.S. state of Washington in an undated archival photo. Josef Scaylea/Corbis via Getty Images Two workers, one in a straw hat and one in a construction hat, work atop the roof of a house. A ladder is propped up next to them and partially constructed houses are seen in the distance. Mexican immigrants work on a housing construction site in Denver on May 3, 2013. John Moore/Getty Images Left: Chinese and Filipino migrant workers lay railroad tracks at Stevens Pass in the U.S. state of Washington in an undated archival photo. Josef Scaylea/Corbis via Getty Images Right: Mexican immigrants work on a housing construction site in Denver on May 3, 2013. John Moore/Getty Images But if developed-country workers are hurting from technological change and competition, workers in poor developing countries have it much worse. The prices of many commodities, those countries’ traditional exports, have barely increased in recent years. The growth path followed by successful emerging markets focusing on manufacturing-led exports is narrowing because of protectionism, automation, and extreme competition. In addition, in the global south, traditional livelihoods such as agriculture are threatened by climate change and conflict. The pandemic was a further blow—despite the very limited assistance developing-country governments provided their populations, it was enough to push their strained finances over the edge. This was the last straw for many desperate people, and they have set off in rickety boats and through dangerous jungles for the developed world. Understandably, no country wants to be overwhelmed by foreigners. People are attached to their culture and traditions and would rather immigrants assimilate. These broader concerns are accentuated in a left-behind population that sees the immigrant as competing with them. In truth, the most desperate immigrants often take jobs that the native population shuns—indeed, that only previous immigrants did, one reason that existing immigrants sometimes oppose new immigration. Immigrants are often a source of energy and vitality, provided they get the right supports initially. With Western populations aging, and their entitlements underfunded over the medium term, sensible immigration policy that accepts both the most and least qualified immigrants in reasonable quantities will keep the workforce younger and ensure a country’s long-run fiscal health. However, any country that adopts reasonable immigration policies today in the otherwise broadly hostile environment understandably fears that it will be swamped—Canada is a recent example. So, what has been the political reaction to these hard-to-solve problems? A worker in blue protective gear, a mask and gloves holds up a disc-shaped chip to inspect it. A worker inspects an electronic chip at a production facility in Chongqing, China, on May 9, 2023. Costfoto/NurPhoto via Getty Images When a political party has no answers, there is still a time-tested alternative for gaining popularity: the politics of polarization—that is, blame others and block the sources of change where possible while plying supporters with fiscal largesse. For instance, these parties blame globalist elites for opening borders to goods while protecting their own service professions; the diversity and inclusion bureaucracy for opening doors to the supposedly less competent while closing doors for the meritocratic; multinational corporations for urging open borders while moving investment to the cheapest countries; foreign manufacturers for cheating while taking advantage of free trade; and so on. The finger-pointing is not entirely baseless. Take, for example, the allegation, often pointed at China, that foreigners cheat. One claim is that China has stolen intellectual property. This is likely true, but as development economist Ha-Joon Chang has argued, so have most countries in their development stage, though perhaps less so than China. Eventually, countries start creating more of their own IP, as the Chinese are now doing in areas such as EVs and batteries, and then they protect IP more. While the desire to punish past actions is understandable, China may well be more willing today to commit to curbing its infractions. Another claim is that China subsidizes manufacturers, for instance with cheap credit. This is probably also true. However, every country subsidizes. For instance, the extensive developed-country supports to corporations during the pandemic were subsidies, as is the Federal Reserve and Treasury’s implicit and explicit support to the U.S. financial sector. And now many countries are embracing Chinese-style industrial policy, with government subsidies for key domestic firms that they expect will become national champions in the industries of the future. In sum, it is not sufficient to say China subsidizes but rather that it subsidizes more than developed countries. One crude measure of public support is the growth in government indebtedness. By this metric, no country or region is blemish free. A full accounting for subsidies is difficult but necessary—the International Monetary Fund (IMF) and the World Trade Organization (WTO) have started such analysis, but much more work is needed. Scapegoating the foreigner and trade leads to non-solutions that deflect the domestic debate away from the right reforms. Perhaps the greatest antidote to subsidies embedded in new industrial policies that governments are embracing is that they rarely work. China has built such massive overcapacity in the industries it helped, such as solar cells and EVs, that few firms are making profits. This experience is likely to be repeated by countries subsidizing chip manufacturing. Eventually, experience will compel governments to back off from intervening. In the meantime, however, scapegoating the foreigner and trade leads to non-solutions that deflect the domestic debate away from the right reforms. For instance, the United States already applies