The
tide of globalisation is turning
Trade
liberalisation has stalled and one can see a steady rise in
protectionist measures
Martin Wolf
YESTERDAY by: Martin
Wolf
Has the tide of
globalisation turned? This is a vitally important question. The
answer is closely connected to the state of the world economy and the
west’s politics.
Migration raises
quite specific issues. The era of globalisation was not accompanied
by a general commitment to liberalising flows of people. So I will
focus here on trade and capital flows. The evidence in these areas
seems quite clear. Globalisation has reached a plateau and, in some
areas, is in reverse.
An analysis from the
Peterson Institute for International Economics argues that ratios of
world trade to output have been flat since 2008, making this the
longest period of such stagnation since the second world war.
According to Global Trade Alert, even the volume of world trade
stagnated between January 2015 and March 2016, though the world
economy continued to grow. The stock of cross-border financial assets
peaked at 57 per cent of global output in 2007, falling to 36 per
cent by 2015. Finally, inflows of foreign direct investment have
remained well below the 3.3 per cent of world output attained in
2007, though the stock continues to rise, albeit slowly, relative to
output.
Thus, the impetus
towards further economic integration has stalled and in some respects
gone into reverse. Globalisation is no longer driving world growth.
If this process is indeed coming to an end, or even going into
reverse, it would not be the first time since the industrial
revolution, in the early 19th century. Another period of
globalisation, in an era of empires, occurred in the late 19th
century. The first world war ended this and the Great Depression
destroyed it. A principal focus of US economic and foreign policy
after 1945 was to recreate the global economy, but this time among
sovereign states and guided by international economic institutions.
If Donald Trump, who has embraced protectionism and denigrated global
institutions, were to be elected president in November, it would be a
repudiation of a central thrust of postwar US policy.
Given the historical
record and the current politics of trade, notably in the US, it is
natural to ask whether the same could happen to the more recent era
of globalisation. That requires us to understand the drivers.
Part of the reason
for the slowdown is that many opportunities are, if not exhausted,
radically diminished. When, for example, the production of
essentially all labour-intensive manufactures has moved out of the
rich countries, the growth of trade in such products must fall.
Similarly, when the biggest investment boom in the history of the
world, that in China, slows, so too must the demand for many
commodities. That will affect both their prices and their quantities.
Again, the end of once-in-a-lifetime global credit boom is sure to
lead to a decline in the cross-border holdings of financial assets.
Finally, after decades of FDI, a host of companies with something to
gain from it will have taken their opportunity and succeeded or, in
important cases, failed.
Yet this is not all
there is to this story. Trade liberalisation has stalled and one can
see a steady rise in protectionist measures. The financial crisis
brought with it regulatory measures, many of which are bound to slow
cross-border financial flows. The rise of xenophobic sentiment and
the slowdown in trade are both likely to reduce the growth of FDI. In
brief, policy is less supportive.
The politics are
becoming even less so. Again, the US is the central part of the
story. Mr Trump is much the most protectionist candidate for US
president since the 1930s. But, revealingly, Hillary Clinton, an
architect of the US “pivot to Asia” has turned against the
Trans-Pacific Partnership of which she was once a keen supporter. The
Transatlantic Trade and Investment Partnership, being negotiated
between the US and the EU, is now in deep trouble. TheDoha round of
multilateral trade negotiations is moribund. Above all, important
segments of the western public no longer believes increased trade
benefits them. Evidence on relative real incomes and adjustment to
rising imports provides some support for such scepticism.
Globalisation has at
best stalled. Could it even go into reverse? Yes. It requires peace
among the great powers. Some would also argue it requires a hegemonic
power: the UK before 1914 and the US after 1945. At a time of poor
economic performance in leading high-income countries, rising
inequality and big shifts in the balance of global power, another
collapse must be a possibility. Consider the impact of any fighting
between the US and China over the South China Sea, though such a
calamity would be terrifying for far more than its narrow economic
effects.
Does globalisation’s
stalling matter? Yes. The era of globalisation has seen the first
fall in global inequality of household incomes since the early 19th
century. Between 1980 and 2015, average global real income rose by
120 per cent. The opportunities afforded by globalisation are vital.
Our future cannot lie in closing ourselves off from one another.
The failure — a
profound one — lies in not ensuring that gains were more equally
shared, notably within high-income economies. Equally dismal was the
failure to cushion those adversely affected. But we cannot stop
economic change. Moreover, the impact on jobs and wages of rising
productivity and new technologies has far exceeded that of rising
imports. Globalisation must not be made a scapegoat for all our ills.
Yet it has now
stalled, as have the policies driving it. It might reverse. Yet even
a stalling would slow economic progress and reduce opportunities for
the world’s poor. Pushing globalisation forward requires different
domestic and external policies from those of the past.
Globalisation’s future depends on better management. Will that
happen? Alas, I am not optimistic.
martin.wolf@ft.com
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