Globalisation as we know it will not survive Trump. And
that’s a good thing
Larry Elliott
The markets are spooked, but we need a new world order which
makes room for local solutions and the nation state
Thu 8 Aug 2019 06.00 BST Last modified on Thu 8 Aug 2019
07.33 BST
The significance of the trade war between China and the US
goes well beyond the impact of tit-for-tat tariffs, or which of two self-styled
strongmen wins the bragging rights. As was the case in the 1930s, the seemingly
inexorable drift towards protectionism is part of a deeper crisis of the
international status quo. When Beijing this week accused the US of
“deliberately destroying the international order”, it was really saying that US
hegemony will no longer go unchallenged. Globalisation as we have known it is
coming to an end and that’s by no means unwelcome.
Hailed as the ultimate in human progress, a model based on
loosening the controls on capital and the construction of global supply chains has
spawned recurrent financial crises, fostered corrosive inequality and worsened
the climate emergency. True, millions of people have been lifted out of poverty
in the past 25 years, but most of them live in a country – China – that has
kept the market at arm’s-length.
The world’s stock markets see things differently. They
tremble every time Donald Trump tweets a paean to protectionism. Likewise, multinational corporations fret about
the possible damage that trade barriers might cause to global supply chains. It
is clear that those who have done best out of globalisation tend to be the rich
and powerful, and they are not going to give up their privileges without a
fight. Nothing in this is new.
Throughout history there have been successive waves of globalisation
followed by a backlash when the model over-reached itself. This is one of those
occasions and all the ingredients are in place for a struggle between the
defenders of the status quo and those who say that recent trends in politics,
technology and the climate point to the need for a new world order focused more
on local solutions, stronger nation states and a reformed international system.
It’s quite a stretch to imagine that Trump has this in mind when he is bashing
China, but the economic crisis of the 1930s – of which protectionism was one
part – led eventually, albeit after the war, to reforms that made the world a
sounder and safer place.
The challenge is to make sure crisis again leads to change,
and that process starts with an honest appraisal of the mess we are in. For
more than a decade, ever since the financial crash of 2008, there has been a
frantic attempt to put globalisation back on its feet and return to the status
quo ante. Trump is proof that those attempts have ended in failure.
In retrospect, the early 1990s marked globalisation’s high
point. The Soviet Union had collapsed, former communist countries were becoming
market economies, independent central banks were all the rage and a
multilateral trade deal was concluded after more than seven years of
negotiations. Europe’s integrationist project was in full swing, with
preparations under way for a single currency. Politics during the 1990s was
dominated by parties of the centre right and centre left, pursuing broadly
similar economic policies: budgetary discipline, liberalising capital flows,
encouraging the incursion of the market into sectors hitherto off limits.
Whether in the developed countries of Europe or the emerging markets of Latin
America, orthodoxy reined supreme. Sure, it was accepted that there were
teething problems with the new world order, but the cold war was over and
Russia no longer a threat. America would use its unchallenged military might to
police the world and keep factories booming internationally through its
willingness to act as the consumer of last resort.
Little of this utopian vision has survived. There has not
been a completed set of multilateral trade talks since the Uruguay round was
wrapped up in late 1993, in large part because this was the last time the US
and the EU were able to carve out a deal to their mutual interest and then
impose it on the rest of the world.
The G7 – the US, Canada, Japan and the four biggest
economies of Europe – no longer call all the shots at international summits.
The independence of central banks is threatened. The US is unwilling to soak up
all the world’s excess production and instead demands that countries such as
Germany run down their trade surpluses. Europe’s drive for integration has
stalled. Parties of the centre have been hollowed out, either because they
failed to spot the weaknesses inherent in globalisation or were too timid to
act if they did. The Washington consensus – that there was a one-size-fits-all
solution to the problems of developing countries that involved privatisation,
abandoning capital controls and budgetary rectitude – has fallen into
disrepute. And Russia is not the busted flush it was supposed to be. The risk
that the current iteration of globalisation could end in military conflict is
much higher than generally acknowledged.
To prevent such an outcome, there needs to be change at all
levels, starting with the local one. Even during its heyday, large chunks of
economic activity remained untouched by globalisation and that segment is
likely to grow as economies become more service-sector dominated. In addition,
countries such as the US are already bringing production back within its
borders – in part because of the high cost of transporting goods around the
world, and in part because technological change – greater use of robots and
artificial intelligence – has reduced the financial incentive to offshore.
There is also going to be an enhanced role for the nation
state, the death of which has been exaggerated. It will no longer be good
enough for politicians to fob off voters with the idea that globalisation is an
unstoppable force of nature against which they are powerless. Telling the
public that inequality, industrial decay and stagnant living standards are
something they have to suck up is asking for big populist trouble.
China’s Belt and Road initiative is an example of how
countries are starting to operate at a sub-global level. Beijing’s network of
infrastructure projects across Asia and Europe has a dual purpose: to provide a
market for Chinese goods and to extend Beijing’s reach in parts of the world
where America’s hard and soft power is weak. Similarly, trade deals are likely
to be negotiated bilaterally or among coalitions of the willing.
Finally, there’s a need for reform at a global level: to
mobilise effective climate-change action, to meet the United Nations’
sustainable development goals, to rein in the power of global finance through
curbs on capital flows, and to piece together a system of rules-based, but
managed, trade.
None of this will be easy – in fact, it will be hellishly
difficult. But three developments provide cause for optimism. The first is that
the failings of the current system have become too big to ignore. The second is
that failure has, as ever, led to new thinking. The third is that the new ideas
are starting to influence policy.
• Larry Elliott
is the Guardian’s economics editor
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