Comments due by April 8, 2016
Donald Trump and Bernie Sanders have something in common. Both are hostile to the free trade deals that Barack Obama has been negotiating, and both have been campaigning on a platform of putting American workers first.
One thing is certain: if either of these two political insurgents makes it to the White House, there will be no great rush to provide easier access to the world’s biggest market. The agreement that Obama has been seeking with the European Union, the Transatlantic Trade and Investment Partnership (TTIP), will be dead in the water.
Hillary Clinton has been more supportive of trade deals in the past but has grown noticeably less enthusiastic as it has become clear that the tougher line adopted by Sanders resonates with many Democrats.
Trade has turned into a political issue in the US. Presidential hopefuls are expected to have a view on the transpacific partnership, imposing sanctions on China for currency manipulation and whether the US should have signed the North American Free Trade Agreement with Mexico and Canada in the early 1990s.
The same applies in the UK, where the Brexit debate has forced both sides to develop an instant expertise in the different sort of trade regimes that exist between the EU and the rest of the world. There are intense debates about the merits – or otherwise – of the Norwegian model, the Swiss model and the World Trade Organisation (WTO) model, and detailed forecasts about the economic costs and benefits of each.
An early sign that trade policy was no longer merely the preserve of political nerds came with the groundswell of opposition in Europe to TTIP. This was billed originally as something largely apolitical: an attempt to harmonise rules and regulations in the US and the EU so there were fewer barriers to trade.
Yet the TTIP is deeply contentious. Opponents say “harmonisation” is not some boring, technocratic exercise, but rather a race to the bottom that will dilute quality controls and safety standards. But it has been the idea of an investor state dispute settlement (ISDS) system, under which corporations could challenge decisions made by governments, that has proven particularly toxic.
It was not that long ago that freer trade was thought to be a good thing. The WTO was set up at the end of the Uruguay round of trade liberalisation talks, which ended in late 1993. At that point, it was assumed that there would soon be further global agreements to cover unfinished business in areas such as agriculture and services.
Few imagined that it would take until 2001 to begin another round of talks and that these would drag on for 14 years before being abandoned. The assumption in the early 1990s was that the world was entering a new era of globalisation, to match that of the late 19th century, in which there would be free movement of capital, people and goods.
The first world war put paid to what has been dubbed one era of globalisation. Brexit, rows over TTIP, Europe’s attempts to halt the flow of migrants and the “America first” approach adopted by Trump and Sanders all send out the same message: the retreat is underway from another period of globalisation.
This process has had a number of phases. It was always obvious that there would be winners and losers from globalisation, since it involved companies moving production from high cost to low-cost parts of the world. Factories in the west closed, but consumers benefited from cheaper goods. Initially, the winners easily outnumbered the losers, although the losses suffered by the losers were bigger than the gains for the winners.
But the last period of globalisation was a lot more fragile than it looked. It was built on the availability of easy credit, as became painfully apparent in 2007, when the financial markets froze up and trade collapsed on a scale not seen since the Great Depression of the 1930s.
There has been no return to pre-crisis days. Recovery has been much more modest than in previous economic cycles and world trade is barely growing. Unemployment has remained high in the eurozone and even in those developed countries where it has come down – the US and the UK – wages have remained under pressure.
The recession and its aftermath have meant an increase in the number of people who think that the economic system may be working for the owners of multinational corporations and the global super rich, but is not working for them.
The sense of unhappiness has been fanned by two other factors. First, the recovery has been skewed in favour of the haves rather than the have nots, largely because while earnings have been depressed, asset prices have been going up fast. Second, the traditional parties of the centre appear to have nothing to offer other than a return to the debt-sodden, finance-driven world that led to the crisis in the first place.
As in the retreat from the globalisation era that ended the first world war, voters are turning their backs on mainstream politicians and looking instead to those that can articulate their sense of being ignored or left behind. Hence the support for Trump, Sanders, Jeremy Corbyn, and Marine Le Pen in France, all of whom come from outside the mainstream.
Politics is grappling with what the economist Dani Rodrik has called an“inescapable trilemma”: the ability to have any two of democracy, global integration and the nation state, but not all three simultaneously.
One solution, according to Rodrik, would be global federalism, an attempt to align the scope of politics to that of global markets. The EU could be considered an attempt to test out the viability of this approach. Europe’s current difficulties suggest that a global polityremains some way off.
