The end of globalisation? Chinese companies haven’t heard about it
Empirically, there is little evidence to underpin the claim that globalisation faces a life-threatening crisis
Stephen King, the tousled imagineer whose day job is senior economic adviser to HSBC, swept through Hong Kong this week with a new book and a predictably grabbing message: the West’s 70-year love affair with globalisation and free trade is under threat as “localism” infects the politics of Europe and the United States.
Grave New World: The End of Globalisation, the Return of History plays brazenly on two of the 20th century’s most powerful and traumatising novels – Aldous Huxley’s Brave New World in 1932 and George Orwell’s 1949 novel 1984. It plays games with Francis Fukuyama’s 1989 essay “The End of History?”. Its swashbuckling swoops through centuries of history beguile and mesmerise as he fights to persuade us that globalisation is in peril.
He is impressive, entertaining and probably wrong. But then as I sit cocooned in Hong Kong, one of the world’s most globalised economies, I am sure King would tell me I have been lulled into complacency because I am wearing the wrong kind of glasses.
King’s book is nevertheless nothing if not timely. Popular localist politics have thrust earthquakes through the US, Britain and many of Europe’s economies, and in some places undermined confidence in the benefits that international trade and business globalisation have brought. They have lifted to power or prominence a number of wholly improbable new political leaders. They have created an obvious and urgent need to audit afresh what globalisation and liberal trade have delivered over the past 70 years.
Shame on us in business that we have for so long been so complacently confident in the powerful net benefits of liberal trade and investment and global dispersal of manufacturing that we have dangerously neglected to pay attention to those who have lost out in the process. Shame, too, on governments that have failed to notice or speak up for the casualties and failed to develop strategies that could protect them, pick them up and prepare them to cope successfully in a globalised world where we are all exposed to international competition.
King is right to home in on the West’s “souring love affair with globalisation”, among politicians at least, just as Karl Marx and Charles Dickens were right to home in on the dreadful human impact of the early Industrial Revolution. But just as Marx was wrong in predicting the imminent overthrow of global capitalism, so, too, is King in saying that the trade freedom and globalised production chains built over the past 70 years are about to be unravelled. Fortunately, businesses and governments still have the capacity to learn lessons from mistakes and correct them.
Empirically, there is little evidence to underpin King’s claim that globalisation faces a life-threatening crisis. Global foreign investment outflows that rose to US$1.9 trillion in 2006 tumbled hard to US$1.2 trillion during the global financial crisis years of 2008 and 2009, but have since recovered to US$1.75 trillion last year. Imports and exports worldwide took a tumble in 2009 but have otherwise continued to grow – not at the flamboyant pace of the 1980s and 1990s but still about 3 per cent a year. Between 2007 and 2015, for example, imports have grown from US$16.9 trillion to US$20.75 trillion while exports have risen from US$17.3 trillion to US$21.3 trillion.
True, Donald Trump has pointed gun barrels at trade-liberalising deals like the Trans-Pacific Partnership and the North American Free Trade Agreement and perversely argued the virtues of protectionism as he “puts America first”. But it is noteworthy that in recent weeks he has been persuaded to talk about “modernising” Nafta rather than “renegotiating” it. It is also noteworthy that US businesses have so far shown scant interest in unravelling their global supply chains or slowing investment in overseas markets.
In discussions at the Asia-Pacific Economic Cooperation (Apec), US business leaders have stood shoulder to shoulder with their peers from the other 20 member economies in commending the net benefits of free and open trade and calling for further economic integration across the region. This is hardly the stuff of a collapsing globalisation superstructure.
King is right to rub Fukuyama’s nose in it for his “The End of History?” thesis as the capitalist hubris of the 1980s evaporates, but carried away by the flamboyance of his own narrative, he is wrong to link Britain’s appalling decision to leave the European Union with anger over globalisation. Theresa May’s Brexit ministers are working overtime to build strong trade and investment links with anyone anywhere in the world willing to talk to them.
He is right to think about the stressful implications of China’s rise, its creation of post-Bretton Woods institutions to channel its international ambitions and the adjustment challenges the US and other Western economies face after more than half a century of international trade and investment shaped by the International Monetary Fund, the World Bank and the World Trade Organisation. But he is wrong to see these Chinese moves as a threat to globalisation. China clearly sees institutions like the Asian Infrastructure Investment Bank as a complement to existing international financial institutions rather than as challengers.
True, its “Belt and Road Initiative” may become an important channel for building international economic, diplomatic, strategic and business links, but China remains strongly committed to a multitude of other global and regional institutions, including the Free Trade Area of the Asia-Pacific, which is being built on the foundations of the stalled TPP agreement from which it is excluded.
And if the US’ confidence in the merits of globalisation is in question, China’s confidence cannot be in doubt. As hundreds of mainland companies continue to pour into Hong Kong to list here and use the city as their springboard from which to build global business links, so Hong Kong’s stock market continues to explode. From a market capitalisation of HK$49 billion in 1997, the market is today capitalised at almost HK$6 trillion. Mainland companies account for more than 40 per cent of this, compared with 16 per cent in 1997. If, as King warns, we face the “end of globalisation”, certainly none of these Chinese companies has yet heard about it.
David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view