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As Markets Fall, Nationalism Rises

Noah Feldman is a Bloomberg View columnist. He is a professor of constitutional and international law at Harvard University and was a clerk to U.S. Supreme Court Justice David Souter. His books include “Cool War: The Future of Global Competition” and “Divided by God: America’s Church-State Problem -- and What We Should Do About It.”
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After the correction comes the nationalism. China's market meltdown portends a potentially dangerous rise in nationalist sentiment likely to be whipped up by leaders both in China and in the U.S. The motives on each side are slightly different: China's leaders need to shore up the legitimacy of Communist Party rule as growth slows, while Republican presidential candidates need to criticize the Democratic administration on foreign policy without mentioning the Middle East. But there’s an underlying symmetry that's highly worrisome. On both sides, nationalism is a proven strategy for generating popular support while changing the subject.

On China’s side, the equation is pretty simple. The Chinese Communist Party’s legitimacy doesn’t come from communism. It comes from economic growth, which is slowing. Even if the stock market’s losses don’t directly affect most Chinese, the sharp market decline is likely to be felt in the real economy.

If you take the “communism” out of “Chinese Communist Party,” you’re left with the “Chinese” part. The Chinese public is deeply proud of its rise, and takes its place in the world very seriously. President Xi Jinping’s slogan of the “Chinese dream” isn’t just a dream of individual welfare, but of collective national self-assertion.

Nationalism is the most potent and effective mechanism for creating governmental legitimacy that’s been tried in the modern era. It’s worked almost everywhere on earth -- and it works in China, too.

And taking advantage of national sentiment doesn't have to be as blatant as Russian President Vladimir Putin's invading Crimea. China can be more belligerent without being totally reckless. It can provoke conflict with its neighbors over islands in the seas surrounding it, which will stir up public sentiment. Or worse, it can take aim at the U.S., and criticize its emerging strategy of military containment. These strategies are risky, because they can produce backlash. But domestic legitimacy is the sine qua non of a nondemocratic regime. And measured in terms of dollars or yuan, nationalism costs almost nothing.

On the U.S. side, the dynamics revolve around the presidential election, where Republican presidential candidate Donald Trump, with his keen instinct for populist reaction, has already taken the lead in China bashing. Trump reacted to China’s currency devaluation with a rant to Fox News’s Bill O’Reilly that hit numerous populist-nationalist notes.

Trump opened with the memorably absurdist suggestion that instead of the state dinner planned for Xi’s upcoming visit, President Barack Obama should give Xi a Big Mac. Then Trump turned to substance. “Our government should have stopped China from devaluing,” he asserted. He apparently realized this called for the question of how, exactly, the U.S. could dictate currency policy to China.

Trump’s answer was classically populist: “Put a tariff on Chinese goods. You have to do that and then you bring it back to normal.” Trump didn’t explore how tariffs are any more “normal” than artificially elevated currency values. But the populist, anti-trade thrust of his comment was that the prices of Chinese goods for American consumers should be higher, presumably to protect U.S. manufacturing.

For good measure, Trump gave the Chinese a backhanded compliment at the expense of Obama: “Their leaders are intelligent. Ours aren’t. We don’t know what we’re doing.” He sounded a somewhat different note a few days later, tweeting in response to the market correction that “Markets are crashing - all caused by poor planning and allowing China and Asia to dictate the agenda.” The implication, at least, was that China’s leaders weren’t so intelligent after all. But such contradictions are the stuff of populist nationalism. The other side is either bad because they’re so smart or bad because they’re so dumb.

Wisconsin Governor Scott Walker was quick to follow Trump into territory less fraught with domestic controversy than slamming immigrants. In a statement issued by his presidential campaign, Walker called for Obama to disinvite Xi and instead “focus on holding China accountable over its increasing attempts to undermine U.S. interests.” China’s chief sin, according to Walker, was “the fall in today’s markets, driven in part by China’s slowing economy and the fact that they actively manipulate their economy.”

According to Walker’s logic, China should be blamed both for failing to manipulate the Chinese stock markets to keep them high and for manipulating the Chinese economy like a Communist rather than a market-respecting capitalist.

But again, the logic isn’t the main point. As an aspiring presidential or vice presidential hopeful, Walker must criticize Obama. So what if it makes no sense to cancel the state visit because Xi first tried to artificially prop up Chinese markets, then let them go? The point is to say that Obama’s doing something wrong with respect to China. If U.S. markets decline and China can somehow be blamed for that, so much the better.

So far Jeb Bush has been too much of a grown-up to join the China-bashing. One hopes and imagines that he’s listening to moderate Republican China experts, who know the risks of destabilizing America’s most important bilateral relationship at a delicate moment.

But don’t count on that maturity lasting into the primary season as it becomes more brutal. Whatever Bush does, he can’t use the Middle East to criticize Obama, lest the topic turn to his brother’s presidency. Even criticizing the Iran nuclear deal would be dicey for Jeb, whose brother after all never bombed Iran nor allowed the Israelis to do so. In contrast, China is a safe way to criticize Obama. And Obama’s conciliatory approach to China is vulnerable to criticism, especially because the much vaunted “pivot to Asia” turned out to be largely symbolic.

It emerges that we’re almost certainly entering a period of increasing nationalism on both sides of the U.S.-China relationship. In the present cool war, the goals should be to remember economic interdependency and to avoid things getting hotter. Nationalism has the opposite effect. The timing couldn’t be worse.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author on this story:
Noah Feldman at nfeldman7@bloomberg.net

To contact the editor on this story:
Stacey Shick at sshick@bloomberg.net