by Fabian Fritzsche
Monday, Jul. 09, 2018 at 10:03 AM
Protectionist measures could lead to losses of prosperity and increase the pressure to introduce more measures. Before the 2008 crisis, world trade grew over 6% per year (now 2%). Why must US consumers pay more for imports from the EU? Why are European consumers punished?
THE (TEMPORARY) END OF GLOBALIZATION
By Fabian Fritzsche
[This article published on June 28, 2018 is translated from the German on the Internet, http://neuewirtschaftswunder.de.]
In Germany, a threatening trade war between the US and the European Union is often deplored. We are actually in the middle of that trade war.. To remain in the war rhetoric, this is a world trade war in which the US fights against the EU, China, Mexico, Canada, Russia and other states. However, these states are not forming a common front. The EU reproaches China protectionism and imposes sanctions against Russia – for political and not economic reasons – and Russia on its part imposes sanctions against the West. At the same time, China purchases technologically and/or economically important businesses worldwide on a large scale. This leads to ever louder demands for protectionist measures.
When this spiral will end can hardly be foreseen. The protectionist policy is applauded on both the left and right sides of the political spectrum. Since time immemorial, some have seen in globalization a threat to the social state and an essential reason for the miniscule wage increases and the exploding inequality between poor and rich. The other side also likes to argue with the well-being of local workers and sees national identity and security threatened.
Blaming Trump for escalating this trade war may not be completely wrong. Still, the Trump phenomenon can ultimately be explained with this anti-globalist attitude in wide parts of the population. Bernie Sanders, the democratic presidential candidate who lost in the primaries, is also not a globalization advocate. This is also true for the National front in France, the Five-Star movement in Italy, parts of Brexit-supporters and many other parties and organizations in Europe. Whoever thinks all this is only an apparition and will be over in two-and-a-half years when Trump is voted out of office will be mistaken. Another US president will probably appear less blustery and direct but can hardly be expected to cancel all Trump’s measures.
For everyone who opposes protectionist measures, the questions are raised in retrospect why do so many people reject globalization and looking to the future what would another world look like. The first question can presumably be easily answered. Many people feel the growth of the last decades was unjustly distributed. They may also feel they are foreign-controlled by multinational corporations and foreign governments and cannot make decisions themselves – even in their own country. The solution could seem obvious for whoever agrees with these points or at lest the first point and does not dismiss them as (wrong) feelings.
The problem would be solved by distributing the prosperity more evenly. However, it is not that simple. The protectionist mood will not simply shift or veer round from today to tomorrow only because income and wealth are distributed more evenly in one country. This is a process that will take many years. This should not be an excuse for not adopting a course and saying nothing will help in the short-term. Rather, protectionist measures could lead to losses of prosperity and increased pressure to introduce more measures. This danger exists. With all legitimate criticism of the effects of globalization – screening and tariffs will lower and not raise prosperity. No political economy is self-sufficient. Producing everything oneself cannot be a sensible goal.
Globalization-skeptics lack a clear strategy or alternative to past globalization, in view of the shifted mood in many countries. Advocates should urgently seek answers and a strategy. The first step could be acknowledging the wave of globalization that began in 1973 is now running out as a discontinued phase. With the end of Bretton Woods, world trade has only grown just over 2% per year since 2008/09. Before the crisis, world trade grew over 6% per year. Growth will decline again through the trade war.
The partly resolved and partly threatened countermeasures seem logical and understandable… What these retaliatory countermeasures will do is unclear. Others ask: why should European consumers be punished with higher prices for US imports? Why must US consumers pay more for imports from the EU? The US economy depends on imports from Europe. So consumers in Europe should not pay for the damage. In the short-term, the reaction will be simply accepting the US tariffs and negotiating tariff cuts with other countries as much as possible. This will cushion the effects of the US tariffs for businesses in Europe. There is no reason why European governments should imitate the US government in reducing the well-being of US citizens. In the medium-term, prosperity should be distributed more evenly to increase acceptance of globalization. The German economy must finally reduce its export dependence. These two points are not even discussed in the current trade war.
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