Another answer, he suggests, would be to put global economic integration ahead of domestic objectives. This would mean a return to the pre-1914 world of the gold standard, unfettered capital flows and unchecked migration. Incompatible with mass democracy and the growth of welfare states, it risks intensifying the backlash against globalisation.
Finally, Rodrik says there could be a recognition that there can only be so much global integration, with controls on the free movement of capital, people and goods. This was pretty much the settlement that was brokered after the second world war, but unpicked from the mid-1970s onwards.
If history is any guide, this process has further to run. It took more than three decades, which included two world wars and the Great Depression, for a new economic order to emerge. Efforts to turn the clock back failed, old solutions to economic problems no longer seemed to work, banks failed, deflation set in, and free trade was replaced by protectionism and economic nationalism. This all seems worryingly familiar from the perspective of 2016.
This piece shows how the relevance of trade within political and societal discourse has fluctuated to the same extent as public perception towards trade has.
ReplyDeleteOne of the interesting parts of the piece is to how it underscored how human perception is largely crisis-driven (very similar to how policy choices are made at the Fed in some cases). As with the phases that perception takes in regards to trade, individuals tend to put much more weight on loss in an economy versus the gains. As this piece illustrates, when globalization led to the closures of factories and factors of production being moved overseas, there was an almost elastically negative reaction to that, and people now began to focus on the fragility that globalization contributed to both the world's political and economic ecosystem.
As a result, the world has gravitated to more and more risk-averse behaviors that contribute to more modest recovery. This coupled with Ultranationalism acts as catalysts to individuals on both sides of the political aisle being increasingly skeptic of trade and globalization.
A starker reality that this article exemplifies is the economic parallelisms to the economic, societal, and political fluctuations experienced during the Great Depression - the dark past becomes a closer reality than most people think if world economies and governments subscribe to this pattern.
Presidential candidates running in the 2016 Campaign Donald Trump and Bernie Sanders are respectively representing the extremist republican and extremist democratic party. Nonetheless there is at least one ideal they have in common, fighting the Trade agreements that shaped the American economy in the past decades.
ReplyDeleteStarting with Obama passing the TTIP (Transatlantic Trade and Investment Partnership) trade agreements became a relevant political issue discussed in this campaign. People claim that these trade agreements, including the previous FTA with Mexico and Canada, cause the drop of quality and security standards of the products imported. Similarly to what is happening in the U.S., Britain is about to vote for withdrawing from the EU, decision supported by the nationalistic and populist views of Johnson.
But what brings voters to support such untraditional candidates? Both the U.S. and Europe is in a moment of friction with the vast immigration issue caused by globalization. Factories move to low-income areas leaving fewer jobs to people in the U.S. and EU. Additionally the slow recovery from the 2008 crisis is digging in the pockets of the poor, whom are recovering much slower than the wealthier. Supporters feeling abandoned by the government get attached to these untraditional politicians that portray a strong confident figure that “understands” their situation.
Globalization has made hundreds of millions of Chinese peasants richer than their parents' wildest dreams, and they know it. it's also allowed western consumers to buy lots of cheap goods. Overall there is no doubt that it has increased economic welfare, but the biggest winners have been the business classes, both in western and developing countries. that's not the fault of globalization though , although larger markets will necessarily allow more inequality to develop. Governments can always redistribute income if they want to. Persistent trade surpluses must be banned because they lead to an unsustainable build up of debt
ReplyDeleteAmerica has had this ongoing debate about free trade for decades, successive Republican and Democratic presidents have pushed to open U.S and global markets. Not only is there resentment against free-trade because of the possibility of American job losses, but there is also resentment because of China's rise in economic power, manufacturing exports went from 2% in 1991 to 19% by 2013. It's argued by economist that the rise of home ownership has been anchoring people down in certain states, so people are reluctant to move for jobs than they had been in the past. Donald Trump and Bernie Sanders are favoriting the protectionism ideal, instead of facing the facts that if America closed its doors on trade agreements, median income earners would lose 29% of their purchasing power and low income earners would lose up to 62% of PP (according to economists at Columbia University). So the question that candidates should be answering is 'how to keep purchasing power high while making sure employment also stays high?'
