With Chinese steel flooding the markets once more, US President Joe Biden has threatened to triple tariffs to protect domestic production. A tightening that would be added to the numerous restrictions launched in recent years and which might lead to a new trade war, even if Donald Trump does not conquer the White House in November. According to the World Bank, in 2023, 3,000 trade restrictions were adopted around the world, five times those that occurred in 2015. «We are very concerned regarding the growing frequency of protectionist measures in advanced economies and in emerging and developing ones », says Ayhan Kose, deputy chief economist of the World Bank. «We have witnessed – he adds – an incredible prosperity and a sharp decline in poverty between the 1990s and the years 2010-2015, thanks to commercial and financial integration. This policy reversal will have consequences, especially for small, open countries that are highly dependent on trade.”
Trade in goods and foreign direct investment (FDI) are slowing down, there are fewer and fewer free trade agreements: is a globalization model over?
So far we have not seen a reversal of globalization, but we see that trade flows are changing. The United States buys less from China and more from Mexico or Vietnam. Then, Mexico and Vietnam buy more from China. Trade growth is slowing, but the slowdown began following the global financial crisis and preceded the tensions we saw following 2016. This trend may accelerate due to the measures countries are implementing now. It’s not just tariffs: friendshoring, nearshoring, most industrial policies are policies that generate distortions in trade. FDI is also slowing down. The fragmentation of trade goes hand in hand with the fragmentation of investments. Total FDI relative to global GDP has been declining since 2007 and hit a low last year. It’s very worrying.
However, dependence on countries that can become rivals is a risk. Shouldn’t you diversify your supply chain?
Yes, it is right to diversify the supply chain and reduce dependency, but does this necessarily mean that a country must implement all kinds of restrictions? To answer this question, more in-depth reflection is necessary. What is the ultimate goal? There are always considerations regarding security, the resilience of supply chains, the opportunity to keep sensitive industrial sectors in one’s own country or in allied or friendly countries. But what happens every time you place restrictions on goods that you buy from me, is that I then place restrictions on goods that come from you, and so on. Is this a good result? It’s an illusion. There must be a more informed and intelligent discussion on these issues. I do not deny that there are relevant internal economic policy considerations.
Who wins in a fragmented world?
Fragmentation is moving the supply chain from one location to another. If you absorb a part of the supply chain that you didn’t have before, you can end up winning, at least for a while. But no one will want to stand by and everyone will start to protect their industries. It would be collateral damage to the world economy. And we are concerned regarding the effects on emerging and developing market economies. When countries start imposing these types of restrictions, they are not good at containing them. This has repercussions on other states, which react.
Between the end of the 1990s and the early 2000s, the protest once morest globalization came above all from below, from NGOs, from movements, and was also a protest once morest political leaders. Now it is the political leaders who carry forward this aversion and win the elections. What do you think happened?
When certain things don’t happen the way we would like, people try to find the causes. We would like to see prosperity, growth, we would like a higher standard of living, a better life. It’s true in the United States, in Italy, in other countries, everywhere. When this doesn’t happen, or doesn’t happen as fast as we would like, we look for causes: is it due to trade, migrants, technology or technological changes? Especially following the global financial crisis, things have become much more intense once morest integration and globalization, due to huge income erosion and drastic slowdown in growth. It was a trauma for European countries as well as for the United States. There was a backlash once morest trade integration, even though people were losing jobs basically because of technology rather than trade. This does not negate the fact that trade integration might have been handled better. There were people who lost because of this who should have been compensated much better. Politicians have failed at this and now they just want to fix it. None of this changes the benefits of integration, in terms of job creation, poverty and cross-border technological spillovers.
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2024-04-22 18:50:45
