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 Reality Of Anti-Globalization
Although its definition is nebulous, globalization is generally understood to mean giving greater power to capital to move around the world, while anti-globalization seeks to return some power to labor. Is it already happening?
To be sure, trade is under pressure. “In the years leading up to the Great Recession, trade tended to grow faster than GDP, in some cases at more than twice the pace,” explains HSBC’s Lippoldt. “The world became more trade-intensive.” Since 2015 trade growth has fallen behind GDP growth, and experts expect this trend to continue through 2016, 2017 and 2018. “This is the first time such a run has occurred since the advent of the World Trade Organization (WTO) in 1995,” he notes.
There are a number of reasons for the breakdown of the link between trade and GDP growth. These include shifts in the pattern of global value chains (in part to mitigate risk); increasing capacity in China and other leading developing countries to produce components that were previously imported; the rise of the service sector (which is typically less trade-intensive) in emerging markets; and shortfalls in trade finance in some areas. “However, there has also been a gradual but persistent rise in protectionist measures,” says Lippoldt.
In the post-crisis period through to 2015, WTO monitoring found 14 to 19 new protectionist measures a month. In the first half of 2016, this accelerated to 22 measures a month. Global Trade Alert, an information provider coordinated by the Centre for Economic Policy Research think tank, counts a broader range of trade measures, including subsidies and bailouts, and reports that globally 5,072 new trade restrictions were imposed and kept in place from 2008 to October 2015. “These are mainly small measures but have a cumulative effect, affecting roughly 5% of global trade,” says Lippoldt.
The changing political climate—typified by Trump’s election and Brexit—may not immediately increase the volume of protectionist measures. However, it “creates roadblocks to future liberalization measures,” according to Eurasia’s Sankaran.
Meanwhile, overseas investment also faces intensifying challenges. Around $40 billion in proposed Chinese acquisitions have been rejected since the start of 2015, according to data provider Dealogic. In Australia, the government recently blocked a joint bid by the State Grid Corporation of China and Hong Kong’s Cheung Kong Infrastructure to buy Australia’s largest power grid company. Elsewhere deals for agribusiness firm Syngenta and German chip equipment maker Aixtron face scrutiny. Regulators frequently cite national security for blocked Chinese bids, but some see it as protectionism.
Each quarter Deloitte asks CFOs at North America’s largest companies about the risks in their own operations and the wider business environment. “Over the past four years, growth has been the primary concern, with risks focused on macroeconomic instability in Greece and elsewhere in Europe, for example,” says Greg Dickinson, leader of Deloitte’s CFO Signals report. “But in the last two quarters there has been a shift: Growth is still a main focus, but the concern is that political sentiment will impact international trade and affect global growth.”
Companies are aware of growing risks from anti-globalization sentiment, but are they responding? Stephen Halmarick, chief economist at Colonial First State Global Asset Management, says that to date there is no evidence that companies are amending their business or investment strategies to reflect the changed climate. “[But] globally, business investment is much weaker than expected, especially given how low interest rates are,” he notes. “The issue is a lack of demand and uncertainties over the future, and political developments are making business much more cautious.”
Dickinson agrees that while business concerns have increased, there has been little corporate reaction to the growing anti-globalization sentiment. “Earnings estimates have consistently fallen in recent years, but that is attributable to a range of factors,” he adds. “We believe that the crucial test will come post-election [in the US], when it will become clear if political rhetoric will be followed up by policy changes.”