The Effect of Globalisation

hhFor decades there has been a strong consensus that globalisation brought more jobs, higher wages and lower prices – not just for richer countries but also for developing and poorer nations.

But many people, including politicians, are now voicing their anger as they see jobs being taken by machines, old industries disappearing and waves of migration disturbing the established order.

You don’t have to look far to see the effect of those concerns in recent events.

The Brexit referendum was dominated by concerns over immigration, the rise of Donald Trump has brought back the rhetoric of protectionismin the US and there have been mass protests in Europe over prospective international trade deals.

What is behind this backlash and what can be done to address this crisis of globalisation?

‘Free trade is stupid trade’

The US presidential election has felt like the epicentre of the rising tide of disquiet against free trade and globalisation.

Donald Trump has accused China of wanting to “starve” the US population by manipulating their currency and “cheating” on international trade.

Hillary Clinton has found herself surrounded by political challengers questioning the benefits of international trade and globalisation.

Bernie Sanders, Clinton’s opponent in the race for the Democratic nomination, defined his campaign by arguing that globalisation had hollowed out the US middle class.

Clinton’s response has been to tack towards the concerns expressed by Sanders and Trump, reneging on her previous support of TTIP (the Transatlantic Trade and Investment Partnership) – the trade agreement between the US and Europe.

US manufacturing’s decline

Arguments over the decline of manufacturing in the United States have powered a lot of the heat of the 2016 US electoral cycle.

The sense of grievance is clear – the manufacturing sector in the US has seen six million jobs disappear between 1999 and 2011, according to the Bureau of Labor Statistics.

Studies have shown that the decline in the US has been mirrored by gains in China.

Chinese imports explain 44% of the decline in employment in manufacturing in the US between 1990 and 2007, according to a report by the Institute for the Study of Labor in Bonn.

Part of that decline has been down to the outsourcing of jobs to other countries but automation and more efficient processes have also taken their toll.

“All countries end up with losers from technological development – whether it is telephone operators or bank tellers,” says Gary Hufbauer, a trade expert from the Peterson Institute for International Economics.

“The problem in the US is that we don’t do much to help those people who lose out through social security support or job retraining,” says Mr Hufbauer.

Technological and economic change has hit specific geographical areas that have then found it hard to develop new industries and create jobs.

The anger that flows from this has found a home in the protectionist rhetoric of politicians like Donald Trump.

“There has been no growth in household income during the last decade in Europe, the US and Japan. People are not happy and if you have to blame someone, it is easy to blame foreigners,”‘ says Mr Hufbauer.