Ever since US presidential candidates railed against free trade, and anti-immigrant parties made sweeping gains in Europe, the question has been asked: are we witnessing the demise of globalisation? A trend that has dominated economics and trade for decades appears to be coming to an end. As a percentage of global GDP, world exports, which have been on a slow steady decline in the past two years, have peaked. Fines on multinationals have reached record levels. China’s breakneck industrialisation is probably over. Britain, a nation famous for building its empire on trade, will exit the world’s biggest free-trade area – Europe – by the end of this decade. Donald Trump, an opponent of free-trade deals all his public life, is about to become president of the United States. These signs point to the slow death of the form of globalisation that the rich world has invented, refined and patrolled since the end of the second world war. For many, the period from 1980 to 2008 marks the high-water mark of such policies – a period that came to an end with global financial crisis. There is a worry that these years resemble the previously most integrated period of world history: the Gilded Age between 1870 and 1914. This ended bloodily with the first world war.
However, history does not necessarily repeat itself. It is important to note that global prosperity is bigger than any one nation. Some of the reason for the flattening off in the globalising trend is mathematical: poorer economies are growing faster than richer ones, and they import less. As developing nations’ share of global GDP rises, the effect will be to shrink the ratio of trade to global income. Others could take China’s place as a driver of worldwide growth: India is probably the only country that has the potential to mount a transformation of similar scale and global consequence. Also a number of fast-growing nations could re-energise the pattern of global growth. The International Monetary Fund suggests that 6% annual growth in a dozen countries with a combined GDP of $4tn would add more to the global economy than the eurozone growing at full tilt.
Yet these feel like the wrong questions and answers. We need to settle whether globalisation in its current incarnation aids or relieves poverty in an equitable way. Given the worldwide revolts on the right and left of politics, the answer would seem to be that it doesn’t. Fairer arrangements will help poor nations get richer. Trade is not a zero-sum game: all should benefit from engaging in it. But the world that exists has not been designed this way. The thinking that has dominated recent decades comes from classical free-trade theory – which holds that although imports do cost jobs, exports will generate new ones and competition keeps prices low, so, over time, everyone gains. However, recent academic research tells a different story. When economists at the Massachusetts Institute of Technology looked at the impact of the trade relationship between the United States and China they found a heavy cost to American workers. When jobs vanish, the MIT paper found, the better-trained workers would bounce back, but many blue-collar workers did not. Losses in manufacturing are magnified by being geographically concentrated – and entire communities were punished. Little wonder perhaps that Mr Trump’s protectionist message has been central to the populist campaign that has made him the president-elect.
The trick is not to retreat behind walls. That would see a return to beggar-thy-neighbour policies and the threat of war. Policymakers must go back to watching the numbers that matter to left-behind communities: the trade deficit. International prices must be fairly set so exports are not artificially expensive and imports are not artificially cheap. Imports from nations where labour rights are trampled need addressing. These are concerns that sensible thinkers on the left have raised for years – most notably the Nobel prize-winner Joseph Stiglitz, who has long worried about the corporate capture of trade deals. His warning that President Obama’s Trans-Pacific Partnership operated under rules that would harm the economy and US workers was a call that went unheeded by Democrats until it was too late. Work must be done to resolve the tensions between democracy, the nation state and global economic integration. Trade deals need to show nations are open for business by putting people’s interests, not corporate interests, at their heart. We may be at a turning point in the nature of capitalism. That may not be such a bad thing.