The multilateral trading system and those forgotten
Rana Foroohar raises some very important points in her Monday opinion piece in the Financial Times, points that I believe are important to consider.
The subject of her article is the growing protectionist mood in the world, a mood that many have ascribed to US president Donald Trump. Ms. Foroohar, however, believes that “this US president is the symptom, not the cause of the problem.”
The real story? The real story “is that the multilateral trading system has been under pressure for some time….”
To me, the multilateral trading system, which was built from the wreckages of the Second World War, has been a fantastic success. The spread of world trade has brought with it many, many benefits beginning with the spread of information throughout the world, the raising of standards of living almost everywhere, the global improvement of health and welfare, and the substantial reduction in poverty.
The problem has been that we have celebrated this success, but forgot many that had not fully participated in the success. And, in recent years, this exclusion has been exacerbated, as Ms. Foroohar has written, “by deep structural changes in the global economy, namely the rise of China, the shift to a digital economy, and the economic and political disruption those two changes have wrought.”
And, Ms. Foroohar contends, these movements have a ways to run. Mr. Trump is a symptom of these movements, and, as a consequence, we must live with the consequences of the fact beyond the time he is in office.
“Laissez-faire trade and globalization in general are under fire in the US (as well as in Europe and any number of developing countries.).”
Moving forward, Ms. Foroohar argues that we will see three specific outcomes evolve. First, there will be a closing of the gap between economic and national security as cross-country deals become more prominent. Thus, the constraint on not only inbound mergers and acquisition, but also those that are outbound.
Second, antitrust policy will be built into a weapon to keep down foreign investment “The fear in the US over China’s growing high-tech competitiveness will probably result in more localization….”
Politics can block the buildup of large companies and help to keep things regional.
Finally, there will be “more regulatory arbitrage and corporate horse-trading.” Here the effort is to face the growth and spread of the companies of a particular nation, but build smaller communities that allow nations to maintain control of bits and pieces of the whole picture. How about a “nationalized 5G network in the US.”
This will present to Ms. Foroohar “a brave new world of trade. The challenges and opportunities will continue to play out long after the Trump chapter has closed.”
The question will be, how long with this interim chapter run.
The spread of trade, the rise in China, and the shift to a digital economy has created disequilibrium in the world, one that must work itself out as painful as the working out might be.
The problem is that right now, the out-of equilibrium we are facing is a consequence of the fact that some people were left behind. The solution, however, is not to go back to a previous time. That can never happen.
The effort to satisfy those left behind by means such as Ms. Foroohar suggests will not result is a satisfactory outcome. They just don’t work and they create more problems than they solve. You can’t go back.
The reason we got into the current situation is that information spreads. And, in the post-World War II period, information spread faster than it had ever spread before. Most benefitted immensely from the spread.
Now, because those that did not fully participate in the benefits have gathered sufficient control within the political sphere, the spread of information will slow down.
Note, that the spread of information is not stop. This, I believe, is impossible.
No, the spread of information will be retarded, but information will still spread. This is what will doom the efforts to slow down the spread of information.
The slowdown will result in a change in the distribution of the benefits from the spread of information. Those areas that still underwrite the spread of information will gain for the situation as they will advance both in knowledge, knowhow, and wealth.
Those that fight the spread of information will fall behind the others, and this will create even greater harm to the people living in these areas.
The worst scenario is one in which these efforts to “protect” the people ends up in another Great Recession or even a Great Depression. This is what the “protection” of the late 1920s and early 1930s produced.
History has shown that the spread of information cannot be halted. Some people in some areas can slow down the spread of information, but that just produces a re-distribution of rewards from those fighting the spread of information to those that are supporting the spread of information.
To me, the lesson this conclusion teaches is that we all need to encourage the spread of information in our communities and nations, but, at the same time, we need to make special efforts to assist those that, for whatever reason, are not fully participating in the rewards.
If we opt out of the spread of information, we need to be ready and accept the fact that we are putting ourselves at a relative disadvantage to those that don’t opt out.
Ultimately, history has shown that the world doesn’t have a choice. The question then is, do you want to move with the grain of history…or not.