Reuven S. Avi-Yonah (Michigan; Google Scholar) & Doron Narotzki (Akron; Google Scholar), Deglobalization, Tax Competition, And the Potential Revival Of the Welfare State, 187 Tax Notes Fed. 1041 (May 12, 2025):
Deglobalization comes at a cost, but at this point it appears to be a sustained trend. Even if this trajectory changes in the future, any reversal is likely to be gradual. In the meantime, political resistance to immigration and tariff-free imports makes a swift return to deep economic integration highly unlikely. But there is a silver lining to deglobalization in the form of increased revenue from tariffs and the potential for higher taxes on the rich and on multinationals.
In the 1930s the United States peacefully reduced inequality through the creation of an American welfare state financed by payroll taxes, as well as increased taxation of the wealthy. That transformation was not inevitable. It was the product of political will, institutional innovation, and a recognition that widespread economic insecurity threatened the stability of American democracy. Today, the country faces a similar inflection point. If the United States wants to sustain its democracy in the 21st century, it must act decisively. Deglobalization creates fiscal and political space to reimagine domestic policy, not as a retreat from the world but as a shift toward greater social investment. Increased tariff revenues, combined with reforms that enhance the taxation of capital and multinational profits, offer a rare opportunity to rebalance the fiscal system in favor of long-term equity and sustainability. This will require more than simply reversing past tax cuts. It calls for a comprehensive fiscal strategy focused on rebuilding the American welfare state. That includes expanding access to healthcare, investing in education and childcare, strengthening retirement systems, and providing effective wage and income support. A modernized tax structure that includes a progressive income tax, a robust corporate tax, and eventually a VAT can provide the stable revenue necessary to support this agenda.
The question remains whether the political system can meet the moment. The risks of inaction are serious; rising inequality, persistent fiscal imbalances, and declining public trust in government are not hypothetical problems. They are signs of deeper instability. History shows that major economic transitions can either strengthen democracy or threaten its foundation. The United States now has the chance to use deglobalization as a catalyst for renewal.
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