The pressure to globalise is consolidating towards a global world in which the US is a marginal player.
There is a trope (or should I say ‘wishful hope’) by some that globalisation is coming to an end. While it may no longer moving towards a comprehensive integration, there are sites where it continues to expand. (There may be one major retreat which I discuss towards the end.)
Broadly, it seems to be going into a consolidation. Yes, there are some contractions (if you oppose globalisation you can point to them) and some expansions (the uncritically favourable list those instead). The rest of us of us observe that consolidation may still be an evolution.
The central issue is what Dani Rodrik called the ‘political trilemma of the global economy’. Countries cannot simultaneously have economic integration, democratic politics and full national autonomy. The more embedded global rules become, the less freedom governments have to set their own policies. Integration and sovereignty pull in opposite directions. Rodrik could have added that without a degree of economic integration, small countries, especially, cannot get the specialisation in their tradeable sector that their prosperity depends upon.
Trump acknowledges the trilemma as he uses America’s economic power to ignore the global rules, flouting the trading system’s most basic rule of nondiscrimination using tariffs and bullying as political weapons.
The reaction of almost every other country is just about exactly the opposite. With the exception of China, they don’t have the power to bully. (China uses its power much less openly; it is proving increasingly successful compared to the US.) As a consequence, all around the world negotiations which have stagnated for years are being clinched.
That does not mean the all the issues that had been holding up the deals have been resolved. Rather, they are being put aside. New Zealand may soon get the long-pursued trade deal with India, but it will not contain much about the sticking point of dairy trade. The same thing is happening in other trade deals. Trump’s bullying is generating an urgency to get them done. They are not ideal, but the diversification reduces America’s global economic power.
A complication is that the US has not been approving appointments to the World Trade Organisation Appellate Body so the court is unable to make binding resolutions of trade disputes. The issue has been evident for years – it is pre-Trump, going back at least to Obama. Increasingly trade deals provide arbitrations procedures. They work. New Zealand has successfully dealt with Canada over a ‘glitch’ using those in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
Trump may be getting short-term wins but he is undermining the US in the medium term, nicely illustrated by his announcement that the US will not attend the next G20 meeting to make a political point (about the treatment of white farmers in South Africa, where the meeting is to be held). So be it. The G19 – we are not one, but we will be involved as much as we can – is symbolising a globalised world of (almost) everyone except the US. (Actually, G85 might be a better label; the US share of global trade is only 15 percent – smaller than its 25 percent of global GDP.)
Over the past eight years, more than four of every five nations – developed and developing – have seen trade rise as a share of their national GDP. In the US it has been falling. Whether the falling share is a good thing for the US – a large economy can be more self-sufficient than a small one – is for a later column. In any case, the aggregate measure may miss a critical element from the benefits of trade – the flow of ideas.
For example, the Chinese pharmaceutical industry seems to be developing fast. Trump is blocking access to Chinese innovation. Not only will this handicap the US pharmaceutical industry which, for instance, heavily draws on the European one, but it is likely to damage Americans access to new drugs and ultimately damage their health.
As mentioned earlier, there is one dimension where globalisation may be retreating. We are seeing increased resistance to international migration. Communities appear willing to consume foreign produce but unwilling to allow foreign immigrants. Arguably, the globalisation of migration peaked before WWI, but there has been rising pressures for greater migration in post-WWII. The EU, for example, has made the free flow of people central to its integration. (It is the main reason Britain left the EU.) But it increasingly rejecting flows from elsewhere.
The interfacing of new and old communities is not well studied by economists, so I must be cautious. One economic conclusion is that there is much less evidence of new migrants causing unemployment among the locals than is widely believed; after all the population increases demands and jobs while very often the new migrants fill positions where there are domestic shortages. (I greatly admire the energy and vigour many new migrants bring with them.) It is the social interface which seems troubling.
I expect we shall see increasing restrictions on and discouragement of international migration with increasing emphasis on high and specialised skills. Ironically, that flow can go both ways. America has been a great attractor. Some 40 percent of US Nobel prize-winners have been born elsewhere. Now some of the very able are leaving. One of the many beneficiaries are Chinese pharmaceutical industries.
New Zealand’s migratory history has been more open than many other country histories; about 30 percent of its residents were born overseas. It seems likely that our future will involve even higher proportions of people of Asian and Pasifika descent – many born here. But I do not discount what happened in the US. It was once the world’s greatest destination for migrants, but it is now turning its back on them.
New Zealand has long been aware of its limited weight in the international economy. The spaghetti of trade deals we have with many countries is indicative of our response; the biggest omission in our network is the US which reminds us that the problem has not been simply Trump. (We are so small and strategically irrelevant that we have not been a priority while suffering from protectionist urges in the US Congress.)
We have also built up relationships where trade may be integral but is only a part of the whole. When the Closer Economic Partnership with Singapore was announced in 2001 it seemed one trivial country aligning with another. (Perhaps that is a little unfair to Singapore, but you get the picture.)
However, the deal was not only a step on the way to the 2018 12-country CPTTP and the 2022 15-country Regional Comprehensive Economic Partnership (RCEP) are also sectoral initiatives which are plurilateral – designed to allow other countries join them. (More here.)
While diplomacy has been crucial in our trade negotiations, the trade deals also helped our diplomacy. A quarter of a century ago – well before Trump or our current collection of politicians – New Zealand was pioneering what may be the next phase of globalisation – open plurilaterism because we cant have multilateralism. The pioneering was because we looked to the future and thoght about our particular circumstances, rather than just followed the fashions.