The success and popular support for any government depends to a large extent on its ability to deliver economic prosperity. Yet tensions are rising between national interests that governments are elected to defend and economic integration that the global economy demands and which a successful economy requires.
‘The reason why trade opening works is because it’s painful; and the reason why it’s painful is because it works.’
Pascal Lamy, President Emeritus, Notre Europe – Jacques Delors Institute; Director-General, World Trade Organization (2005-13)
‘What is the name of the game in our time? Win-win cooperation.’
Wu Jianmin , Member, Foreign Policy Advisory Group, Ministry of Foreign Affairs, China
Key discussion points
The opening of trade and foreign investment is painful because it works. Opening up a country’s economy to trade and foreign investment by definition creates some losers as previously protected businesses are exposed by the global marketplace. A system of ‘protection’ moves to a system of ‘precaution’, and inequality in the competitiveness of previously isolated national systems brings economic shock to local populations and businesses. In an era of slower economic growth, it becomes harder to balance this out with social transfers and for populations to see the benefits of globalized trade.
TPP is the last of the old-style FTAs; TTIP is the first of the new. Whereas the Trans Pacific Partnership (TPP) and other free trade agreements (FTAs) have mostly been about breaking down tariffs and trade barriers, TTIP is about regulatory convergence. This means that cultural differences have become more important to trade. Differences in public opinion on genetically modified crops, for instance, between the US and Europe, are difficult to reconcile. The only solution may be to align at the ‘highest level of precaution’ on these issues; lowering standards to stimulate trade will not be accepted by the population.
Democracy is increasingly in conflict with economic reality. Trade protection is still popular among publics, but it makes no sense when supply chains are globalized. The Greek government has a democratic mandate to resist demands from international creditors, but this cannot be reconciled with Greece’s membership of the euro. But if governments ignore the message from voters, they flock to more populist and extremist parties.
The solution to populist politics may be education. Allowing people to see that the reason they are facing hardship is not because of foreigners, but because the economy is not responding well to the broader domestic or international system, and showing them that suitable adjustments and reforms can and need to be implemented is a new goal for governments in the new world of trade.
The private sector must be part of the response to the inequality of globalization. Governments need to partner with private enterprise to achieve sustainable social development. Governments also need to be more adaptable to changing demands and learn to evolve more rapidly, to respond to competition and technological change, in the same way as business.
Africa is more welcoming of global trade. As a predominantly developing continent, many African countries experience ‘tailwinds’ rather than ‘headwinds’ in global trade –trading standards and access to technology reaps dividends, encouraging inward investment and development. Trade between Africa and the EU and China has risen dramatically in the past two decades (from $100 billion in 2000 to $300 billion in 2015 with the EU, and from $10 billion in 2000 to $200 billion with China). Africa has successfully diversified its markets and can now consistently export goods. This new wealth is being turned in to assets for the next generation – the largest demographic in Africa being the under 25s – and means Africa can export more value to the EU.
However, African growth is hampered by a lack of available infrastructure and access to energy. Moreover, if there are to be global product standards, Africa may find it difficult to agree on who sets standards which are practical to meet, given its limited infrastructure. The role for the state therefore is to invest not just in energy infrastructure, but in IT systems that can be utilized for e-commerce.
China is looking for ‘win/win’ deals; it is a mistake to see the world in ‘zero sum’ terms. Trade between China and Africa has grown rapidly under the ‘win/win’ approach, as has trade between China and the US, but this kind of cooperation is new and not yet fully understood or accepted in all political circles. If you view the world as ‘zero sum’, war becomes a very powerful tool to protect a nation’s interests, but this ultimately leads to the sustained and difficult situations such as in the Middle East and North Africa. Each time a nation misreads the new system it becomes expensive. Vested interests that profit from such conflicts should not be underestimated and a fundamental change in approach is needed to drive these out.
China is wary of a double standard in international rules. China is frustrated by criticism over its actions in the South China Sea when it sees smaller neighbours get away with the same actions uncontested. Similarly, it is criticized for not providing global public goods but then criticized when setting up the Asian Infrastructure Investment Bank for ‘circumventing’ the international system. Contrast European colonialism or the US ‘global policeman’ role with occupying a few reefs.