substantial tariffs on solar panels from China. In response, China exports solar cells to third countries, which assemble them into panels and then reexport them with a hefty markup to the United States. The shift from direct trade to indirect trade is self-defeating in so many ways, including hampering the fight against climate change. Even if panel imports were somehow stopped altogether and U.S. manufacturers did produce them, it would not create many U.S. jobs—given the high cost of labor in the United States, manufacturers would more likely use machines rather than workers, as we have seen Indian manufacturers do. If the U.S. trade deficit is seen as a weakness, it would make far more sense to bring it down by reducing the fiscal deficit, since trade deficits reflect, in part, an excess of domestic spending over saving. Conversely, if China views its trade surplus—a measure of its dependence on foreign consumers—as a vulnerability, the solution is to adopt domestic policies that would boost household confidence, encouraging Chinese households to consume more. The United States and China could have a useful dialogue on how each other’s domestic actions (or lack of them) are creating global vulnerabilities. Instead, as the two superpowers point the finger at each other in an environment of rising geopolitical rivalry, distrust and fragmentation increase. For instance, multi-national firms have learned that their supply chains need to become more resilient to disruptions. And the Russia-Ukraine war has taught countries not to be dependent on a potential enemy for key inputs. There are sensible ways to achieve more resilience and national security. But in a polarizing world, everyone is a potential enemy, and every product is capable of being weaponized, so these needs become the cover for blatant protectionism on even the most quotidian products. The unfortunate implication of finger-pointing is that we can be better off by eliminating the ostensible source of disruption. Almost surely, that will not take us back to the much-romanticized past. Not only will the U.S. manufacturing jobs lost to China typically not come back if the United States only applies tariffs, but any effective reshoring of production through more draconian government actions against imports will increase costs. It will render the U.S. airplane exporter—which now has to use high-cost U.S. steel—less competitive, even if retaliatory protectionism does not hit its sales. It will reduce household consumption, as the earphones that used to cost $50 now retail for $100. And it will reduce foreign incomes so that foreigners can afford fewer U.S. goods. Each of these hurts U.S. job creation. Protectionism helped trigger the Great Depression. Few should want to go back to that past, yet so many want to experiment with past follies again. A line of migrants are silhouetted against a glowing sky with bare brances of a tree above them. Central American migrants look across the Rio Grande, which divides the cities of Eagle Pass, Texas, and Piedras Negras, Mexico, on Feb. 17, 2019. Julio Cesar Aguilar/AFP via Getty Images While history suggests what will not work, it offers no magic solutions on how to enable workforces to adapt continuously to technological change. But I want to point to two reasons for hope that the trend toward isolationism will eventually be arrested. First, the electorate, while willing to try anything, wants real solutions. As the polarizers fail, they are thrown out, so long as their countries stay democratic; the United Kingdom and Poland are recent examples. Countries will get windows for sensible reforms, and, hopefully, examples of success will emerge. Second, many emerging markets and developing countries want to maintain an open world. They will be partners in any effort to construct a new open order, even if the largest economies stay aloof for now. Coalitions of the willing must create foundations for that new order, with others joining as their domestic politics change. On the domestic side, countries need to equip people for the work of the future, even if the full payoff will come only with time. Wherever possible, arrangements to do so are better coordinated by local government than at the federal or state level. Countries that seem to have prepared their workers best for technological change are small, decentralized ones such as Switzerland or the Scandinavian economies. Reforms to the ways that countries have of reskilling workers may be more appropriate if designed and implemented locally, as local government, businesses, NGOs, and educational institutions come together to find solutions. This also allows for multiple simultaneous experiments to find out what works. More generally, an antidote to the sense of helplessness induced by massive global change is local empowerment, with light-touch federal support where needed. The guiding principle should be that of subsidiarity—devolving powers to the lowest level that can exercise them. While respecting the principle of subsidiarity, we do need to move forward at the global level. Let me sketch three possible areas. For one, we need climate action among the willing, else migration will be the only option in poor countries. Country actions should be differentiated based on capacity and need, a principle more honored in the breach than the observance. Developed countries and emerging markets should take on the burden of mitigating emissions and finding robust ways of financing the necessary investments. More specifically, the world needs better measurement and disclosure of emissions and mitigation efforts and clearer national commitments to do so; enhanced carbon-trading opportunities; agreements to exempt green goods from trade protectionism with, if necessary, temporary and limited safeguards to allow domestic industry time to adjust; and greater sharing of green IP. Developing countries, which face growing climate calamities