Bucking globalisation

What the global push to the right could mean for trade

Text by Justin McCurry  /  Illustration by Guillaume Babusiaux

Friday 9 December should have been a day of quiet satisfaction for Japan’s prime minister, Shinzo Abe. After months of acrimonious debate, the House of Representatives ratified the Trans-Pacific Partnership (TPP), a 12-nation free trade deal covering an estimated 40% of the global economy.

But Abe and his fellow TPP enthusiasts were unlikely to have cracked open a barrel of sake to celebrate that evening. It was, after all, a bitter-sweet victory, their vision of a huge free trade bloc all but dashed against the rocks of an anti-globalisation wave sweeping across the Pacific Ocean.

Just two weeks before Japan ratified the TPP, Donald Trump repeated his threat to rip up the agreement as soon as he is inaugurated on 20 January. Whatever Trump and Abe discussed in New York in November, the prime minister clearly failed to convince the president-elect — who had described TPP as a “disaster” for the US economy — to change his mind.

Trump’s protectionist, “America first” credo reflects a growing recognition of the short-comings of globalisation, and one that could have a profound impact on free trade deals involving the European Union, Japan and other major economies. What started with the UK’s decision in June of last year to leave the EU and Trump’s surprise election victory in November could continue when voters in France, Germany, Belgium and the Netherlands go to the polls in 2017.

The rising tide of anti-globalisation — underpinned by opposition to free trade agreements — has sparked a slew of warnings about a new era of protectionism and slow growth.

In October, the International Monetary Fund (IMF) reported that world trade had grown by just over 3% per year since 2012, less than half the average rate of expansion seen during the previous 30 years. “The slowdown in trade growth is remarkable, especially when set against the historical relationship between growth in trade and global economic activity,” the IMF stated.

Euler Hermes painted a similarly bleak picture. The credit insurer said in October that it expected global trade growth to shrink 2.9% in value in 2016. It noted that the world had lost $3.12 trillion in exchange goods and services over the past two years, adding that in the first six months of 2016 alone, countries had adopted a total of 352 new protectionist measures.

Those warnings reflect growing scepticism towards traditional notions of how capitalist economies should work: that multinationals, in return for favourable taxation and minimal regulation, bring rising living standards to the developed world and lift people out of poverty in developing economies.

That globalisation has, to an extent, achieved both of those aims is not in doubt. However, the sense that the fruits of global growth are not being distributed fairly is now impossible to ignore.

“The goals of more equitable economic growth and of social inclusion can either be facilitated or hindered by the shape of globalisation,” Danny Leipziger, professor of international business and international affairs at the School of Business, George Washington University, wrote on the voxeu. org website in December. “If globalisation moves, as it has, with few effective limits on bad behaviour, and if national economic policies are either captured by vested interests or are simply powerless to stop the excesses of globalisation, then a wholesale retrenchment is inevitable.”

Less than 10 years ago, the impetus behind anger over the concentration of wealth in the hands of the “one percent” came from the left. But with Trump’s election, the Brexit referendum, and the possibility that right-wing populists could form governments in France, Italy and elsewhere this year, anti-globalisation has acquired a more reactionary tinge.

In the US, this could take the form of a trade war with China if Trump imposes tariffs that run counter to World Trade Organisation rules. However, he is not alone in challenging the established view of how nations trade in a post-globalisation world.

Months before Trump won the election, Britain gave notice that public discontent with the status quo — in the form of membership of the EU — would force governments to rethink their relationships with established trading blocs based on the free movement of goods and services and, critically, of people.

What remains to be seen is exactly how the British prime minister, Theresa May, and her handpicked Brexit task force plan to navigate the legal, political and economic minefield laid by British voters.

Outside Europe, Japan has more reason than most to observe Brexit talks with interest — and anxiety. More than 1,000 Japanese firms have a presence in the UK, employing around 140,000 people. For many of those firms, Britain had represented their gateway to the huge EU market.

Among them is Hitachi, which bases a third of its European business in the UK, along with a quarter of its employees. Hitachi has much to lose from a hard Brexit, or a British exit that would see the Japanese technology conglomerate denied tariff-free access to the European single market and other benefits of EU membership.

“For the time being, the effects [of Brexit] have been limited, but in the long term there is uncertainty over the future of the UK,” said Yasuo Tanabe, Hitachi’s senior vice-president and executive officer, at a recent forum in Tokyo organised by the Research Institute of Economy, Trade and Industry. “In the face of the anti-globalisation trend, Japan and the UK should promote inclusive trade and rule-making in this era of digitalised trade.”

Tomohiko Taniguchi, a special adviser to Prime Minister Abe, was confident that Britain’s exit from the EU would not damage Anglo-Japanese ties in trade or any other area. “While there shall be any number of concerns as to what business environment should emerge for the UK-based Japanese investments — and one duly hopes that it will remain a favourable one for them — the UK will still be a country Japan should count upon to play a significant role in preserving the transparent and rules-based international order,” he said.

Brexit, Trump, and the prospect of a more protectionist, inward-looking Europe — fomented by the rise of politicians such as the National Front’s Marine Le Pen in France and political activist Beppe Grillo in Italy — are leading global trade into a new, and uncertain future.

The minutiae of rival economic theories aside, the shape of trade relations in the EU, and throughout the rest of the world, will come down to a battle of political wills that, for now, has the anti-globalisation camp in the ascendancy.

“We always talk as if Brexit was a cause, but it is also a consequence of deeper trends in globalisation,” said Tarum Ramadorai, a professor of financial economics at Imperial College, London. “One factor is that, with Brexit, the arguments in favour of globalisation were not made as convincingly as those against.”  •