Few subjects arouse more political passion, pro and con, than globalization. Yet as the debate rolls on, the phenomenon itself may be coming to an end: The seemingly limitless expansion of international trade that begin in the 1980s has slowed in recent years and may never recover its former momentum.
Freshly released data from the World Trade Organization and other economic forecasts show that the world is on course for its third consecutive year in which growth in global trade will be lower than overall economic growth, which is itself anemic, according to the Wall Street Journal. The last such three-year streak ended in 1985. In the quarter-century before the 2008 crash, by contrast, trade grew at an average 6 percent a year. Since the economic recovery began in 2010, the average trade growth rate has been stuck at 3 percent per year.
These are sobering data for those of us who see globalization as a net plus, in both the United States and the rest of world. To be sure, increasing competition from other countries has caused large dislocations in U.S. industry. But the job losses and other costs have been offset by lower consumer prices and the rise of new, more efficient businesses. Meanwhile, economic growth made possible by trade has lifted literally hundreds of millions of people out of what was once desperate poverty in Asia, Africa and Latin America.
The question now is what, if anything, can be done to sustain and consolidate free trade so that it can continue to improve life for people around the world. The past three decades of rapid trade growth were probably always anomalous, because they reflected the linking of a huge, previously closed nation – China – to the world market. That low-hanging fruit has now been plucked; China’s exports are shrinking and the country is in the midst of a difficult shift to growth driven more by consumption than investment.
Future trade expansion, therefore, will depend more and more on the ability of leaders to maintain and modernize the institutional arrangements that support the free flow of goods and capital. Governments have so far mostly resisted protectionism despite the economic anxiety that persists half a decade after the Great Recession. Nevertheless, the main effort to update and strengthen global free trade, the U.S.-led Trans-Pacific Partnership, is very much a work in progress, and opponents of globalization are fighting it as a last-ditch battle.
Though President Barack Obama has won congressional authorization to negotiate a TPP deal for expedited approval on Capitol Hill, which strengthened his hand at the bargaining table, the United States and its 11 negotiating partners are having a hard time getting to yes. The latest sticking point, which is to be discussed among officials this week in San Francisco, is Mexico and Canada’s worry that the TPP will cede to Japan some of the access to the U.S. auto market that they gained under the North American Free Trade Agreement. The Obama administration must reach a compromise that the United States and these three close friends can live with, lest the world’s best opportunity for sustaining free trade slip away.