Is globalisation on the retreat in 2011?
By Gideon Rachman
Published: January 3 2011 22:36 | Last updated: January 3 2011 22:36
During the past two years, the world has experienced its deepest economic crisis since the 1930s. But – despite the fears of many experts – there has been no major outbreak of protectionism. Globalisation, the economic and political mega-trend of the past three decades, is still firmly in place.
However, when Barack Obama visited India recently, the US president warned his hosts that the debate about globalisation has re-opened in the west. The reasons for this are obvious. The western world has come out of the Great Recession in much worse shape than emerging powers. In the US, unemployment is still hovering close to 10 per cent. The European Union is faced with a rolling sovereign debt crisis and social unrest. The western powers can feel themselves losing economic and political strength, relative to the emerging world. Americans and Europeans are increasingly ill at ease with the “new world order” that emerged after the end of the cold war. As a consequence, a backlash against globalisation is forming – and it is likely to grow in strength.
“Globalisation” involves the erosion of national barriers to the free flow of goods, capital and people. That process has accelerated during the past 30 years, as international trade, cross-border investment and migration have all boomed. But the pressure to reimpose barriers in all three areas is now growing in advanced economies.
The backlash against immigration is particularly visible in Europe. In Britain, the new coalition government has promised to reduce the number of immigrants from hundreds of thousands a year to tens of thousands. International banks and multinational companies are already complaining that their businesses are being badly affected. Over the past year anti-immigration parties have made breakthroughs in the Netherlands and Sweden – and a book lambasting the cultural effects of immigration has become a huge bestseller in Germany. In the US, the populist Tea Party movement has increased the pressure to crack down on illegal immigration from Mexico.
The re-regulation of capital movements is also moving up the international agenda, amid talk of a “global currency war”. As all the world’s major powers seek to export their way out of economic trouble, so tensions have grown. America complains that China is deliberately undervaluing its currency to maintain a vast trade surplus that is contributing to US unemployment. The Chinese retort that the US is printing money in an effort to drive down the dollar. Questions about the future of the euro have raised the spectre that capital controls might one day have to be reimposed within Europe, as part of a managed effort to break up the single currency. On a more minor, but practical level, some emerging markets – most notably Brazil – imposed controls on inflows of “hot money” last year, to prevent their currencies being boosted to hopelessly uncompetitive levels. Since a new global compact on currencies is unlikely in 2011, this trend is likely to gather momentum.
The most watched development, of course, is the threat of trade protectionism. Free-traders could get something to cheer in 2011, with the passage of a US-South Korean trade agreement. But the most important trading relationship in the world is that between the US and China – the world’s two largest economies – and here the auguries are much less promising.
Last September, the House of Representatives passed a bill that would allow US companies to petition for duties to be imposed on Chinese goods, in retaliation for China’s currency policy. The bill may not make it into law this year. But whatever the fate of particular pieces of legislation, the overall conditions for a growth in protectionist sentiment are liable to strengthen during the course of 2011. The Chinese show little sign of making the concessions on currency that would change American minds. US unemployment remains stubbornly high. And protectionism as an economic philosophy is being gradually rehabilitated, as leading economists increasingly argue that tariffs can be a justified response to “mercantilist” policies, such as those China is accused of.
Globalisation prospered and took root during a period when all the world’s major powers were experiencing strong economic growth. It is threatened by a new world, in which emerging powers are palpably doing much better than the established economies of the west. The threat to globalisation will grow unless and until there is a co-ordinated global recovery.
Gideon Rachman is author of a new book on the politics of globalisation, “Zero-Sum World”