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Managing the Economic Consequences of Nationalism

LAGUNA BEACH – The aftermath of the United Kingdom’s unexpected vote in June to leave the European Union is being monitored closely. People all over the world – and particularly in Europe – want to know how Brexit will unfold, not just to manage its specific effects, but also to gain insight into what is likely to happen if other upcoming votes tip in favor of nationalist agendas.

Those agendas are certainly making a political comeback. In Germany, which will hold a general election in 2017, support for the far-right Alternative for Germany (AfD) is on the rise, exemplified in the party’s strong showing in recent state elections. In France, the National Front’s leader, Marine Le Pen, hopes to ride nationalism to power in next year’s presidential election.

The trend is not exclusive to Europe. In the United States, Republican presidential candidate Donald Trump has promised to impose trade tariffs on China, build a wall on the border with Mexico, and bar Muslims from entering the country.

So what economic consequences would a vote for nationalism have? Judging by the Brexit referendum, the immediate effects could include financial-market turmoil and a shock to consumer and investor confidence. But this could give way rather quickly to an economic and financial calm. The real question is what comes next.