The Return of Globalization

As the G-20 finance ministers gather in South Korea, trade is returning but currency wars are brewing. Can they agree to cooperate before protectionist urges tear them apart?

BY GARY HUFBAUER, KATI SUOMINEN | OCTOBER 21, 2010

As the G-20 finance ministers gather in South Korea this weekend in advance of November's big meeting, they will surely notice that globalization is back -- almost. The trajectory of world trade over the last two years looks V-shaped: a drop of 12.2 percent in 2009 followed by a projected gain of 13.5 percent in 2010. Cross-border financial flows are recovering: After more than halving from $1.3 trillion in 2007 to $500 billion in 2009, net portfolio flows to emerging markets will rise to some $700 billion this year. Global foreign direct investment is soaring to $1.2 trillion this year, after plunging from $2 trillion in 2007 to $1 trillion in 2009.

Yes, practically all G-20 countries engaged in protectionist measures of some kind during the crisis -- less than 5 percent of world trade was spared one form of interference or another, estimates Global Trade Alert, an independent monitoring initiative. But the overall damage was orders of magnitude less than perpetrated by the beggar-thy-neighbor protectionism of the Great Depression. International commitments made over the past 60 years to liberalize world trade and finance -- defended by thousands of proponents of free markets ensconced in industry, academia, the media, and governments -- preserved the open global economy.

But we are not home free. The foundations of globalization are at risk. And when the full G-20 summit begins next month, shoring it up should be at the top of the agenda.

Emerging economies from Brazil to China are engaged in currency warfare to promote their exports. Washington threatens tariffs against Beijing on the diplomatic battlefield. In the United States, widening U.S. trade deficits (likely $450 billion in 2010) are a familiar precursor of protectionist impulses that spur calls to keep imports out and jobs at home. Poll after poll shows that free trade has become deeply unpopular among blue collar and college-educated, white-collar workers alike. Trade is now practically synonymous with the much-feared outsourcing that scared Americans when John Kerry ran for president, pledging to blast Benedict Arnold companies that send jobs abroad. President Barack Obama's slogan is only slightly different: Stop tax breaks to companies that ship jobs overseas. Even Republicans, once a reliable force against protectionism, at best mutter misgivings.

The specter of trade barriers and currency wars create uncertainties for global companies at a time when they should be investing to revive the global economy. But financial markets are also beset with question marks about new regulations. With countries from Asia to Europe elbowing for an edge, legitimate fears are spreading about global regulatory fragmentation and favoritism for domestic financial operators. Some emerging countries are flirting with capital controls, a failed but politically appealing experiment from decades past.

Chip Somodevilla/Getty Images

 

Gary Hufbauer is the Reginald Jones senior fellow at the Peterson Institute for International Economics, and Kati Suominen is a resident fellow at the German Marshall Fund in Washington. They are co-authors of Globalization at Risk: Challenges to Finance and Trade. The views expressed are their own.

GALENCBAYNES

3:23 PM ET

October 22, 2010

Growth is not sufficient

By this point it should be common sense that figures reflecting economic growth under globalization are not sufficient evidence to make the case that globalization as we know it has been working. Standard measures of growth such as GDP contain no mechanism for taking into account wealth distribution, for example. Small but powerful economic actors are able to reap huge benefits from the 'free market' system that has been dominant over the last decades. But this does not necessarily reflect improvements for the majority of the world's citizens.

The reason there is popular resentment towards neoliberal globalization is that the model has too often failed to create sustainable jobs and improvement for populations as promised. Take a Nicaraguan worker sewing Patagonia jackets and making the average wage within the Free Trade Zones in Nicaragua ($4 per day). This pitiful wage is supposed to represent the promise of development through globalization. But it is laughable to believe that $4 a day would ever support the average Nicaraguan family (6 members). Add to this the fact that, under pressure to attract foreign investment, the Nicaraguan government offers massive tax breaks to foreign companies (0 sales, import/export, property tax, etc.), and you find that the ONLY benefit of these companies existences in Nicaragua is the miserably salaried jobs they provide. Facing that situation, I'd give up on globalization as well.

If we want to fix globalization or save it as a concept, we must redesign it in order that globalization has positive effects for the majority of the world's people, not just the masters of transnational capital.

 

SPECIALIZEDEED

7:37 PM ET

November 19, 2010

Growth is not sufficient

Small but powerful economic tatil actors are able to reap huge benefits from the 'free market' system that has been dominant over the last orjin krem decades. Facing that situation, I'd give up on globalization filmcin.com as well.

 

LAURINE BACAK

12:16 PM ET

November 20, 2010

The Return of Globalization

As the G-20 finance ministers gather in South Korea, trade is returning but currency wars are brewing. Can they agree to cooperate before protectionist urges tear them apart?. By this point it should be common sense that figures reflecting economic growth under globalization are not sufficient evidence to make the case that globalization as we know it has been working. Standard measures of growth such as GDP contain no mechanism for taking into account wealth distribution, for example. Small but powerful economic actors are able to reap huge benefits from the 'free market' system that has been dominant over the last decades. "The specter of trade barriers and currency wars create uncertainties for global companies at a time when they should be investing to revive the global economy. But financial markets are also beset with question marks about new regulations remanufactured q2612a. With countries from Asia to Europe elbowing for an edge, legitimate fears are spreading about global regulatory fragmentation and favoritism for domestic financial operators. Some emerging countries are flirting with capital controls, a failed but politically appealing experiment from decades past. 123NEXT Save big when you subscribe to FP. " ), and you find that the ONLY benefit of these companies existences in Nicaragua is the miserably salaried jobs they provide. Facing that situation, I'd give up on globalization as well. If we want to fix globalization or save it as a concept, we must redesign it in order that globalization has positive effects for the majority of the world's people, not just the masters of transnational capital.