As most of the western world continues its recovery from the Great Recession of 2008, there has been a trend for voters to flock to populists who blame much of the economic sluggishness on globalization, and specifically, open economies and free trade. This trend knows no bounds as it ranges across western democracies. In several European countries, including Finland, Hungary, Latvia, Lithuania, Norway and Switzerland, right wing populists have taken control over government, while others such as Britain’s Euroskeptic UK Independence Party, Marine Le Pen’s French National Front, and Germany’s Alternative Fur Deutschland, are experiencing record popularity. Indeed, even in the United States, perhaps the most consistent aspect of Republican Presidential candidate Donald Trump’s inconsistent campaign has been his firm stance on international trade and globalization. This trend is not consigned to merely the political right, as the rise of former Democratic candidate Bernie Sanders and the historical popularity of left-wing populists in South and Central America evidences.
The naysayers against international trade highlight legitimate problems. These concerns are often tied to wider effects of globalization and open economies. The Brexit vote, for example, was a referendum to tighten Britain’s open relationship with Europe, but was propelled by immigration concerns masked as a security issue. Large corporations are able to take advantage of loopholes by using foreign laws to avoid taxes and other regulations. These are just some examples that suggest that more must be done to uplift those who are left behind by the forces of globalization and free trade. However, these arguments exemplify why globalization must be improved, not halted.
Perhaps the biggest talking point about globalization that many populists have leveraged is the idea that globalization has only benefited large corporations, often at the expense of the poor and middle class. This could not be more false. The truth of the matter is that globalization has led to the largest reduction of poverty in history.
Consider that the post World War II modern era, roughly the time period that many argue that modern globalization really began to hit stride, saw massive increases in global living standards and economic growth. Exports of goods rose from 8% of world GDP in 1950, to close to 20% 50 years later. Export-driven growth has lifted millions in the developing world. As the Economist notes:
“Poverty rates started to collapse towards the end of the 20th century largely because developing-country growth accelerated, from an average annual rate of 4.3% in 1960-2000 to 6% in 2000-10. Around two-thirds of poverty reduction within a country comes from growth. Greater equality also helps, contributing the other third. A 1% increase in incomes in the most unequal countries produces a mere 0.6% reduction in poverty; in the most equal countries, it yields a 4.3% cut.”
Perhaps the best case study to support this point is China, a state that is at the center of the Trumpian brand of anti-free trade. China was once almost overrun with poverty, and now, by some measures, it is the largest economy in the world. Between 1981 and 2010, China pulled 680 million people out the claws of extreme poverty. While inequality in China (and globally) certainly has grown and is an issue that needs to be addressed, the forces of trade liberalization have helped China to reduce its extreme poverty rate from 84% in 1980 to 10% in 2013.
Of course, all of this means very little to many of the rich western democracies that are currently experiencing such massive rises in anti-globalization. However, even in these states, the benefits of globalization far outweigh the negatives. As the Economist further notes, “exporting firms are far more productive and pay higher wages than those that serve only the domestic market. Half of America’s exports go to countries with which it has a free-trade deal, even though their economies account for less than a 10th of global GDP.”
However, the true benefits of an open system are best highlighted when presented with its opposite: protectionism. In the American context, consider the last truly protectionist president, Herbert Hoover. Hoover oversaw the updated re-implementation of the 1930 Smoot-Hawley tariff, an inherently protectionist piece of legislation that strengthened nearly 900 American import duties, and played a pivotal role in beginning the process that eventually led to the Great Depression. Indeed, this damning case study of anti-globalization economic policy continue to this day. In today’s inherently globalized economy, every dollar of increased protection leads to a loss of 66 cents in GDP at the host country. Moreover, on a global level, an increase of $1 tariff revenues can result in a $2.16 loss in world exports, and a $0.73 drop in world incomes. A recent report from the Organization for Economic Cooperation and Development, a multi-national think tank made of mostly rich countries, damningly concluded that “protectionism has a negative impact on the global economy, has costs for a [host] country’s overall domestic production, and protectionism holds back economic growth for all countries.”
This is not to say that globalization and free trade have been harmless. The fact of the matter is that despite all of globalization’s successes, not everyone has come out on top. This is something that even advocates of free trade and globalization have acknowledged for decades: while the majority will benefit, there will be many who are left behind. While job losses are an unavoidable side effect of free trade, for example, these symptoms can be mitigated. Bluntly, this has not been done. This is largely due to failures of policy.
Consider the last 20 years of globalization as a primary case study. Between 1999 and 2011, nearly 1.5 million American manufacturing job losses can be directly traced to Chinese competition. Too many of these workers were unable to find new ones. Britain failed to anticipate both the social and economic pressures that incoming migrants would place when new states were permitted to join the EU. Globally, debt has spread like wildfire, encouraged by the ease of cross-border capital flow.
Undoubtedly, globalization and free trade has its problems. It, much like any social and economic force, only moves forward. But pulling away from the world is not the answer—indeed, it will likely only make things worse. What’s needed is, simply, good policy. As former American Deputy Trade representative Wendy Cutler writes, a “competitiveness agenda” must be brokered for all countries wishing to mitigate the side effects—“a collection of measures to retrain our workers, rebuild our infrastructure, improve our educational system..and construct an environment that allows innovation and entrepreneurship to thrive.” In the American case, for example, “only 0.01% of GDP is spent on policies to retrain workers and help them find new jobs.” Trade deals must be pushed to allow for all parties to demand high standards and rule of law, so as to prevent any party to gain an unfair advantage.
While these prescriptions are simply the beginning, they highlight one crucial point: globalization must be improved, not abandoned.
Tanvir Faisal is a recent graduate of Vanderbilt University, where he studied International Relations.
Image Attribution: “Hanjin Container Ship” by Ingrid Taylar, licensed under CC BY 2.0.
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