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ReplyDeleteIts alarming to know that these candidates who are running for office have no intentions in providing easier access to the world’s biggest markets. It’s unfortunate that Obama’s work of seeking an agreement with the TTIP (Transatlantic Trade and Investment Partnership) will come to an end. It is a concern with American job losses but weather there is free trade or not, low wage jobs are going to migrate to the place of least cost, and for many industries that may not be in the U.S. In the United States labor cost is higher than to those in third world countries. Specifically, low end labor for manufacturing. These are one of many factors to consider when discussing that free trade isn’t working.
ReplyDeleteThis piece demonstrated how those in the financial markets are now taking advantage of debt and the distressed markets. over the past year many key players in the alternative asset industry have focused on event driven strategies to take advantage of the current poor economic state which was incredibly bad in February. It is somewhat alarming how the people of america are backing these outsider candidates with radical views simply because they are angry. Closing the door of trade in America is not the solution, maybe it will help in the short run but definitely not in the long run. While it is true jobs have been taken away from americans and sent over seas due to lower production cost it is not a wise move to end that relationship. The sentiment the freer the market the freer the people used to hold truth, and it still is. The only difference is that traditional this meant being free from goverment reguation but now it is not free due to large corporations acting just as bad as the government with all the power they have. Globalization leads to better relationships across all platforms, the solution may be fixing america from the bottom up instead of going into isolation
ReplyDeleteI believe there has been a shift in public perception of trade agreement, and that this perception (for better or for worse) subsequently resonates within political parties as well. In recent years we have seen a trend of jobs being outsourced overseas, and a growing number of American companies building new plants and headquarters in foreign countries. As this has happened, some "American" companies have increasingly become more and more foreign. For example, in 1995, 68% of General Electric's workforce was within the United States, now it is just 38%. This means that the majority of General Electric's workforce is comprised of foreign workers. Now although U.S. workers may still comprise the largest chunk of workers at GE from any specific nation, proportionally speaking, GE used to be a more "American" company. This has resonated with the American public, particularly liberal Americans. Even Bernie Sanders has addressed this issue, saying that companies like GE are destroying the fabric of America.
ReplyDeleteAnother example of why many Americans are increasingly becoming weary of trade deals and globalization is Ford. For the past several years, Ford has been trying to open a new, large plant in Mexico. This has angered a large part of the American public that has previously thought of Ford as a genuine American company, and it is also causing some workers to worry about their job security as they now have to compete with cheap labor in Mexico.
These are both recent examples of an increasingly evident loss of favor in trade deals among the American public, and I believe that with candidates like Donald Trump and Bernie Sanders publicly against most forms of trade deals, the American public is going to become isolationist in its view of economics. Whether this will be a good thing is unknown, and unfortunately only time will tell. Yet, in theory, given that the world is such a fast-paced ecosystem of complex global economies, it certainly has cause for concern and caution.
In more recent years and especially in the upcoming presidential election, free trade has been a controversial topic up for debate. Potentially, the only topic agreed upon by party hopefuls on both sides is that the free trade deals that have been in negotiations are unfavorable. On one hand, Bernie Sanders and Donald Trump’s proposals will restrict America from benefitting from a free open market and trade with some of the world’s biggest economies. On the other hand, these proposals could greatly benefit and economically develop other countries while the United States remains stagnant. I believe that with the views of Sanders and Trump will lead to a more isolationist country and rely on our own natural resources to provide for our people. Both of these candidates are, in a sense, untraditional. They are trying to appeal to frustrated Americans: likely those who are struggling with inequality or unemployment. These people look to these politicians to stand by them against a “corrupt” and overbearing government.
ReplyDeleteThe pick up of political oversight in trade with the presidential campaign is picking up steam the closer we get to the election. The TPP of most recent has caught flack because of its limited upside gain from major industrialized players like the US and Australia. Middle class folks and those in poverty still consume little of the wealth of these great nations and trade has been the targeted reason of politicians for keeping them depressed. Fingers are always pointed at big companies but the logic is simple, its cheaper to operate because when a company does international business they are subject to massive amounts of taxes. I don't think more tariffs or trade agreements can mend the wound that has been created for companies but removing the red tape can drive business and create wealth for lower and middle class families.
