From land exploration in the 16th century to the Industrial Revolution in the late 18th century and the mass cross-border investment flows of the 21st century – globalisation has gone through a number of phases throughout history.
What is globalisation?
Globalisation is the process whereby a country becomes more interconnected as a result of the increased trade of goods and services. As nations are freed from local demand and supply constraints, this has facilitated greater exchange between markets, allowing growth and productivity to surge. Although “globalisation” seems like recent phenomena, it has existed for hundreds of years, with theorists suggesting that it can be traced back to the end of the Middle Ages in Europe! In general, economists consider globalisation to be in total, a net benefit for economies around the world. Thus, overall we usually see that material and non-material living standards within countries improve as a result of globalisation, primarily due to the heightened levels of competition leading to enhancements in efficiency and resource allocation.
Recent history and trends of globalisation
After coming through the most recent wave of globalisation (one of the potential reasons why we are currently experiencing the unique phenomenon of low inflation and volatility, according to some experts) in the last 5 years, the tide is shifting. With the alarming rise of protectionist sentiment globally, questions have been raised regarding the future of globalisation. According to analysts at Macquarie Group, the rejection of free trade, supply chain atrophy and central bank interference of exchange rates has meant that globalisation is dying (AFR, 2018). This point of view is not uncommon and is shared by some leading academics in this space like Dr Niall Ferguson, the professor at Oxford University, who recently co-authored a book regarding the end of the liberal order.
The rise of the anti-globalisation movement within mainstream politics throughout the world, from Le Pen in France to Brexit in the UK have all stemmed from rising unemployment within industries in structural decline, who has now been forced to compete globally rather than domestically. Whilst increased competition is touted as one of the great benefits of globalisation, it is also one of its major detractors. The decay of manufacturing and automotive industries due to cheaper production costs in developing countries recently has fuelled anti-globalisation rhetoric, leading to the rising implementation of policies such as Trump’s steel tariffs.
Economics of globalisation – Trump steel tariffs
Trump’s 25% tariff on foreign steel and 10% tariff on aluminium promises to save blue-collar American workers within the manufacturing and steel industry. However, questions regarding the benefits of this policy linger. Research shows that these tariffs merely will delay the inevitable decline of the manufacturing and steel industries and not, in fact, save them. The best-case scenario of such a policy is that only the automotive and construction industries (which are reliant on imported steel and aluminium) will be hurt – however, together these two industries employ nearly 7 million US workers relative to the 160,000 US steelworkers. Conversely, the worst case scenario is the possibility of a trade war between China and the US which will harm many other industries and ultimately lead to higher prices for the average American – consistent with economic theory surrounding tariffs (The Conversation, 2018).
Furthermore, we see that this isn’t the first time that the US has turned to tariffs to revive its domestic steel industry. The latest precedent set was by the Bush administration in 2002 when they set steel tariffs that caused more jobs to be lost than saved. A report by Politico estimated that Bush’s steel tariffs cost 200,000 non-steel manufacturer jobs, more than total employment in the steel industry, which was 187,000 back in December 2002. So is this a case of the improved public policy or just the US failing to learn from its past mistakes? Only time will tell!
Future outlook for globalisation
Despite the shift in policy in countries such as the US, paradoxically, it is, in fact, China who have stepped up to the fore and defended free trade and globalisation in recent years. The development on a regional trade agreement, known as the Regional Comprehensive Economic Partnership (RCEP), which includes countries excluded from the TPP and the development of the Asian Infrastructure Investment Bank – have all formed part of Beijing’s policy to spread soft power and increase integration within the Asia-pacific region (Rothschild, 2018). This coupled with China’s US $1.3 trillion “Belt and Road Initiative” is a testament to their defence of free trade and globalisation. Thus, despite the anti-globalisation sentiment that seems to be trending now, we can take comfort in that countries within Asian will pick up the slack from the US and Europe and really drive a new wave of globalisation – one that focuses on artificial intelligence and other great technological innovations!
The CAINZ Digest is published by CAINZ, a student society affiliated with the Faculty of Business at the University of Melbourne. Opinions published are not necessarily those of the publishers, printers or editors. CAINZ and the University of Melbourne do not accept any responsibility for the accuracy of information contained in the publication.
