I dislike the word “deglobalisation”. More importantly I think it is an inappropriate description of what is happening to world trade. Yes, trade levels are falling but this does not mean the world is less “globalised”.
Clearly, it depends on one definition of globalisation but unless trade barriers start rising again there is no problem. However, IF we do see increased protectionism then the word could be considered appropriate.
Plots of the extent of globalisation over time are by no means linear. It can be argued that the world was more globalisation over 100 years ago.
The FT discuss world trade levels which, given China’s increasingly important role in world trade flows, should be of interest to readers of this blog.
If we are to survive this current slump in a recession and not a depression then it is essential that free trade remains free.
World trade [FT]
Deglobalisation: ugly word, scary concept and now painful reality. The World Trade Organisation estimates global trade will drop by 9 per cent this year, its biggest decline since the second world war. Given that trade was growing at a 6 per cent clip only 15 months ago, the fall is so abrupt that some now worry about the return of Smoot-Hawley, the US tariffs law that made the 1930s depression Great.
That is alarmist. Much of the recent reversal in the global movement of capital, goods and jobs has been directly due to the financial crisis. It has been the collapse in demand, not protectionism, that has savaged trade flows. A lack of trade credit has also hurt, given that 90 per cent of trade involves some kind of credit, insurance or guarantee.
So, yes, since October, China has banned Belgian chocolate, India forbidden Chinese toys and the US energy secretary said he would like to see tariffs on Chinese goods unless Beijing reduces greenhouse emissions – the “green face” of protectionism. There are dozens more such cases. Yet the effects of such incipient protectionism have been small, so far.
Will it stay that way? Reasons to be hopeful include the WTO, and the treaties that bind its members. Companies, even those producing for domestic markets, are more dependent on imported inputs than ever before. Exporters also have more political heft. This changes the politics of protectionism. The “Buy America” programme was watered down. And, in Brazil, private sector outrage that followed an attempt to impose import controls led to their removal. That is encouraging.
Even so, protectionism could rise as the recession worsens, putting governments under pressure to protect jobs at home. Indeed, anti-subsidy duties, anti-dumping rules, imports banned in the name of health, safety or the environment – all these are WTO-legal. Eight decades ago, many sensible people opposed the Smoot-Hawley bill; 1,028 economists petitioned against it, as did Henry Ford. Yet still the “asinine” bill passed. Free traders everywhere cannot drop their guard.
Originally published at the China Economics Blog and reproduced here with the author’s permission.