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Editorial: World economy needs protection from protectionism

  • January 12, 2017
  • , Nikkei Asian Review , 10:00 am
  • English Press

Left unchecked, Trump-style anti-globalism could have dire consequences

Political parties and politicians who preach, essentially, that globalization is the root of all evil are gaining influence in the West. Yet the notion that building walls and curbing inflows of people and goods will make societies better off is a fallacy.

 

The spread of protectionist policies based on such mistaken perceptions would undermine the world economy and cause untold suffering. Rather than turning inward, it behooves political leaders to explore ways to solve their countries’ problems through global coordination and cooperation.

  

During his campaign, U.S. President-elect Donald Trump stressed that globalism “has moved so many jobs and so much wealth” out of the country and called for replacing that approach “with a new policy of Americanism.”

 

Marine Le Pen, the leader of France’s far-right National Front party, has said that the main political divide in her country is now “between patriots and globalists.” Her open criticism of France’s liberal immigration policies and pursuit of free trade has helped the National Front reel in supporters.

 

There is no denying that people lose jobs when their companies shift manufacturing offshore. But it is a stretch to finger globalization as the chief culprit behind troubles in the labor market and difficult economic conditions in general.

 

The total value of imports by Organization for Economic Cooperation and Development members — including the U.S., Japan and European economies — stood at 28% of their combined gross domestic product in 2014, up 10 percentage points from two decades earlier. The unemployment rate at the end of that period was roughly the same as the rate at the beginning.

 

The foreign-born population in the U.S. has nearly doubled over the past 20 years, but that growth has been more than offset by job creation. Most economists agree that immigration and trade growth — including imports — heighten productivity and demand, exerting positive effects on employment and the economy as a whole. By contrast, imposing high tariffs in an attempt to block globalization would have harmful consequences. Ordinary citizens would suffer the most from big price increases. Domestic manufacturers that rely on global supply chains for components would feel real pain, too.

 

Unfair import barriers can have a snowball effect, prompting retaliation from trading partners. This vicious cycle can seriously hamper the world economy, as seen in the 1930s. Already, global trade increased by just 1.7% in 2016 — the slowest expansion since the financial crisis of 2008, according to a World Trade Organization forecast. As of October, the WTO reported, Group of 20 economies had imposed four times more trade restrictions than they had in place six years earlier.

 

Any further proliferation of protectionism could plunge the world into a new economic crisis.

 

HIGH STAKES The greatest concern is how the Trump administration will govern. The president-elect has appointed opponents of free trade to cabinet posts and other key positions. If his government slaps high tariffs on imports from countries such as China and Mexico, as Trump suggested on the campaign trail, the shock waves would be felt far and wide.

 

Trump may stop short of such extreme measures. But even managed-trade policies — such as pressuring countries that have trade surpluses with the U.S. to correct the imbalances under threat of hefty tariffs — would have an adverse impact. The president-elect’s criticism of Mexican production by companies such as Ford Motor and Toyota Motor is cause for serious concern, and in fact runs counter to U.S. interests.

Political and business leaders worldwide should call on Trump to uphold the principles of free trade — principles America has long championed. Trans-Pacific Partnership signatories should keep urging Trump to reverse his pledge to abandon the trade deal the U.S. orchestrated.

 

The TPP is about much more than slashing tariffs. It also sets de facto standards for trade and investment, provides safeguards for intellectual property and pushes back against anti-competitive practices, such as the subsidizing of state-owned enterprises. Implementing these standards in the Asia-Pacific region would put pressure on China to reform trade and commercial policies Trump has blasted as unfair.

 

Instead of taking unilateral steps to serve narrow national interests, countries have more to gain from mutually beneficial coordination. This applies to fields beyond trade and investment. Consider taxation.

 

Multinationals and wealthy individuals are increasingly avoiding taxes by exploiting differences in various nations’ tax systems. Addressing this, naturally, requires international collaboration. In the global financial arena, where cross-border money flows are accelerating, deeper dialogue on appropriate regulations is necessary.

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