The big mistakes of the anti-globalists

Globalization is not dead. He may not even die. But it is changing. In this process, the institutions that shape it, in particular the World Trade Organization, are also forced to change. We are moving towards a different and far more difficult world. But in setting our new course, we must avoid some mistakes. Here are seven.

The first is to focus only on trade. neither Maurice Obstfeld, a former chief economist at the IMF, noted that today ‘s volatile global capital markets are generating waves of financial crises, while bringing little obvious benefits. Not enough attention is paid to this reality, mainly because the interests in favor of free capital flows are so powerful, while their economic impact is so difficult for most people to understand.

Line chart of global trade in goods as a share of GDP (%), showing the last era of globalization is unprecedented and has not turned

The second is the belief that the era of globalization is an economic catastrophe. However, in a recent note, Douglas Irwin from Dartmouth College notes that between 1980 and 2019, virtually all countries improved significantly, global inequality declined and the share of the world’s population in extreme poverty fell from 42% in 1981 to just 8.6% in 2018. I do not apologize for supporting policies with such results.

The third is the idea that growing inequality in some high-income countries, especially the United States, is largely the result of openness to trade, or at least a necessary consequence of such openness. PROOF and the logic is the opposite. Indeed, this is a great example of the “lamp economy” – the tendency to focus attention and blame where politics sheds the brightest light. It is easy to blame foreigners and resort to trade barriers. But the latter are a tax on consumers for the benefit of everyone in a particular industry. It would be better to tax and redistribute income less randomly and more fairly and efficiently.

The fourth is the assumption that greater self-sufficiency may have protected economies from recent disruptions in the modest supply chain. To someone whose country has been forced to a three-day week since the miners’ strike in 1974, this never seemed plausible. The recent shortage of baby formula in the United States is another example. Greater supply diversification makes sense, although it can be costly. Investing in stocks can also make sense, although it will also be expensive. But the idea that we would go through Covid-19 and its consequences if each country were self-sufficient is ridiculous.

The fifth is the notion that trade is an optional economic extra. Herein lies the paradox in trade policy: the countries that are most important in trade are the ones that are least important in trade. The United States is the only economy in the world that can be imagined to be largely self-sufficient, although even that will be costly. Smaller countries are dependent on trade, and the smaller they are, the more dependent they tend to be: Denmark or Switzerland would not be able to achieve their current prosperity without it. But big countries (or, in the case of the EU, big trading blocs) shape the world trading system because they have the biggest markets. Thus, the trading system depends on the most indifferent. Smaller countries must try hard to compensate for this indifference.

The sixth is to assume that we are already in an era of rapid deglobalisation. The reality is that the ratio of world trade to output is still close to the highest level of all time. But it has stopped growing since the 2007-09 financial crisis, as a result of declining new opportunities. Global trade liberalization has largely stopped since China’s accession to the WTO in 2001. With this in mind, the world is already making great use of trade opportunities. But as the World Bank’s World Development Report 2020 points out, this is a loss: the ability to participate in global value chains is the engine of economic development. These opportunities must be spread more widely, no less.

Line chart of the difference between global trade growth and GDP growth * (average for the previous five years,% points), showing that trade is growing much faster than world production for more than two decades

The last mistake is the opinion that the WTO is redundant. On the contrary, both as a set of agreements and as a forum for global discussion, it remains essential. All trade involves the policies (and therefore the policies) of more than one country. A country cannot regain control of trade. It can only decide policies on its own. But if businesses need to make plans, they need predictable policies on both sides. The more dependent they are on trade, the more important this predictability becomes.

This is the essential case for international agreements. Without them, the recent retreat would surely have been greater. The WTO is also needed to ensure that regional or multilateral agreements fall within certain agreed principles. This is not the last place to discuss issues that are closely related to trade, such as the digital economy, climate or the biosphere. Some seem to imagine that such discussions could take place without a commitment to China. But China is too important for too many people to make that possible.

Chart of developing countries' trade with China and the US / EU, as% of total trade (2021,%), showing that China is an important trading partner for many emerging economies

As Ngozi Okonjo-Iveala, the WTO’s director general, noted in April, the impact of new competitors, growing inequality in countries, the global financial crisis, the pandemic and now the war in Ukraine “have led many to conclude that global trade and multilateralism are two pillars of the WTO – are more of a threat than an opportunity. They argue that we need to withdraw into ourselves, to do as much as we can on our own, to grow as much as we can on our own. ” That would be tragic nonsense: think of the economic damage that would have been done in the process of reversing most of trade integration over the last few decades.

Yet the turmoil of our age – above all, the rise of populism, nationalism and the conflict of great powers – calls into question the future of world trade. So how should we try to reshape trade and trade policy? This will be my topic for next week.

martin.wolf@ft.com

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