Donald Trump has said he’ll slap a 45% tariff on Chinese goods coming into the United States, that he won’t allow the Trans-Pacific Partnership to be passed, and that he’ll punish American companies moving jobs offshore.
The president-elect, ostensibly representing America’s party of small government, says he’s willing to directly intervene in the economy, claiming to have prevented 1100 jobs moving from Indiana to Mexico.
Between this, the Brexit vote and the possibility that France may soon end up with a highly protectionist and ethno-nationalist president of its own, you’d think it relatively uncontroversial that there’s a trend among developed countries away from globalisation, driven by voter anger.
So it came as a surprise to hear rosy predictions that globalisation will continue unabated at Thursday’s Boao Forum for Asia conference in Melbourne.
Among the business community it’s apparently business as usual. Attendees of the event — a side-conference to the main forum held each year on the tropical Chinese island of Hainan and seen by some as Asia’s answer to Davos — heard that recent events were probably just bumps in the road towards increased interdependence.
The speakers — a mix of Australian and Chinese businesspeople and economists, with a sprinkling of politicos — mostly insisted globalisation is “irreversible” and that Trump, even if he is not immediately won over to the unassailable arguments for free trade, will merely be a blip on the radar of ever-increasing openness.
Even as the huge Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership free trade agreements appear dead in the water and the next leader of the world’s largest economy threatens to start a trade war with its second-largest, the near-consensus was that barriers to trade and investment would continue to fall more or less the same as before, just with America playing a somewhat diminished role. You’d be forgiven for thinking you’d stepped into a parallel universe.
A case of mistaken identity?
For some, the biggest problem is not substantive, but in the message.
Former Australian ambassador to China Geoff Raby, who saw first-hand the anti-globalisation protests when World Trade Organization members convened in Seattle in 1999 to begin a new round of trade negotiations, suggested the problem was weak politicians unwilling to stand up for free markets. Perhaps it is easier to tell people their jobs are coming back, even if they aren’t. JP Morgan chairman Rod Eddington argued that 80% of the jobs lost in the US over the last decade were due to technology, not open borders — “they’re not in China, they just don’t exist,” he said. Perhaps people are forgetting the benefits of free trade — Productivity Commission deputy chair Karen Chester noted recently that when she was a child, the real cost of clothes was three times as much as now.
But this can’t be all of it. Certainly such sentiments have existed for a long time, but why have they become so influential now? Surely there’s more going on than politicians across the globe collectively jumping at shadows.“What was presumed to be a consensus among the public for openness is no longer there.”
What if a significant minority of citizens have disproportionately suffered the cons without seeing many of the pros? What if opening already very open economies further is reaping diminishing returns but a lot of instability, as suggested by Harvard economist and “hyperglobalisation” skeptic Dani Rodrik, who argues that for every $1 of gain to the overall economy from freer trade, around $50 is redistributed internally? What if these impacts are not just inconveniences in the argument for increased openness — which they are often treated as — but have accumulated to the point of threatening the whole project?
Some acknowledged that the spoils of freer trade had not been shared equally — London Business School adjunct professor of economics Linda Yueh noted that median wages in the United States had not risen in 40 years, nor in Germany and Japan for the past 20 years. Boao Forum vice chairman and former vice premier of China Zeng Peiyan noted that speculative capital movements had “distorted” globalisation and worsened inequality.
What was presumed to be a consensus among the public for openness is no longer there because citizens feel they aren’t benefiting, noted Corrs Chambers Westgarth CEO John Denton. He suggested it may be necessary to find a new “citizens’ bargain” and for business to give up on some of its pet asks.
But for the most part you’d hardly know anything had changed in the political landscape from 12 months ago.
Predictions for whether Trump will follow through on his promises to impose a 45% tariff on Chinese goods and bully and coax American companies to return manufacturing to the United States were rather optimistic, suggesting he simply wants to renegotiate free trade agreements to obtain better terms for the US, will change course when things start going wrong, and perhaps isn’t really as interested in changing the trajectory of globalisation as he claims anyway.
Which may, of course, be true. But one can’t help but wonder whether, just as those gunning for Trump tended to be the ones who predicted he would win, speakers at a large business forum may tend towards being somewhat overconfident about the strength of support for globalisation.
Lucky country luckier than the land of the free
To their credit, the world looks much better if you’re standing in China, or even Australia. While dissatisfaction is concentrated in certain — apparently quite large — sections of developed nations, middle-income developing countries such as China have enjoyed tangible benefits thanks to lower barriers to the movement of goods, money and people, with rising wages and access to foreign products.
China is keen to continue opening up — it is driving negotiation of a massive new trade deal, known as the Regional Comprehensive Economic Partnership, which many see as an alternative to the now-doomed TPP.
And although our politicians rushed to pre-empt a Trump-style revolt in Australia, no such backlash against globalisation appears to have materialised here, either. Australia’s avoidance of many of the impacts of the global financial crisis — thanks in part to our economic ties to China — no doubt has a lot to do with it. It probably helps that whereas the agricultural industry is kept alive in many countries thanks to extensive protection, Australian farmers export the majority of their produce. The average Australian farmer knows more about trade than most businesspeople, noted Zoe McKenzie, former chief of staff to then-Trade Minister Andrew Robb.
Nonetheless, if our second-biggest trading partner, the US, decides it’s in zero sum competition with our largest trading partner, China, the impact on Australia could be significant.
We’ll only know what Trump is really going to do once he’s actually in office, but optimism alone isn’t going to ensure the status quo continues. Even if Trump goes back on his word, the surge of protectionism that carried him into office will probably keep up pressure to wind back some aspects of liberalisation. The backlash against globalisation is a problem that needs ideas, not just the same old mantras.
Image: Boao Forum vice chairman and former vice premier of China Zeng Peiyan delivers a keynote speech to the Melbourne conference.