Inside Out & Outside In

Trade in times of Trump – make globalisation inclusive if you want voters to back openness in market

Benefits of trade liberalisation unequally distributed, finds Marshall School survey of Apec economies

PUBLISHED : Sunday, 26 November, 2017, 4:28pm
UPDATED : Sunday, 26 November, 2017, 9:39pm

If the net benefits of more trade and less protectionism are so clear, why are so many voters in countries such as the United States and the United Kingdom so virulently opposed to them? And what can be done to reduce this anger and anxiety, and to make sure growth arising from strong international trade can continue?

These questions have left business leaders in Asia puzzled.

Concern peaked at the Apec Business Advisory Council (ABAC) following the surprise victory of Donald Trump in the US presidential elections last November. It was widely recognised that if he followed through with his “America First” economic nationalism – introducing protections for US domestic companies and going out to fight any country with a significant trade surplus with Washington – great harm could be done to company costs and profits worldwide, jeopardising global growth and job creation just as we were beginning to emerge from the worst recession in 80 years.

So as ABAC leaders met at the beginning of this year to plan for 2017, two tasks towered over all others: to test whether the long-held belief that openness to trade and investment really was well-founded; and to understand more clearly why so many disagreed, and what was needed to address their concerns.

The leaders tasked a team from the Marshall School at University of Southern California to address these questions across the 21 Asia-Pacific Economic Cooperation economies, with instructions to report back in Da Nang during the Apec Leaders’ summit held just a couple of weeks ago.

Its findings were predictable, but also fascinating.

The first question was really very easy to answer: “No economy in modern times has sustained economic growth without harnessing the benefits of trade and technological advances”. Data from just about every reputable economic agency supports the fact that openness to trade and investment brings big net benefits.

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But there is the rub: “net” benefits. As the Marshall School team noted: “The benefits of trade liberalisation can be diffuse, unequally distributed and can take time”, while there can in the meanwhile be “acute negative impacts on some individuals, groups and sectors”.

It does not help that in big economies such as the US only 1 per cent of companies are actually involved in international trade. While the affect of this 1 per cent is huge in terms of the lowering of costs for local companies and Walmart shoppers, this impact is indirect and unappreciated by most businesses and most consumers.

And while economies such as Hong Kong and Singapore have a much higher awareness of the benefits, with 70 per cent or more companies involved in trade one way or another, these are the exceptions that prove the rule.

Even though globalisation has been responsible for some job losses, trade in general has become the fall guy for two other much more powerful forces: the decade-long recession that has followed the US financial markets meltdown of 2007; and the industrial convulsions resulting from the technology revolution accelerating around us.

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“Apec economies that have relied exclusively, or too heavily, on anticipated future economic growth to mitigate adverse impacts and create new opportunities for citizens, have seen an increase in the amount of discontent and number of disenfranchised citizens,” the Marshall School team reported.

“Discontent and frustration among different groups in different Apec economies are very real, and should not be minimised,” they said. “Frustration is largely directed at the ineffectiveness of domestic policies to handle the adverse impacts of technological change, trade liberalisation and globalisation.”

Matters have been made worse by the viral amplifying affect of social media, a clearly visible surge in inequality and a loss of job security for many.

The study blames businesses for being blind to mounting inequalities, ignoring how many people have been excluded from the gains of recent years and complacently believing it was up to government agencies to come to the aid of those being left behind.

Looking at Apec’s economies individually, the study identified five where high levels of inequality, low trust in government, inadequacy of adjustment policies and poor communication on the changes effecting us combined to create a high risk of increasingly rancorous attacks on globalisation and trade liberalisation – Indonesia, the Philippines, Mexico, Papua New Guinea and, predictably, the US.

While Hong Kong was viewed as a “low-risk” economy, there was little room for complacency, with concern over the ineffectiveness of the government’s economic adjustment policies, eroding trust in government and the worst income inequality among all Apec economies.

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The messages from the study are clear. Governments have so far done a poor job in explaining the radical changes going on around us, with education systems that for the most part are not fit for purpose in preparing people for future jobs. They lack any capacity to deliver the kind of lifetime learning that we are going to need as technological change accelerates around us.

Businesses have been complacent in leaving government agencies to tackle these problems and have been indifferent to the difficulties being faced by those struggling to adjust. If we in business are going to convince ordinary voters to support continued globalisation and openness in trade, we are going to have to focus much more keenly on fairness and inclusion. We must be much more directly engaged in structuring education and vocational training that makes sure the casualties of change can be quickly re-equipped to rejoin the workforce with confidence and security.

The report singles out governments that have focused exclusively on safety nets, which might protect labour force casualties from economic catastrophe, but do nothing to prepare them for recovery. For that, governments need to focus on “springboards”: “Social protection safety net programmes are important, but are only a short-term fix. Governments need to invest in innovative springboard programmes that prepare their citizens for jobs of tomorrow.”

The Marshall School conclusions may be predictable but they are important and welcome. And the depressing reality is that as we enter 2018 the sceptics on free trade remain as vocal and angry as ever. Trump’s administration remains strident on using protectionist measures to bring jobs home and cut bilateral trade deficits – no matter how naive and destructive this will be at home and abroad.

For those of us who believe in, and recognise the benefits of free and open trade, the work needed to convince the sceptics has barely begun.

David Dodwell researches and writes about global, regional and local challenges from a Hong Kong point of view