Donald Trump is not turning his back on globalisation – he wants a free ride
Andrew Sheng says globalisation is here to stay, and the danger for the world is that its detractors – by refusing to pay their share for the public goods that an open system depends on – will make the system even less fair
Depending on who you talk to, globalisation happened either in 1492, when Christopher Columbus discovered America in search of the Orient, or sometime in the middle of 19th century, when America decided to look outwards for trade after its civil war.
By 2000, when the movement of trade, technology, finance and investments across the globe seemed unstoppable, Thomas Friedman celebrated a borderless world as the driver of global success in his bestseller, The World Is Flat. Globalisation had lifted billions from poverty and the logic of free trade and capital flows was accepted from Beijing to Zanzibar. But in 2007, when the North Atlantic financial crisis revealed the flaws of excessive financialisation, doubts about globalisation began to creep in.
Writing in the Financial Times this week, former Economist editor Bill Emmott agonised over the irony that “the West invented what we now call globalisation and it is America, epicentre of the West, that is demonising its own invention”.
Globalisation, in the form of the spread of trade, money, people and information, is inevitable, essentially because of expanding demographics and technology. Human beings migrate all over the world, and it was technology – the invention of railways, ships, aircraft and now information communications – that accelerated the spread of global ideas and genes.
Technology also enabled the dramatic cutting of transaction costs, making markets and prices global.
As Nobel laureate Joseph Stiglitz, author of Globalisation and Its Discontents, aptly put it, globalisation is either positive or negative, depending on how it is managed.
Like any national system, the system works well with someone providing public goods.
The internet is such a public good. It gave even the most remote people and places access to global knowledge, thus making the world more inclusive. But if and when the masses cannot benefit from such access, and wealth and income becomes more exclusive, technology and globalisation can widen inequalities, giving rise to anger, frustration and the rise of populist sentiments.
In essence, globalisation is about open systems. Those who realise that the world is better off through open systems welcome globalisation. Those who want to be protected and to keep the “purity” of genes and faith argue for more closed systems.
The reality is that globalisation cannot be stopped, for both positive and negative reasons. But it can be managed better. The issues that arouse anti-globalists can and should be managed. These are the interrelated issues of climate change, disruptive technology, human migration (to cities as well as abroad) and toxic politics.
Being a businessman, Donald Trump’s basic instinct is to manage these issues bilaterally, which is why intuitively he does not like multilateral groups like the World Trade Organisation, the International Monetary Fund and the United Nations. But these multilateral institutions provide exactly the global public goods that make globalisation positive rather than damaging. What is fair to a behemoth that accounts for 22 per cent of world gross domestic product may not be fair to a small bilateral trading partner one-tenth its size. The world’s multilateral rules, which took years to negotiate, are there because they bind everyone, large or small, to global mutual benefit and shared stability.
There are several guiding principles behind that gesture.
First, there is Chinese recognition that global problems like climate change, disruptive technology and human migration involve costs that can only be solved from new resources generated through growth in trade and investments.
Second, China sees globalisation not as a zero-sum game, but one where there can be benefits for all, provided the downsides are managed on a mutually shared basis, according to mutually agreed multilateral rules.
Third, accounting for only 15 per cent of world GDP, China on its own cannot push globalisation. It must work with the current advanced economies like Europe (25 per cent of world GDP) and Japan (6 per cent), India, Brazil, Russia and South Africa (7 per cent), the Association of Southeast Asian Nations (3 per cent) and the other emerging markets. In short, globalisation is already too deeply entrenched for any single country to lead or manage. This is a shared venture, making the task very complex, because there many competing interests involved.
Fourth, to be realistic and pragmatic, China’s contribution to globalisation must work on the principle of comparative advantage. Being a latecomer to globalisation, China has considerable first-hand experience in building infrastructure, supply chains and urban conglomeration under third-world conditions. Its comparative advantage is based on the adaptation of modern technology, such as internet platforms, to lower trading and transaction costs. India, Kenya and other emerging markets are also moving in the same direction.
In short, to promote the good side of globalisation, we must apply 21st-century tools and experience to manage 21st-century problems.
It was the failure of globalisation to be inclusive that gave voice and power to its discontents.
Going forward, the complexity is that Trump is pushing the leading economy to swing from a major contributor of global public goods to a “taxer” on globalisation. That is the true meaning of the border tax and the chiding of allies and partners alike that they need to contribute to any bilateral efforts in defence or in the building of walls.
But America works on the basis of freely importing resources and talent way in excess of domestic production. That manifests itself in its larger and larger current account and fiscal deficits and its growing global debt.
This is why everyone prays that saner heads will prevail in America’s commitment to globalisation. “America first” cannot operate on the basis of everyone else loses. Just as business is too important to be left to businessmen, globalisation is too important to be left to its discontents.
Andrew Sheng writes on global issues from an Asian perspective