today, should focus their scarce resources on helping their people to adapt to climate change—for instance, moving homes to higher ground, expanding water harvesting and irrigation, or growing hardier crops—while ensuring that new investment is green. Of course, as developed countries perfect ways of financing green investment, developing countries can use them to attract capital and replace old high-emission capital stock. Second, we must preserve the momentum for greater openness in other areas as goods trade becomes protectionist. Specifically, improvements in communications technology now allow high-skill services such as consulting, telemedicine, retail financial services, and design to be provided at a distance. Global services trade, already growing faster than goods trade, can explode if we bring down barriers. Importantly, developed economies have a comparative advantage here; the world’s biggest exporter of services is the United States, followed by the U.K. However, service exports also offer an alternative growth path for developing economies. To expand service exports, including from developing countries, we need global agreements on issues such as mutual degree recognition, data privacy and storage, and adequate digital infrastructure to support services trade. Opening up services trade has other benefits. Capable professionals in developing countries can earn good incomes from abroad without emigrating, boosting the local economy with their consumption. Domestic inequality in developed countries will fall as competition increases in previously protected highly paid professional services, increasing their availability and reducing their price. Growth in services consumption is also more environmentally sustainable than goods consumption. Finally, multilateral institutions have been ineffective thus far in fighting fragmentation, in part because they are dominated by increasingly protectionist developed countries. We must make them fit for purpose through reforms while envisaging new institutions, such as a World Immigration Organization, that will help inform and coordinate country efforts. For instance, consider the IMF, which was set up with power vested in an executive board dominated by the United States and its allies. Even today, this board micromanages everything down to operational decisions, such as who gets loans. Cross-border trade, investment, and migration have made the world far more prosperous than could ever have been imagined, but fragmentation will make us poorer. Not surprisingly, the old powers do not want to cede board power to rising economies. It is telling that China has voting power only as large as Japan at the IMF even though its economy is more than four times bigger; however, the IMF’s December 2023 quota review made no change in relative votes. Rising powers therefore do not trust the IMF to be evenhanded, which makes it less able to mediate conflicts and disagreements between countries. A key reform would be to take executive powers such as individual loan decisions away from the IMF board, vesting them in a technocratic professional management with allegiance to the organizational mission, while making the board responsible only for overall governance. This would depoliticize operational decisions and analysis, making the IMF more trusted and able to come up with unbiased proposals for global problems. It would also make the old powers more willing to cede their dominance since the rising powers would not control operational decisions. Interestingly, it is what economist John Maynard Keynes recommended when the IMF was set up, only to be overruled by the United States. Similar reforms are possible in other institutions such as the World Bank and the WTO. No doubt the United States will still resist somewhat, but it has come a long way from when President John F. Kennedy said that “we shall pay any price, bear any burden … to assure the survival and the success of liberty.” Other nations ceded power to Washington because it was willing to fill gaps with its resources and military. With the United States now wanting other nations to assume their fair share of responsibility, it should also be prepared to share power in multilateral institutions. The alternative is to see them become irrelevant. Cross-border trade, investment, and migration have made the world far more prosperous than could ever have been imagined, but fragmentation will make us poorer. The U.S. election was just one act in an unfolding play. We must resist the play’s overall theme that isolationism will make every nation great again. Successes will be few and far between for a while. Unlike in the past, we have much less belief in a shared destiny—that countries benefit when others are successful, that we can come together to solve the gigantic problems we face. That belief will return more strongly, if nothing else, as we experience the costs of isolationism. The task today is therefore to tackle the root causes of fragmentation, preserve openness where we can, and build necessary institutions where possible so we can regain lost ground and time quickly when that moment arrives. This article appears in the Winter 2025 issue of Foreign Policy magazine. Thanks for supporting our journalism. This article appears in the Winter 2025 issue of Foreign Policy magazine. Subscribe now to support our journalism. Raghuram G. Rajan is the Katherine Dusak Miller distinguished service professor of finance at the University of Chicago Booth School of Business. He was the 23rd governor of the Reserve Bank of India between September 2013 and September 2016. Between 2003 and 2006, Rajan was the chief economist and director of research at the International Monetary Fund. He is the co-author of Breaking the Mold: India’s Untraveled Path to Prosperity and author of The Third Pillar: How Markets and the State Leave the Community Behind . 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