From Occupy Wall Street and the Arab Spring to surprising victories for Brexit and Trump, citizens around the globe are pushing back against their leaders’ policy choices.
The world has embarked on a new and uncertain era. The surprise victory of Donald Trump in the US presidential election has created unprecedented anxiety around the globe. It is an echo, magnified many times, of the UK’s Brexit referendum result in June. Across the world, populist movements are gaining more power—France and Germany could be next in 2017—or, at the least, changing the terms of political debate.
For the global economy, these seismic shifts are destabilizing in the short term, prompting currency and stock market volatility. In the longer term they could herald an epoch where, for the first time since the Great Depression of the 1930s, trade becomes less free and globalization, which has defined our world for decades and delivered huge benefits for many, begins to go into reverse.
President-elect Trump has vowed to withdraw from the Trans-Pacific Partnership (TPP) and renegotiate the terms of the North American Free Trade Agreement; the Transatlantic Trade and Investment Partnership (TTIP) with the European Union (EU) also seems likely to be consigned to the trashcan of history. Trump describes China, the world’s largest trading nation, as a currency manipulator and has pledged to bring trade cases against the country.
Meanwhile, despite the hopes of some, the UK, a formerly fervent free-trade advocate, might leave not only the EU but also its single market, which is the world’s largest, following Brexit. And, having narrowly avoided defeat by a Belgian regional parliament, the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada, arguably its closest ideological cousin, could by scuttled by a proposed Dutch referendum after seven years of negotiations.
Even some emerging markets, which have been among globalization’s greatest beneficiaries, have begun to adopt more-aggressive trade policies. “We’ve seen instances of exchange rate policies that have veered towards protectionism in China, Malaysia and Korea, for example,” says Jeremy Cook, chief economist at foreign exchange provider World First.
The implications of this backlash against free trade and globalization are profound—and potentially disastrous for people and companies in every country around the world. “It is vitally important to defend the prospects for increasing trade integration,” says IMF chief economist and economic counselor Maurice Obstfeld. “Turning back the clock on trade can only deepen and prolong the world economy’s current doldrums.”