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Perspectives: There is no crisis of globalisation but governments might create one

The number of commentaries proclaiming the end of globalisation will probably increase. The expected difficulties of finding consensus at the WTO’s 12th ministerial conference next June will add to these arguments. Cross-border business in fact remains healthy. But uncertainty around future policy choices may have a corrosive effect.

Given the dramatic events of recent years, it is unsurprising to see so many forecasts that globalisation is at the very least in retreat, possibly even in a terminal condition.

The Ukraine war is the latest recent drama sparking such commentary. This comes after the COVID-19 pandemic, the election of president Donald Trump in the United States and the Brexit referendum in the United Kingdom.

The state of the WTO also plays an important role in fuelling these forecasts. The institution is struggling to conclude new agreements, either because it hampered by as US veto on the appellate body, or by growing tensions involving China, or, as now, by the situation created by one member invading another.

For those unused to the world of trade policy, it is often assumed that a governing body suffering such difficulties means that cross-border activity will also be suffering as a result.

Certainly, the rate of growth in goods trade seems to have slowed. It could even start to fall as China and the US in particular seek to manufacture more domestically.

Services trade however looks still to be robust and is likely to provide future growth – be it through our use of smartphones or Netflix, plus much else. Huge numbers of us are directly involved in this.

Business clearly considers that globalisation is far from over. But there’s no doubt that they will be considering political risk particularly carefully right now.

Governments by contrast are sending out mixed messages. ‘Strategic Autonomy’ is the EU’s version of what we also see in China and the US: a suggestion that globalisation has gone too far. Yet this declining appetite is not carried through to other fields where global cooperation is considered essential, most significantly climate change.

At this stagethe political and business discussions of globalisation are not coming together, and inevitably the WTO is affected. That might not be a major problem given the continued strength of trade – but uncertainty around future policy choices may have a corrosive effect.

Business led the evolution of globalisation

While the trade policy focus is typically on negotiating countries, it is of course business that conducts the vast majority of trade. When telling the story of growth of global trade this is often forgotten.

The transformation of goods trade into the modern version of supply chains owes much to the technology advances of the 1980s and 1990s, from the increased power of computers to the lowered cost of communications, which allowed companies to operate in such complex fashion.

The accompanying growth of product-specific regulation that required manufacturers to meet increasingly exacting standards was also a key factor, as supply chains allowed these to be met while still keeping costs under control.

Business-led developments continue, such as the sale of products as services with accompanying maintenance contracts, the importance of platforms, and even through multi-country working being encouraged by COVID-19 restrictions. While cutting-edge technologies such as artificial intelligence or blockchain may turn out to be transformational, it will ultimately be business that decides this.

There is no sign that global business wish to stop seeking the best or cheapest component products and services from around the world to combine into something to be sold to end customers.

Governments may however have other ideas.

The WTO reflects rather than shapes the international consensus

For the narrative that has the WTO as being the central pillar of what is sometimes called hyper-globalisation it is somewhat tricky that there are still no set e-commerce rules 26 years after the foundation of eBay.

The establishment of the WTO only a few years prior to this was a step forward for trade rules in services and intellectual property among others, but on its own this would seem insufficient to have led to spectacular trade growth.

It seems likely that of greater significance was the increasing number of economies prepared to be generally open to trade in the 1990s, and the way their markets were liberalised from state monopoly to competition.

This spirit then extended to the WTO and on to free trade agreements, but it was the underlying domestic political support for trade which was the crucial foundation.

If there was an age of hyper-globalisation at the WTO it has now definitively passed.

It is always worth reminding general commentators that the WTO is a consensus body, rather resistant to individual countries not wanting to co-operate. Given these limitations, we could even say that to merely be broadly functional is a success and completing ‘plurilateral’ deals among a large subset of willing WTO members a bonus.

Government objectives for trade are problematic

If there is a common position on trade that is shared by the US, EU and China it is that their exports are good, but more of what they consume should be made domestically. It need hardly be said that this is no basis for agreement on rules. Worse, it shows incoherence among policy-makers, perhaps even a naivety as to the level of control they have.

EU and US support for a rules-based trading system does not sit well with ensuring domestic benefits from those rules meaning in particular greater employment in manufacturing industry. It raises questions about whether the general support for trade still exists, particularly when coupled with extensive regulatory activity affecting trade.

Businesses navigate this government activity as best they can, as they have done for the last 30 years of trade growth. However, there is now growing concern about our governments’ future intentions. This may be a contributing factor to an impending economic slowdown and could certainly lead to declining investment.

Failure to reach agreement at the WTO is not particularly the symptom of the end of globalisation. We need to look more closely at whether governments still want to be open for trade.

If they are, which seems broadly the case, some clearer signalling would be welcome not least to avoid the impact a real crisis of confidence may have.

 

 David Henig runs the column ‘Perspectives’ on the politics of global trade for Borderlex. He is also a UK director at the think tank ECIPE.

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