Monday 25th May 2020
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“The inhabitant of London could order by telephone,” the economist John Maynard Keynes wrote of the first great era of globalisation before 1914, “sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep.” Militarism, nationalism and imperialism combined to trigger two world wars and the Depression and bring that period to a catastrophic end.
The current era of globalisation is not dead, but looks in ill health. It has taken successive knocks that all slowed the growth of international trade and finance: the collapse of the Doha trade round in 2008 and financial crisis soon after; the rise of populist nationalism in the UK’s Brexit vote and US election of Donald Trump in 2016. The pandemic risks delivering a knockout blow.
This time globalisation may be a victim of its own success. The global division of labour — shifting manufacturing jobs out of rich countries and into poorer ones — reduced poverty in the developing world and prices in the rich one. Policymakers, however, did too little to compensate those who lost their jobs in the process, and neglected the sense of pride and ownership people felt in their once thriving communities.
Now supply chain disruptions, and struggles to obtain medical supplies, have accelerated calls for countries and trading blocs to ensure they have sufficient capacity at home — prioritising resilience over producing goods where it is cheapest. Trump administration hawks sense an opportunity; Robert Lighthizer, US trade representative, last week hailed the end of “reflexive offshoring”. Thierry Breton, EU internal market commissioner, has called for ensuring the 27-nation bloc can produce the medical and pharmaceutical goods it needs.
A virus-induced backlash against globalisation is inevitable. But it should not undo its many gains. Global supply chains and co-operation are themselves a source of resilience, allowing countries to focus on their strengths and share expertise. Spreading people and factories around the world allows companies to guard against risks by diversifying.
Developed economies would pay a price for increasing protectionism, not just in higher prices and lost export markets but the direct cost to the taxpayer of subsidising domestic production; this will make them more fragile, not less. Raising barriers to trade would make it much harder for economies to recover once the lockdown ends.
Just as politicians’ failure to manage relations between the UK and Germany led to the end of the first era of globalisation, tensions between the US and China are endangering today's. Donald Trump’s urge to blame Beijing for the pandemic are combining with protectionist instincts within his administration to create a “new cold war”.
The process is not one-way. China’s tilt to nationalist authoritarianism — evident in its muscle-flexing towards Hong Kong — its ever bolder challenge to US interests and alleged theft of intellectual property, all predate Mr Trump’s election. Some decoupling, as typified by new US sanctions on Huawei this week, now seems unavoidable.
But this should be limited to sensitive high-tech and military sectors. Complete bifurcation, as in the US-Soviet cold war, would be disastrous. While the US administration wants to roll back globalisation, China wishes to shape it. Isolationism in Washington would allow Beijing that opportunity. Whether this relationship can be saved will, above all, determine whether today’s era of globalisation will go the same way as the first.
SOURCE: Financial Times
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