World Must Accept Realities of Globalization
“Globalization” might just be the longest dirty word in the world today.
Britons have voted to quit the European Union and its Common Market, which grants Britain free access for its exports in the world’s largest economy. Indeed, disapproval of the EU and of immigrants is running at more than 50 per cent in most of the EU’s largest economies.
Protectionism is almost always bound up with xenophobia. The finger of blame for rampant joblessness in Spain and Italy is pointed at diktats from EU headquarters in Brussels and supposed “hordes” of immigrants. Never mind the 2008 meltdown on Wall Street that triggered a Great Recession that soon migrated to the European continent, and lingers there still.
Both of the candidates for the U.S. presidency fiercely oppose the two most ambitious trade zones ever conceived. These are the proposed Trans-Pacific Partnership (TPP), a 12-country group including Canada, Japan, the U.S. and Australia, that accounts for about 40 per cent of world trade. The other is the proposed Transatlantic Trade and Investment Partnership (TTIP) between the U.S. and the EU, which accounts for about 40 per cent of global GDP.
Donald Trump goes further than Hillary Clinton, vowing to rip up the North American Free Trade Agreement (NAFTA) among Canada, Mexico and the U.S., which Trump describes as “the single worst trade deal ever approved in this country.”
Trump would also sharply reduce imports from China and Mexico, and try to block further U.S. investment in those major economies. It appears he wants to throw cement, not mere sand, into the gears of world trade. And cheers from the cheap seats might encourage him to set quotas on Japanese cars, German industrial machinery, and Canadian timber and beef, as well.
This is a real threat. There are precedents, including Ronald Reagan’s quotas on Japanese vehicles and motorcycles in the 1980s, bids to rescue Detroit and Milwaukee’s Harley-Davidson.
One could point out that the upshot of NAFTA’s ratification was the biggest economic boom in U.S. history, and the creation of 23 million new U.S. jobs over the next seven years — a record that still stands.
But the rush of giant trade deals — including the milestone Comprehensive Economic Trade Agreement (CETA) between Canada and the EU that is poised for ratification — is a victim of exquisitely bad timing. Millions of people worldwide coping with seemingly endless economic malaise have settled on trade arrangements as the source of their misery.
“At times of weak growth and economic uncertainty, there is a desire to look for a bogeyman outside the country,” Eswar Prasad, a professor of trade policy at Cornell University told the New York Times late last month.
Canada has so far evaded the toxic mix of protectionism and xenophobia. Ottawa continues to pursue ratification of both CETA and the TPP.
Canada has relied on trade since long before Confederation. We derive about one-third of GDP from trade, a sharp contrast with America’s 11 per cent. We’ve seen the 1965 Auto Pact transform southern Ontario into an industrial powerhouse. And our worry about over-reliance on the U.S. market has prompted Ottawa’s overdue interest in diversifying our export markets with CETA and the TPP.
Here are some inconvenient truths for free trade critics:
- To oppose free trade now is to close the barn door long after horse has gone. Due to the lingering malaise from the Great Recession, growth in trade this year will be a mere 1.7 per cent, compared with an annual 7 per cent in the 1980s and 1990s. Growth in world trade has been slowing to a crawl for years.
- The decline of globalization is bad for poor people. More vigorous trade among countries over the past generation is the leading factor in the reduction of extreme poverty worldwide, which has been cut in half over the past two decades. About three years ago, the UN was able report that for the first time in history, the number of poor people in the world had ceased to grow, and is now in decline.
- The goods that account for so many of the offerings at Wal-Mart, Costco, Dollarama, Home Depot and the like — imported from China, Malaysia, Bangladesh, Vietnam and other lower-wage countries — have for the past three decades reduced the rate of inflation in North America by about 1 per cent a year. Considering that the current rate of inflation in each of Canada and the U.S. is 1.1 per cent, that’s no small number. Globalization raises incomes in emerging economies, while in the West it drives down the cost of living.
- Any business or country intent on growing its sales or economy is compelled to seek free-trade access to emerging economies. There just isn’t enough GDP growth in the mature economies to sustain growth rates of more than 1 per cent or 2 per cent. The fastest-growing markets for the West’s high-priced goods, including cars, energy-efficient appliances and mainframe computers — are located among the emerging economies, greater access to which the vilified trade deals would make possible.
- Especially in the U.S., trade deals are condemned as job killers. But it’s not the fault of any trade deal that North America has starved its social infrastructure, notably education. We haven’t confronted technology’s impact on low-income workers who often are “precariously employed,” lacking job security. The U.S. ranks a dismal 30th in student test scores, and Canada ranks an unimpressive 13th. North America’s real problems include income inequality; gender bias in hiring, pay and promotions; the affordable housing shortage; and the impact of private-sector underfunding of R&D.
- No question, the TPP is ambitious. Of course, its stated aims include spurring economic growth in Canada, the U.S. and the 10 other founding TPP members. But it also promotes faster access to cheaper generic drugs (much to the annoyance of Big Pharma); eradication of child labour and forced labour; the right to collective bargaining (that could be a problem for Southern U.S. states that effectively prohibit unionization, a major contributor to income inequality); improvement in workplace conditions, notably safety; and stricter environmental protections. That’s a short list of both social and economic improvements the TPP, CETA and the TTIP are committed to achieving.
In her speech in Toronto last week, Christine Lagarde, managing director of the International Monetary Fund, exhorted countries to finally make a genuine effort at preparing their people for the knowledge economy. And she echoed the Occupy movement’s call for a capitalism that works for everyone.
“History clearly tells us,” Lagarde said, “that closing borders and increasing protectionism is not the way to go. We need to make globalization work for all.”