Crisis in World Trade Signals Globalism’s Failure

By Emel Akan
Emel Akan
Emel Akan
Emel Akan is White House economic policy reporter in Washington, D.C. Previously she worked in the financial sector as an investment banker at JPMorgan and as a consultant at PwC. She graduated with a master’s degree in business administration from Georgetown University.
October 9, 2019 Updated: October 9, 2019

News Analysis

WASHINGTON—Globalization, the most powerful economic force to have shaped the world over the past two decades, is now giving way to a new world order. Souring sentiment against globalization, particularly in developed countries, has led to a global revival of nationalism.

President Donald Trump seized the moment by taking a protectionist stance with an “America First” theme, which gave him a stunning election victory in 2016.

Since taking office, Trump has made trade—the most basic representation of globalization—one of his key policy priorities. His rejection of globalism and retaliation against unfair foreign trade practices has marked a fundamental shift in the global trade order.

He has called multilateral trade agreements “a whole big mash pot” and has made it clear he prefers bilateral trade deals.

Trump has repeatedly said that much of world trade has been unfair and other countries have taken advantage of the United States. He has also called upon world leaders to reject “globalism” and put their nation first.

“The future does not belong to globalists; it belongs to patriots,” he said in his address to the U.N. General Assembly in late September. He urged countries to hold on to their sovereignty and independence.

Trade conflicts rose to their highest level in more than three decades following Trump’s decision to impose tariffs on Chinese goods. The United States also imposed restrictions on foreign direct investments.

International trade is now growing at a much slower pace, according to the World Trade Organization (WTO). World merchandise trade volume is expected to rise by 1.2 percent in 2019, down from 3 percent last year, due to trade tensions and a slowing global economy.

Foreign direct investment flows are declining as well.

What’s Next?

Michael O’Sullivan, author of the book “The Levelling: What’s Next After Globalization,” said that globalization is already behind us and it’s now giving way to a multipolar world.

“I’m not against globalization at all. I just think it has come to an end, and we must urgently focus on the road ahead,” he told The Epoch Times.

O’Sullivan, in his book, stresses that the antiglobalization movement has become more visible with the election of Trump and Brexit, and more signs will arise that will be harder for political and business leaders to ignore.

The book depicts the new world order in a post-globalization era where geopolitics will be dominated by three major players: China-centric Asia, the Americas, and Europe.

O’Sullivan, who has 20 years of experience in investment management, cites the rise of income inequality within some countries including the United States as one of the reasons why globalism has come under attack.

According to him, while China has benefited from globalization, it’s one of the least globalized countries in the world, and Chinese leader Xi Jinping is well ahead of Trump in putting his country’s interests first.

“What Trump is getting at is partly motivated by the decline in parts of the American economy, especially on the manufacturing side,” he said. “I think there is a telling, valid point that the Chinese method is to grow out of other people’s innovation, copy it, and then move on. And that doesn’t accord with the Western view where intellectual property is valued.”

Trump, he noted, “has a point and he has the support of much of corporate America on that point.”

Another reason for some countries to turn against globalism is declining global economic growth. As White House chief economic adviser Larry Kudlow once put it, growth has become “a scarce commodity around the world.”

China’s economic troubles began long before the trade war and rising debt levels in many countries pose significant risks for the world economy.

Trump “and others realize that the world economy is slowing. And the pie of globalization is not getting any bigger,” O’Sullivan said. “And whenever that happens, people tend to fight over the slices of the pie, rather than just trying to grow their own economies.”

In the new multipolar world order, the United States can still maintain its leadership by preserving the dollar’s dominance in global trade.

That way it can maintain its “financial predominance because America is actually more dominant financially than it is militarily,” O’Sullivan said. “I think the second thing they can do—which is what Europe is seeking to do—is to try to begin to set the rules and regulations around new technologies.”

Many of the institutions set up in the 20th century—the WTO, the World Bank, and the International Monetary Fund—will become defunct, according to the book. And in many cases, these institutions would be replaced by great-power diplomacy.

“If you look at the World Trade Organization, it should really have been more prominently involved in the trade war between the United States and China. But it has not because of poor leadership,” O’Sullivan said.

World Trade Organization

Trump repeatedly criticized the WTO for its outdated rules, which have become dysfunctional in regulating global trade disputes.

Leaders of the world’s top economies also agreed for the first time to reform the 24-year-old multilateral organization, backing Trump. In December 2018, the G-20 countries collectively acknowledged that the multilateral system was failing and needed improvement.

Since China’s accession to the WTO in 2001, globalization has been all about incorporating China, according to economist and China expert Diana Cheylova.

“Despite joining the WTO, China never became a fully-fledged market economy, which the Americans expected,” she said, adding that the Chinese people were the primary beneficiaries of globalization whereas working-class people in the Western world were left behind in relative terms.

China’s economic growth has accelerated dramatically since the country joined the WTO.

“China’s trade-distorting practices, aided by China’s currency manipulation and misalignment and its suppression of wages and labor rights,” resulted in the loss of 3.4 million U.S. jobs, according to the Economic Policy Institute.

‘Globalization Can’t End’

William E. Brock, former senator and U.S. Trade Representative under President Ronald Reagan believes it is hard to stop globalization and hence it is important for the United States to recommit itself to a rules-based global trading system instead of taking an isolationist stance.

“Globalization can’t end. The world is too integrated now. It would be impossible to stop globalization,” Brock told The Epoch Times.

It would continue to grow, he added, but “the way that it grows could be either positive or negative for individual countries.”

“You have countries that are desperately trying to grow their way out of poverty. You have a consuming interest in doing business across state lines,” he said.

During his tenure as U.S. trade representative, Brock was credited as one of the principal fathers of the WTO.

Brock defended the WTO, but also acknowledged that the organization has failed to respond to trade abuses by countries like China.

“I agree that previous U.S. administrations talked about it and did nothing about it,” he said.

Brock, however, argues that tariffs are an ineffective weapon and a short-term tax on U.S. consumers.

Hence the U.S. government should maintain its support for the WTO and ensure “everybody plays by the rules,” he said, adding that “the American people have an enormous stake in a trading world where globalization continues.”

“One out of every five jobs in America are directly impacted by international trade.”

Rise of Inequality

According to the World Economic Forum, globalization has significantly reduced the wealth gap between rich and poor nations in the past few decades. However, it also has led to greater inequality within Western countries.

The gap between rich and poor in the United States has hit its highest level in five decades, according to the latest Census Bureau data.

“I think what’s happening in the American economy and society is a very stark reminder of the need to rethink and renew globalization,” O’Sullivan said.

However, he believes that globalization isn’t the main culprit in the rising inequality in the United States.

“People kind of mistake what’s happening on the streets of Detroit and Pittsburgh, both of which have declined and are reviving, for globalization, when it is actually entirely due to the choices that Americans have made and their leaders have made,” he said.

“If you make a list of the most globalized countries in the world, many of them are small, open economies, like the Netherlands, Sweden, Ireland, Switzerland. And not many of them have a problem with inequality.”

Emel Akan
Emel Akan
Emel Akan is White House economic policy reporter in Washington, D.C. Previously she worked in the financial sector as an investment banker at JPMorgan and as a consultant at PwC. She graduated with a master’s degree in business administration from Georgetown University.