Several days ago, an article in The Economist noted a sharp decline in global trade this year. Unsurprisingly, in times of stagnant economies, a slowdown of international trade is inevitable. In today's world, however, when buying power has been weakened and demand decreases, more than one economy must suffer the sometimes devastating effects of recession. Indeed, while many of us in the U.S. are well aware of the current economic downturn, we may not be so informed about its larger implications in the rest of the world.
Though many, like Martin Wolf, have championed the benefits of globalization--such as increased competition, reduced prices, cultural integration, and economic growth--others have made us well aware of its drawbacks. In Making Globalization Work, Joseph Stiglitz frequently points out the potential inequalities, struggles, and creation of "losers" in the global open market system. Because globalization links countries around the world culturally, technologically, and most importantly, economically, most activities are no longer confined to a single player or cluster of players. Not more than a century or two ago, an economic downturn in a sovereign, self-sufficient country would only have implications for its own people and operations. Nowadays, however, a shortage of raw materials, change of political outlook, or other shock could easily be felt by economies around the globe. Whether fortunately or unfortunately, this ripple effect applies directly to international trade, which now constitutes a hefty one-third of world GDP.
According to the web article, "The OECD reports that exports fell by over 4% in the second quarter
of 2012 in Britain and India; Russia and South Africa lost more than 8%.
That is particularly bad news for places like Singapore and Hong Kong,
which are important trade hubs (see chart 1); open euro-zone countries
like Ireland and Belgium are also highly exposed." The article goes on to mention that "If the global economy were the only factor in determining trade, a
pick-up in world output would translate automatically into rising trade.
The IMF, for example, thinks that trade will grow by 5.1% in 2013 on
the back of a strengthening economy." Such predictions, however, are likely to be overshot and over-optimistic, due to the multiplicity of unpredictable factors in play. Because of its complex nature, the significant dip in trade reflects well the drawbacks of globalization.
Although the interconnected trade channels are often greatly beneficial, it is no secret that globalization creates some losers. Both developed and developing countries may end up with the short end of the stick, but unfortunately, pressures on industry subsidies and prices often hit developing countries the hardest (Stiglitz 16). Though proponents like Wolf sing the praises of the free market--and indeed I agree with him much of the time--the effects of decreased trade highlight the problems of what some call "a chaotic, uncoordinated system of global governance without global government" (Stiglitz 21). Because global trade is such a complex and encompassing phenomenon, it is nearly impossible to regulate, predict, or completely control. When one major economy experiences a recession, especially of a significant degree, globalization's many webs actually serve to exacerbate the problem. Without all these cross-cutting industries and ties, an economically-troubled state might struggle internally with its problems, but its counterpart across the ocean would be able to carry on totally unscathed. As Stiglitz points out, "globalization has made us part of a part of a global community...we may live locally, but increasingly we will have to think globally" (Stiglitz 22). With trade being such a huge part of world GDP, and with globalization greatly enabling trade, it is no wonder the statistics reflect significant declines in countries all around the world. While many tend to focus on the benefits of the relationship between economic growth and world trade, we must not forget that this can serve as a medium for serious shock waves (Wolf 108).
Upon reading this article, I was immediately reminded of the "U-shaped
curve" used to describe globalization in the readings. Essentially,
there is an acknowledged rise and fall of pro-globalization free market
and open trade policies, with the early 20th century being widely
pointed to as the height of globalization. Though this infrastructure
has dipped and risen again since then, The Economist's article
seemed to illuminate a self-reinforcing "sine curve" of
globalization--essentially, hinting at an impending decline of some
degree. Dips and peaks are common to any economy, and often they are characteristic of its natural functions and occasional shifts. While the global economy is no different, states or groups who have been connected by globalization and "lose out" during these downturns or shocks may dig their heels in and try to fight the market. Eventually, these pressures may create forces strong enough to take globalization down from a "peak."
For instance, an economic slowdown and corresponding decrease in trade can create counter-globalization sentiments. Trade finance may become a less attractive endeavor for banks, and they may cut their activity due to lack of capital or increased financial risk. Additionally, because market forces can bear heavily on some governments and national policies, countries who have specialized may find themselves unable to sell and profit off of key exports (Stiglitz 20). Or, global market forces may have forced them to keep the minimum wage at shockingly low levels. Regardless, these negative effects of globalization may incentivize protectionist or other anti-free market policies. This was confirmed in the article, which stated that "An agreement on “trade facilitation” (cutting red tape at borders) would more than offset the petty protectionism of some G20 members. But the tide of support for free trade is ebbing."
Economic crises and seemingly "unfair deals" brought about by globalization may drive some to vehemently oppose it. Even though most changes happen incrementally, with a tariff here and a trade barrier there, no country will ultimately be willing to take the fall for the sake of a free global market. In more extreme cases, the economically disgruntled may even turn to a version of nationalistic self-preservation, which could give rise to social ideologies along the lines of Fascism and Nazism (Wolf 122). Such events, as evidenced in the mid-1900's, can undo a large part of globalization's impact and permeation throughout the world. Still, the most troubling thing is the presence of an underlying line of rational reasoning behind such moves. This is clearly seen in the case of international trade, specialization, and global economic slowdowns. Put usefully but perhaps too simply, globalization appears to contain a very blatant self-contradiction. If the rational choice for some will always be opposing such networks and open policies, we ought not to expect a steady increase of globalization. Rather, barring no extreme setbacks, it will likely continue upward on a rocky path, characterized by fierce debate, conflicting national interests, and occasional steps back.
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