There was a 12-fold expansion in international trade between 1950 and 2010. However, the trend has changed markedly since the 2008 crisis. Between 1990 and 2007, world trade flows expanded on average by 6.2% per year. Since 2008, international trade growth has slowed sharply, to just 2.4% per year in 2011-14, and it stagnated in 2015-2016.
Much of this has been the result of weaker economic growth since 2008. But there has also been a significant rise in protectionism. The Doha round of trade liberalisation talks, launched in 2001, has been officially abandoned. That amounted to the first failure of a multilateral trade negotiation since the 1930s. Between 1985 and 1995 global tariffs fell by one percentage point per year; they fell by 0.5 percentage points per year between 1995 and 2008. Since 2008 tariff reduction has largely stopped. In recent years there has also been a marked increase in non-tariff trade barriers.
What does all this imply for the future of globalisation? Even before the 2008 crisis, criticism of globalisation was mounting. Some opponents focused on the supposed negative impact on developing countries. Others worried about environmental issues, the erosion of national sovereignty and the exploitation of workers. Meanwhile, the rise of emerging markets was starting to have increasingly uncomfortable implications for the West, increasing competition for jobs and pressure on wages.
A rise of populist forces in the developed world reflects years of sluggish growth, stagnant wages and rising inequality. A major political backlash against globalisation is under way, as reflected in part by the 2016 Brexit vote for the UK to leave the EU and the victory of Donald Trump in the US presidential election. The risks to globalisation are thus considerable. Previous episodes of globalisation have been reversed and new barriers to trade and capital flows could proliferate.
Not all recent developments have, however, been in a populist direction. In Europe elections in Austria, the Netherlands and most recently in France resulted in defeats for populist forces. Furthermore, a generalised retreat from openness also seems unlikely because many of the forces that underpin it remain powerful. Businesses depend on international supply chains to stay competitive and on expansion beyond their home markets to grow revenues.
At the same time, there is no room for complacency. By virtue of its size and influence in world affairs, the US holds the key to the future of globalisation. Even before Trump entered the White House it had become clear that the US was no longer an unambiguous champion of the further freeing of markets. That is in part because other countries stand to gain relatively more than the US from globalisation. The US has been by far and away from the most active country in the world in recent years when it comes to implementing protectionist measures.
‘By virtue of its size and influence, the US holds the key to globalisation, but has been the most active in implementing protectionist measures.’
The US president has, however, made clear his intention to increase protectionism significantly. During the 2016 election campaign, Mr. Trump espoused a strong “America First”, anti-globalisation agenda. He talked of the need to “protect our borders from the ravages of other countries making our products, stealing our companies and destroying our jobs.” In his presidential inauguration, he promised that the US would follow two rules from now on: “buy American, and hire American”. He has withdrawn from the 12-nation Trans-Pacific Partnership (TPP) and he has threatened to place a “very major” border tax on companies that locate their production facilities overseas and then export their products back into the US. His plan for his first 100 days contained a commitment to renegotiate or withdraw from NAFTA, label China a currency manipulator, expel millions of migrants, suspend immigration from terror-prone regions, and build a wall on the Mexico-US border.
Who will lead?
At present it is unclear to what extent Trump will deliver on his anti-globalisation agenda, and what constraints to its implementation will arise. He has already flip flopped on some of his key anti-globalist promises. He recently halted his plans to pull the US out of NAFTA. He has also backtracked on promises to impose stiff tariffs on China and on his allegations that China is a currency manipulator, justifying this by the need to secure Chinese cooperation in dealing with North Korea. The influence of leading nationalists in the administration, such as chief strategist Steve Bannon, appears to be waning. Furthermore, although Trump has attempted to block some immigrants from entering the US as a supposed security measure, to date this particular measure has been blocked by members of the American judiciary.
At the same time, it would be wrong to assume that the apparent backsliding on anti-globalism is the beginning of an irreversible trend of reversal of Trump the candidate in favour of a supposedly more internationalist Trump the president. The US and the world are undoubtedly experiencing a period of intense uncertainty. Further advances in the multilateral liberalisation of trade in goods and services look unlikely for a long time to come, irrespective of the precise trajectory of Trump’s policies. The share of exports of goods and services in global GDP has recovered after the temporary decline in 2009, but has now reached a plateau at about one-third, where, at best, it is likely to remain for a long time to come.