Chris Johns: Globalisation has benefited billions of people worldwide
Tariffs on steel and aluminium are top of a list of dumbest things to do
US president Donald Trump believes that tariffs on steel and aluminium could be the start of a “good” trade war that is eminently winnable. Photograph: Carolyn Kaster/AP Photo
The backlash against rules-based open trading is not confined to the US. Economic nationalism is nothing new. It’s one of those bad ideas that each generation seems destined to confront. Like a virus that mutates and threatens to return in ever more virulent forms, it is an unending battle.
The political middle is no more. We are all extremists now. Grumpy old men (mostly) of the left and right are united in a belief that the system is rigged. And, in an echo of their 1960s student days, all they want to do is to break that system. Ideas about replacements can wait until after the revolution.
One thing that does not unite the new extremists is their attitude towards international trade. Brexiteers purport to adore it. Others are less convinced. The attitude of the Tory ultras is quixotic: they possess a dislike and distrust of all things foreign yet profess a love of free trade. Their instincts about trade are sort of correct but they don’t understand what they so admire.
According to the World Bank (as reported by the superb ourworldindata.org website), in 1981 there were globally over 1.2 billion people living in absolute poverty (those living on less than $1.25 per day). Latest data indicate that around 285 million are now this poor.
In 1981, there were around 4.5 billion people on this planet – so over a quarter of the world was effectively destitute. Tweak the numbers and we get different results; but they all tend to say same the same thing. If the poverty line is drawn at $1.90 a day we observe around 10 per cent of the world’s population currently living at or below that level. As recently as 1990 that figure was about 37 per cent. As recently as 200 years ago everybody was that poor.
Today, there are a lot more people around, but less than 4 per cent of us are at rock bottom.
All of the numbers point in the same direction: the world has become a much better place. While it is important to acknowledge that there is still lots to do – two-thirds of us still live on less than $10 a day – there is much to be celebrated. Globalisation – trade in particular – has worked. But not for everybody: free trade ultras always ignore the simple fact that there are losers from globalisation as well as many winners.
A lot of the gains are due to China’s economic renaissance. Lifting hundreds of millions of people out of poverty since 1978 has been an astonishing achievement. This wouldn’t have happened without the international trading environment. A lot of China’s development occurred after it joined the World Trading Organisation. This led to what many observers call “The China Shock”.
Some have drawn a straight line from this to the loss of working class jobs in industries like coal, steel and autos. It’s a lot more complicated than that: it’s not exclusively about Chinese trade. Technological change has also displaced a lot of jobs: the rise of the robots. Some estimates suggest this is in fact a bigger part of the story than imports and exports. But international trade has been at least a part of the picture.
Economic nationalists in the Trump administration are the ones who draw that straight line to China (and other trading partners). Trump himself appears to view the balance of payments as a kind of profit and loss account, which, as the saying goes, isn’t even wrong.
If you don’t like the current system there are plenty of ways to give advantage to domestic industries within the rules. There is also the option of changing the rules: it’s been a long time since there has been a major round of world trade negotiations. But tariffs on steel and aluminium are top of the list of dumbest things to do. There will be net job losses in the US as a result.
Free trade is not as simple as the Brexiteer ultras would have us believe. Today’s trading system means that non-tariff barriers are much more important. These are many, varied and complicated. Understanding them requires attention to detail. Proper free trade would eliminate what’s left of British manufacturing and eviscerate the agriculture sector.
Job losses in steel, coal and other industries have been real. Stagnant real incomes for large numbers of people are clearly causing deep resentment. The connections between all these things are more complicated than Trump believes. Anger is not a strategy. Votes for Brexit, Trump and Beppe Grillo will not make things better.
Globalisation has benefitted billions. All of the suggested alternatives would make the losers worse off. Yet in the White House defenders of the existing order are fired and called “globalists”. Brexiteers are finding out that the world is a difficult and hostile place: how’s that free trade deal with the US going?