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Nationalism in Cycles: What Actually Moves Markets

There has been a great deal of discussion about nationalism recently. In economic terms, nationalism refers to government policies that prioritize domestic industries, labor, and supply chains over global integration. This can include tariffs, trade restrictions, industrial subsidies, and immigration limits.

Nationalism tends to rise and fall in cycles. Contrary to current headlines, these cycles are not, by themselves, the drivers of major market outcomes. Markets do not move on narratives or political language. They move on policy results, corporate earnings, capital flows, and real economic constraints.

Angus Schaal
C. Angus Schaal, CFP®

Senior Managing Director

History is useful here, but only if we are precise.
A common comparison is the interwar period of the 1920s and 1930s, which culminated in the Great Depression and coincided with a sharp rise in nationalism. That period combined tariff escalation, capital controls, fixed exchange rates, fragile banking systems, and little coordination among governments. Capital could not move freely, financial systems were weak, and policy mistakes compounded one another. Global trade and finance ultimately broke down.

Markets did not collapse because of nationalist rhetoric. They collapsed because the underlying economic infrastructure failed.

Today’s environment is materially different.
We are not in a period of systemic breakdown. We are in a period of nationalist adjustment.

Modern economies operate with floating currencies, deep and liquid capital markets, stronger banking systems, and central banks with the ability to respond to stress. While trade frictions, reshoring, and industrial policy are increasing, capital still moves globally, financial systems remain functional, and commerce continues, even if less efficiently than in a fully globalized world.

As a result, the market impact of nationalism today shows up in more
indirect ways:

  • Higher production costs for some companies
  • More complex and fragmented supply chains
  • Wider differences in outcomes between companies and regions
  • A higher bar for new investment decisions

These forces do not eliminate economic growth. They change where growth occurs and which businesses benefit.

For investors, this argues against both complacency and retreat. In this environment, returns are driven less by broad market enthusiasm and more by company-specific fundamentals. Businesses with strong balance sheets, steady cash flow, pricing power, and the ability to operate across multiple countries are better positioned than those dependent on cheap capital or a single policy regime.

Diversification matters more during nationalist phases, not less. Policy risk is uneven, meaning some countries, sectors, and companies face more government intervention than others. Geographic flexibility helps reduce that risk. Time horizon matters because capital can still compound, even as policy direction shifts over time.

From a portfolio standpoint, the implications are clear:

  • Stay invested, but be selective
  • Emphasize quality and durability over leverage
  • Maintain some global exposure rather than only home-country concentration
  • Expect returns to vary more widely and to reward long-term investors

Markets do not move on slogans. They move on structure. The structure today points to adjustment, not collapse, and that remains a workable environment for disciplined, long-term investors.

Disclosures:

Tandem Wealth Advisors LLC (“Tandem”) is an SEC-registered investment adviser.

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