We are witnessing “the beginning of the end of 400 years of domination of the west on global trading institutions”, and Asian governments must distribute the benefits of globalisation for the many, not the few.
Those were the stark warnings facing delegates at a trade forum in Hong Kong, one year after the election of Donald Trump and the Brexit vote left global trade’s champions stunned.
“Leadership of the multilateral space, upon which we depend for trade, is now up for grabs,” said Lord Paddy Ashdown, former leader of the UK Liberal Democrat Party. It was Ashdown who claimed that four centuries of western dominance was at an end.
The US’ decision to withdraw from leadership of the multilateral trading system has opened the door for China. Xi Jinping’s rhetoric on globalisation, leadership and responsibility throughout this year has led many to predict that China will take America’s place.
But 70 years after the General Agreement on Tariffs and Trade (GATT) and 16 years after China joined the WTO, it is not abundantly clear what that system, nor what China’s leadership of it, would look like.
For, while globalisation has proven itself extremely effective in industrialising economies, integrating countries and boosting big business, the positive impacts on society don’t hold up so well to scrutiny.
“If you look at the past 10 years and take the top 25 economies of the world, 550 million people have seen their incomes either stagnate or decline. There’s a feeling that whatever’s happening right now isn’t working, so that’s why you see Brexit, that’s why you see what’s happening in the US – so you have to address the underlying problem,” said former senior US trade official Timothy Stratford, now managing partner for law firm Covington and Burling’s Beijing office.
Furthermore, China is a secretive state still, under authoritarian rule. It talks a good game on open markets but doesn’t practice anything like what it preaches to the suits at Davos. The confusion is real, and the uncertainty is widespread.
“For 70 years we’ve been building up the rules for international trade and investment… we’ve constructed our supply chains within our business model, based on freer international trade and investment. And suddenly, one day, everything seemed to become more complicated than that. Our business model faced disruption. So what do we do?” asked deputy Vietnamese trade and industry minister Tran Quoc Khanh.
The answer, from a Vietnamese perspective, seems to be: more trade. Vietnam was among the countries that nudged closer to a Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) earlier this month and is a member of Asean, where 60% of trade is governed by free trade agreements.
“In Asean, we are keen to go forward with our liberalisation programme. We keep integrating our economic community in order to liberalise trade in goods and services and investment, and the movement of people in Asean,” he said.
However, he made clear that Vietnam’s support of open markets was not based on libertarian values, but was more aligned with its nominally socialist status.
“We are doing this all on one perception: for ourselves. We talk to the business community only in our interest. You can only succeed if you address non-tariff barriers in that manner, not under the pressure of the business community, but for your benefit,” he said.
This need for globalisation 2.0 to be inclusive was a recurring theme at an event hosted by the Asia House think tank. Now in its 50th year, Asean is being targeted by exporters and manufacturers alike, eager to tap its 600 million population and the third-largest labour force in the world.
But the message was clear: these people must not be left behind, in a repeat of the mistakes made by successive western administrations.
“We must not forget what brought Asean to where it is now. Fifty years ago Asean countries were like dominos,” Cesar Purisima, former finance secretary of the Philippines, told delegates. Stability is needed to ensure the region’s growth continues, but it must also embrace a new model of globalisation, he said, talking about the “push for MSMEs”.
“Globalisation has happened at the top. The bottom of the smaller entities has lost out. That’s why we’ve seen the rise of populism, a lot of people have been left out. We need to bring them back and make sure that the globalisation business is the biggest public-private partnership – governments have to negotiate, but it is business that makes business happen. We need enlightened business to optimise profit but start talking about win-win strategies,” he said.
Trade wars and political fallout
Also looming large was the spectre of further political fallout from the very public rebuke of globalisation in the west. It’s worth remembering that despite the noise around the UK leaving the EU, Brexit has yet to happen. Given the economic and political upheaval since the vote last year, what might happen post-2019 is anyone’s guess.
“I now take the view that on balance, we will not go through with Brexit. On balance, 52-48 maybe but the other way around. The reason is largely because of the gross, utter, total dysfunctional nature of our government,” said Ashdown, a vocal critic of the pro-Brexit vote.
“The reality is that the government is divided. Even if it had a trade deal it wouldn’t know what kind of trade deal it wanted. Theresa May is largely without any authority. I don’t think this government is frankly capable of delivering anything. If you asked them to deliver the Sunday newspapers they probably couldn’t,” he added, to laughter from an audience that seemed to agree.
In the US, too, the tide continues to turn. Stratford said that he thought a trade war was unlikely, saying that while the US has some legitimate concerns, China is finding that its economic model is working pretty well. “You have an irresistible force and an unmovable object, and that’s why I hope we’ll find a resolution that doesn’t result in a trade war,” he said.
At the beginning of 2017, the picture on global trade was unclear, but the hope was that as time went by, the mist would lift and the picture emerge. Alas, that has not been the case. In Hong Kong this week, a “new global order” was proclaimed, but we have been left with more questions than answers.