On September 17, as I walked out for lunch in Frankfurt Down-town, I witnessed un seemingly sight of a large crowd (later the TV news confirmed 15,000) walk the streets demanding scrapping of the TTIP and the Comprehensive Economic and Trade Agreement (CETA) of Canada. Not surprisingly within three weeks this number grew more than ten times, with 250,000 Europeans rallying from Berlin to Brussels against global trade. These protests are one of the many reflections of the growing narrative against global trade and immigration. What was a far away din till early 2015 is today a constant beating of drums.
In the last two months I have also participated in various forums including the B20 Summit where I heard and interacted with a wide spectrum of people from heads of states to global business leaders to Heads of Missions. I believe that in an environment of increasing joblessness and lowering of salaries in the post global meltdown era, politicians have leveraged the insecurities of the masses to build a rhetoric against global trade. It has been easy to lead the masses to believe that their malefactors are the immigrants and that global trade agreements trigger job losses. With a burgeoning gap between the rich and the poor, many politicians, rather than solving the real issues, are advocating inward focused policies targeted against immigrants accompanied with an increasing number of protectionist measures. A recent WTO study has highlighted that between October 2015 and May 2016, the G20 economies introduced almost five protectionist measures a week, the fastest since the global economic slowdown in 2008.
While the rhetoric against global trade has been brought centrestage by none other than the Republican US Presidential Nominee, it has begun to take root in other countries as well. It is ironical that Germany, a country known for its penchant for global trade, is facing stiff resistance to Free Trade Agreements from its people. Brexit is yet another example of people’s increasing belief that immigration and global trade are the reasons for job losses, slow or no growth in incomes, rising realty prices and pressures on public services. And, now Britain’s Prime Minister Theresa May is trying hard to negotiate with Brussels, both access to single market and control over immigration, even though the EU leaders have communicated otherwise.
While a negative narrative has been built up against global trade, is liberalized trade really the culprit for joblessness? Are non-tariff barriers replacing protectionist measures of the past? Is it the end of global trade or can it be revived? These are some questions that need answering given the cresting fustian against global trade.
In the mounting tendency towards protectionism, multiple political uncertainties and the dynamic nature of geopolitics, people are forgetting the benefits of an interconnected world. Governments are ignoring the fact that protectionism, far from being helpful, creates a lose-lose situation for all nations involved. Problems with protectionism are clearly elucidated in the words of Roberto Azevedo, Director General, WTO “In general, protectionist measures, especially unilateral measures, are not helpful. One thinks that one is winning when we slap tariffs or introduce barriers to imports from another country and we think we win. But we lose when we export because the other countries are going to raise tariffs as well. They’re going to introduce barriers as well. So we win with one hand and lose with the other.”
A recent OECD report has emphasized that the growing rhetoric against foreign trade liberalization and an economic slowdown in commodities producing countries have contributed to a further slowing down of global economic growth. This trend has the potential to erode productivity and thereby also the living standards across nations. Productivity has already fallen by almost 50% since the Economic Crisis of 2008.
I also echo Pascal Lamy’s view that, through trade, global value chains create opportunities for all countries to grow. In such a system, value can be created at any step of the process and in any part of the world. It no longer remains necessary for a country to be competitive in producing a product in its entirety, thus creating many more opportunities.
Those in favour of globalization argue that global trade has brought at least a billion people out of poverty in the developing world while improving the standards of living for people in the developed world. In the 1990s and early 2000s global trade spurred economic growth. And a similar growth rate is very essential for pulling languishing economies out of the impact of slowdown.
In a global economy reeling under pressures of slow growth and low investments, several politicians are worried that the election rhetoric will negatively impact investments. Hank Paulson, former US Treasury Secretary has voiced his concerns about US loosing out on Chinese investments if the tirade against de-globalization continues. In his address to the UNGA, President Obama also enunciated the need for continuing on the globalization path “Sometimes I’m criticized in my own country for professing a belief in international norms and multilateral institutions, but I am convinced that in the long run, giving up some freedom of action—not giving up our ability to protect ourselves or pursue our core interests, but binding ourselves to international rules over the long term—enhances our security. And I think that’s not just true for us.”
