The New Rules of GLOBALIZATION: Should the board keep the nation's best interests in mind when considering a company's long-term success?

• Author: Kuttner, Robert

The death of globalization, like the reports of his own death that Mark Twain gleefully rebutted, is much exaggerated. Global trade hit a new record of $32 trillion in 2022.

Rather, what has occurred is a change in the ground rules of globalization, spearheaded by the Trump administration and then pursued in a more careful and nuanced way by the Biden administration. The United States is now reserving the right to pursue its own national self-interest within the trading system, relying on national industrial policies and subsidies of the kind that have long been common practice among other nations.

In past decades, presidents going back to Dwight Eisenhower pursued a balancing act: building a trading system with universal rules in which U.S. industry would benefit. This was easy during the postwar boom, when the United States was the preeminent industrial power and thus gained from an open global economy. Free trade became an article of diplomatic and ideological faith. It was also useful as the glue of Cold War alliance, as our allies appreciated the openness of the huge U.S. domestic market.

This strategy became more contradictory beginning in the 1970s, as other major nations not only recovered from World War II but also built major export industries. Japan, South Korea and later China used frankly mercantilist policies that paid lip service to the U.S.-sponsored norms of free trade but actually relied on subsidies, quotas, cartels, bank/ government/industry interlocks, selling products in export markets below their cost ("dumping") and other elements of state-led growth. Germany and France had softer industrial policies.

By 1976, the chronic U.S. trade surplus turned into a deficit that only kept deepening. But the nation continued preaching free trade. As our trading partners kept pointing out, the United States was never quite the free trader that Washington professed. The Pentagon subsidized many military technologies with commercial spillovers, such as jet planes and semiconductors. Americas prowess in biotech likewise reflects the government spending by National Institutes of Health. These, however, were the exceptions, and U.S. trade negotiators kept insisting that any commercial benefits were incidental.

And then there was the special case of China, a quasi-statist, quasi-capitalist economy run by a ruthless Communist Party. Standard economic theory held that this hybrid could not possibly work. It would be corrupt and...