Globalisation, a concept that has been at the forefront of international economic policies for decades, is now at a crossroads.
The recent tariff barrage unleashed by President Donald Trump marks a decisive end to an era of freewheeling globalization, and it’s unclear what the future holds.
USA, The United States, once considered a champion of globalization, is now abandoning the system that made it rich and powerful.
Trump’s protectionist policies are a gamble, one that aims to make America more prosperous by waging a global trade war on both friends and foes alike. This marks a historical moment, one that could have far-reaching consequences for the global economy.
So what does this mean for the economy? Are we braving for a recession or is there a silver lining we need to understand?
The End of An Era: Trump’s Tariffs And The Demise Of Globalization
The United States, once a champion of globalization, is now abandoning the system that made it rich and powerful. Trump’s protectionist policies are a gamble, one that aims to make America more prosperous by waging a global trade war on both friends and foes alike.
This marks a historical moment, one that could have far-reaching consequences for the global economy.
It’s strategy of spreading prosperity to distant lands, which was seen as an antidote to authoritarian movements, worked. From the end of World War II until Trump’s election, U.S. leaders led a global effort to lower barriers to trade, investment, and finance.
However, the costs for factory workers in advanced economies like the U.S. sparked a bipartisan backlash.
The Rise And Fall Of Globalization: A Brief History
Source: Pexels
The globalization that Trump decries for having “ripped off” Americans produced remarkable benefits. It lifted 1.5 billion people in the developing world out of crushing poverty, according to the International Monetary Fund.
In the U.S., it produced millions of well-paying jobs, made available a wider array of goods, and kept a lid on inflation. The nation grew wealthier: The economy more than doubled in size after the North American Free Trade Agreement took effect in 1994.
But there were real problems, too. Workers in basic manufacturing, those with the fewest skills and least education, were hurt.
Labor unions blamed trade deals like NAFTA for encouraging corporations to move their factories abroad to take advantage of laborers who earned perhaps one-tenth of American wages.
The China Shock: The Real Culprit Behind America’s Decline
The problem grew more acute after China’s 2001 entry into the World Trade Organization.
By 2011, competition from Chinese imports had put 2.4 million Americans out of work, according to research by economists David Autor, David Dorn, and Gordon Hanson, who dubbed the phenomenon the “China shock.”
As the nation as a whole prospered, most Americans were better off, thanks to globalization. But the gains from trade were spread across the country while the lost jobs and shuttered factories were concentrated in specific communities.
Between 2000 and 2003, about 3 million factory jobs vanished, more than had been lost in the final two decades of the 20th century, not to mention China’s retaliation tariffs on USA.
The Failure of Washington: Why Politicians Couldn’t Fix The Problem
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Compounding the pain was Washington’s failure to do much about it. Politicians beginning with President Bill Clinton had promised government assistance for dislocated workers, warning that without it, political support for trade liberalization would evaporate.
But the principal program for retraining workers hurt by trade deals, called Trade Adjustment Assistance, was chronically underfunded.
Farmers protest NAFTA in 1993. The number of manufacturing jobs had been sliding since 1979 in all advanced economies, not just the U.S. But in the first few years after China joined the WTO, the drop accelerated.
The Anti-Trade Sentiment: How Trump Tapped Into America’s Frustration
When Trump ran for president in 2016, anti-trade sentiment — along with attacks on immigrants — were his chief cudgels.
The real estate developer and reality-television star had long held protectionist views.
He boasted of graduating from the University of Pennsylvania’s Wharton School of Finance, whose founder, the 19th-century industrialist Joseph Wharton, scorned free trade as a “fungus” and advocated that the nation be self-sufficient.
The Irony Of Trump’s Protectionism
The irony now is that the landscape has changed. The China shock ended more than a decade ago. Trade as a share of the global economy has stagnated since the 2008 financial crisis.
Amid all Trump’s attacks on trade “cheating” by foreign nations, public opinion has warmed to global commerce: In a Gallup poll conducted in February, 81 percent of Americans called trade an opportunity, not a threat.
Trump says the nation will be better off making more of what it needs rather than buying it from others, even if costs go up.
Greater domestic manufacturing will promote healthier communities and a stronger national defense, he said. Americans can no longer be the global economy’s consumers of last resort, absorbing the excess production of other nations.
The Uncertain Future: What’s Next for Global Trade?
But Trump’s hopes of repatriating all of the manufacturing capacity that moved offshore during globalization’s heyday will almost certainly be unfulfilled, economists said.
The average car, for example, contains about 30,000 parts with roughly half coming from abroad. Activating the domestic suppliers capable of producing those may take years and cost billions of dollars.
Confusion over the president’s intentions could also freeze corporate decision-makers, leaving them unsure where to invest in new production.
Overall, the era of globalization is coming to an end, and it’s unclear what the future holds. One thing is certain, however: Trump’s protectionist policies will have far-reaching consequences for the global economy.
Whether they will lead to a new “Golden Age” for America, as Trump promises, remains to be seen.
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