At various international forums that I attended I have mostly heard saner and more positive views about global trade being voiced. The rhetoric against global trade then seems more of an attempt by politicians to deflect attention from the real issues. Christine Lagarde, Chief of the International Monetary Fund has called global trade a political football with supporters of economic integration – and cooperation being on the defensive.
What really are the issues? The biggest issue is the lack of re skilling and up skilling of people to meet the demands of the new age jobs. In a highly connected digital world, the unequal distribution of income resulting from globalization has also become exposed and today stands out as a sore thumb. Concentration of wealth in a few hands leads to a narrow consumer base and thus less spending on products that drive economic growth. World Bank President Jim Yong Kim is of the view that “every single country in the world can do better in looking at how to match the skills and training of their workforce with the jobs that are likely to come and to see whether they are being competitive in the global market. In the last 20 years the lower middle class in the developed countries has probably been the worst effected by globalization. But being against trade is the wrong way to get out of this particular hole. Economies will begin to grow more robustly only if we have more trade.”
Much work needs to be done to beat low levels of economic growth, with fiscal and monetary policies that promote inclusiveness and structures that maximize synergies amongst nations. President Obama has outlined for The Economist four crucial areas of unfinished business in economic policy that his successor will have to tackle. “For fully restoring faith in an economy where hardworking Americans can get ahead, four structural challenges will have to be addressed: boosting productivity growth, combating rising inequality, ensuring that everyone who wants a job can get one and building a resilient economy that’s primed for future growth. Finally, sustainable economic growth requires addressing climate change.”
In a positive development at the recently concluded B20/G20 Summit, the members, including India, agreed to work towards strengthening cooperation with an open attitude, advance reform and promote growth. For the first time the Summit was focused on global economic development rather than that of G20 nations alone, with Chinese Premier Xi setting the tone when he said “In the age of economic globalization, countries are closely linked in their development and they all rise and fall together. No country could seek development on its own; and the one sure path is through coordination and cooperation. We need to realize interconnected development by promoting common development of the world economy.”
Members thus outlined an action plan to facilitate implementation of the 2030 Agenda for Sustainable Development. The G20 nations also agreed to collectively support industrialization of African countries and least developed countries. Diane Wang Co-Chair of the B20 SME Development Taskforce defined the B20 recommendations as embodying “the concepts of openness, transparency and inclusiveness. They target priority issues for the global economy and are geared towards strong, sustainable and balanced global growth.”
The Hongzhou Consensus signed by the G20 Members at the Summit, focuses on the need to forge a comprehensive and integrated narrative for strong, sustainable, balanced and inclusive growth. With members representing more than 85 percent of global economic output and two-thirds of the world’s population, G20 has an undeniable influence on managing the global economy. If implemented in right earnest, I believe that the policies that Members have agreed to adopt will help build an open world economy and reject protectionism. And, the results might prompt supporters of de-globalization to beat a retreat.
In a dynamic and volatile world where most countries are struggling for growth, India has been on a growth trajectory. While India has been better placed, however, sustained growth over long periods can not be attained on the basis of a large domestic market. As we target 8 to 10% growth rates India’s share of global trade needs to grow beyond the present 2.1%. And, I believe that we must aspire to double it over the next five years and reduce our trade deficit to stay ahead in the race for growth. A calibrated liberalization and reform approach combined with capability building to get integrated into global value chains are growth imperatives for India.
In this scenario, what remains to be seen is how far countries will deliver on their promise of rejecting protectionism? Will the rhetoric against global trade remain a campaign peg and assume a different shape post election? How long will it take for the de-globalizes to realize that global trade has the answers to many of their nation’s problems? What steps does India need to take to engage global markets to sustain a 7% growth rate?
The views expressed are personal.