THE weekend meeting of G20 finance ministers in the German spa town of Baden-Baden was a first opportunity for US Treasury Secretary Steven Mnuchin to set out among his peers from the world’s most powerful economies, which include the Kingdom, the Trump administration’s thinking.
The key issue was always going to be trade and Donald Trump’s belief that globalization has not worked for the United States, which needs to protect its jobs and industries behind tariff walls. As with foreign aid, where the budget, depending on how it is calculated, is in excess of $50 billion, Trump wants a rethink and cuts.
There is clearly a feeling in the White House that globalization has militated against US interests and the principal beneficiary has been China. President Xi Jinping this year made his first appearance at the World Economic Forum in Davos and devoted much of his eagerly-awaited speech to praising the virtues of globalization. The problem for the Trump administration is that China’s definition of globalization does not accord with the free-market vision of Western economists.
For many in Washington, China cheats. For instance, despite promises to cut aluminum production to ease the world glut, there is clear evidence that China’s smelters have in no way reduced output. Then there is the question of the so-called level playing field. Western companies are constrained from gaining controlling interests in Chinese companies while in Europe in particular, Chinese companies have gone on a buying spree, even to the extent of acquiring what some have described as “strategic assets”.
Americans have become steadily more leery of Chinese efforts to snap up US firms. Claims of widespread industrial espionage through state-sponsored computer hacking are thought to have given the Chinese valuable commercial intelligence. The Americans of course never mention their own efforts to return the complement. However, given the revelations of their security agencies’ readiness to spy on ordinary people through their TVs and phones, it seems hardly credible that US cyber-spooks are rummaging through the IT systems of Chinese firms not to say government offices in Beijing.
Though many in the G20 are publicly deeply concerned at the new president’s protectionist sentiments, perhaps they quietly welcome his challenge. Globalization is not going to go away. World financial markets are now inextricably linked. There are few hidden barriers to the swift execution of financial trades. This is not the case with physical trade, where legal, regulatory and documentary requirements can be used to undermine the principles of globalization.
It seems clear Donald Trump is going to force trading nations to reassess globalization strategies. The bland assumption has been that the removal of barriers is a good thing. Free trade would bring efficiencies, for instance sending production where it was cheapest. China, India and emerging economies in the Far East have benefited from the export of US and European jobs. And the end consumer has benefited from lower prices. The corollary is that imposition of trade protection can become fiendishly complex as a countries struggle to secure commercial advantages.
But this said, there is no idea so good that it cannot be submitted to careful re-examination. It is probably time that globalization, so long taken for granted as a desirable end, is given searching scrutiny, from which it is likely to emerge in due time in a clearer, fairer stronger form.