The big mistake of anti-globalizers

Globalization is not dead. It might not even die. But it is changing. In the process, the institutions that shaped it, especially the World Trade Organization, were also forced to change. We are moving towards a different and more difficult world. However, there are some mistakes we need to avoid when developing a new route. Here are seven.

The first is to focus only on trade.as Maurice ObstfeldThe former chief economist of the IMF has pointed out that today’s turbulent global capital markets have triggered wave after wave of financial crises with no apparent benefit. The lack of attention to this reality is largely because the interests supporting the free movement of capital are so powerful and their economic implications so incomprehensible to most.

The second is that the era of globalization is an economic disaster. However, in a recent note, Douglas Owen Researchers at Dartmouth College observed that between 1980 and 2019, conditions in nearly all countries improved significantly, global inequality fell, and the share of the world’s population in extreme poverty fell from 42 percent in 1981 to 2018 8.6% of the year. I do not support a policy with this outcome.

A third argument is that the rise in inequality in some high-income countries, notably the United States, is largely the result of trade openness, or at least an inevitable consequence of such openness. evidence Contrary to logic. Indeed, it’s an excellent example of “lamp-post economics”—the tendency to focus on where politics shines brightest and blame it. It’s easy to blame foreigners and resort to trade barriers. But the latter is a tax on consumers for the benefit of everyone in a particular industry. It would be better to tax and redistribute income less arbitrarily, more equitably, and more efficiently.

A fourth hypothesis is that greater self-sufficiency may protect the economy from near-term supply chain disruptions at modest cost.for a country forced into trouble three-day week In the 1974 miners’ strike, this never seemed credible. The recent shortage of infant formula in the United States is another example. A more diverse supply makes sense, although it can be costly. Investing in stocks also makes sense, although it’s also expensive. But the idea that if every country were self-sufficient, we would be floating around Covid-19 and its aftermath is absurd.

The fifth is the notion that trade is an optional economic add-on. There is a paradox in trade policy: the countries that are most important in trade are often the least important to trade. The United States is the only economy in the world that can imagine being largely self-sufficient, although it would find it costly to do so. Smaller countries depend on trade, and the smaller they are, the more they depend on trade: without trade, Denmark or Switzerland would not be able to achieve their current prosperity. But the great powers (or, in the case of the EU, the big trading blocs) shape the world trading system because they have the largest markets. Therefore, the reliance of the trading system is the most indifferent. Smaller countries must work to counteract this indifference.

The sixth is to assume that we are already in an era of rapid deglobalization. The reality is that the ratio of world trade to output remains near record highs. But it stopped rising after the 2007-09 financial crisis. This is the result of fewer new opportunities. After China joined the WTO in 2001, global trade liberalization largely stalled. Given this, the world has now largely taken advantage of trade opportunities. But, as the World Bank’s World Development Report 2020 points out, it’s a loss: the ability to participate in global value chains has been the engine of economic development. These opportunities need to be spread more widely, not less.

Line graph of the difference between global trade volume growth and GDP growth* (average over the previous five years, %) showing that trade has grown much faster than world output for more than 20 years

The last mistake is to think that the WTO is redundant. Rather, it remains essential as a set of agreements and a forum for global discussion. All trade involves the policies (and politics) of multiple countries. A country cannot “take back” control of trade. It can only decide its own policies. But if businesses are to plan, they need predictable policies on both sides. The more dependent they are on trade, the more important this predictability is.

This is the basic situation of international agreements. Without them, the recent setback would certainly have been greater. There is also a need for the WTO to ensure that regional or plurilateral agreements conform to some agreed principles. It is not just a place to discuss issues closely related to trade, such as the digital economy, climate or the biosphere. Some seem to think such discussions could happen without engaging with China. But China is too important to too many people for that to happen.

Bar graph of developing country trade with China and the US/EU, % of total trade (2021, %) showing that China is an important trading partner for many developing economies

As WTO Director-General Ngozi Okonjo-Iweala said in April, the impact of new competitors, rising inequality within countries, the global financial crisis, the pandemic, and now the war in Ukraine “have led many to conclude that global trade And multilateralism — the two pillars of the WTO — threatens more than opportunity. They think we should get back to ourselves, create as much as we can, grow as much as we can.” That would be woefully stupid: consider the past few decades Much of the economic damage that would result from a reversal of trade integration.

However, the disruptions of our time—especially the rise of populism, nationalism, and great-power conflict—have called the future of global trade into question. 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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