ReplyDeleteThe pick up of political oversight in trade with the presidential campaign is picking up steam the closer we get to the election. The TPP of most recent has caught flack because of its limited upside gain from major industrialized players like the US and Australia. Middle class folks and those in poverty still consume little of the wealth of these great nations and trade has been the targeted reason of politicians for keeping them depressed. Fingers are always pointed at big companies but the logic is simple, its cheaper to operate because when a company does international business they are subject to massive amounts of taxes. I don't think more tariffs or trade agreements can mend the wound that has been created for companies but removing the red tape can drive business and create wealth for lower and middle class families.
ReplyDeleteThe influx of Chinese goods that created a higher level of unemployment in US markets has created a weary outlook on free trade agreements, having already had issues that have yet to be resolved since. I understand the strong opposition proposed by Sanders to gain the trust of the American people by reclaiming the job market and lowering unemployment in the already affected markets, but I don't know if this is the correct response. International free trade agreements opens up the US market to the possibility, and overall likelihood of a higher returns to scale in every market, the shocks have affected jobs negatively but with new policies on how unemployment in handled in markets that are specifically targeted by foreign imports could very well solve our current issue and change the overall outlook on trade agreements. It may be too soon to lay to rest the work done thus far by Obama, but we can only see how far the trade agreement could get us by enacting policy changes on increasing jobs first in the affected markets.
ReplyDeleteJack Salisbury | ECO-360
ReplyDeleteIt is alarming that two serious candidates for the highest office in the land have so easily convinced their supporters that the expansion of free trade is a bad practice. It is quite clear that while angrily detesting our current trade policies may make for an exciting stump speech, neither of these candidates have thought very deeply about the trade policies they might implement. I have yet to hear an actual policy proposal in regards to trade from either Trump or Sanders. To be fair, I have yet to hear a serious policy proposal from Trump in regards to anything.
This article brings up Brexit and how that debate has forced both sides to attempt and develop an “instant expertise” with respect to international trade. I have to say that I am jealous they are having a debate that comes even close to involving expertise. I am continually shocked by how it becomes abundantly obvious our candidates, with the exception of Clinton, have not even appropriately researched the implications of their own trade positions and this does not hurt them with voters.
This article brings up some very interesting points in respect to how the US and the world has gotten to where we find ourselves with trade policies and globalization. This examination of US policy and external factors provide a clear explanation for how we got here. Though, how to best move forward is not entirely obvious and any such decision should involve the opinion of many experts in the field. What is obvious, though, is that just saying the hell with free trade is not a realistic answer.
Free trade has become a controversial topic, especially in the prime time of our 2016 presidential election. It seems as though candidates within both the Democratic and Republican sides have publicly agreed that the free trade agreements are not benefiting the American economy. It is hard to say whether I believe that stopping international trade agreements is a good idea, as it may leave America only relying on itself for its goods and services. It is apparent that Americans, especially those voting, are turning to politicians that are going against what our government has set up for us previously in terms of trade agreements.
ReplyDeletePresident Obama has negotiated many trade deals that Americans are unhappy about. The impacts that the agreements have had on the working class are pushing voters towards candidates such as Bernie Sanders and Donald Trump. In regard to Hillary Clinton, it is unclear where she stands. As she continues to support President Obama, she has been slightly leaning towards being less supportive of the trade agreements. The article states, “As in the retreat from the globalization era that ended the first world war, voters are turning their backs on mainstream politicians and looking instead to those that can articulate their sense of being ignored or left behind. Hence the support for Trump, Sanders, Jeremy Corbyn, and Marine Le Pen in France, all of whom come from outside the mainstream.” It is clear that in the upcoming years, our government will be setting forth changes to how we deal with trade agreements.
Presidential applicants Hillary Clinton, Bernie Sanders, Donald Trump and Ted Cruz all contradict TPP. In the Congress, Speaker Paul Ryan said a month ago that there are insufficient votes to pass it. TPP is by all accounts accomplished for in Congress for the time being. There's one thing, however: Wall Street and monster multinational enterprises have a tendency to get their way in Congress and there is restricted they can even now sneak TPP through. After the race there will be an "intermediary" session of Congress.
ReplyDeleteI think it’s fascinating that this article highlights how the mainstream person is turning to the outside mainstream candidate to represent them. Shows the extreme of how despite the fact that economics are influenced by politics, consumers and voters, decide based on personal feelings like frustration from being affected by global trading displacing workers, than the overall picture of a candidates ability to fill the shoes. It highlights how people are going to be expecting answers from presidential candidates regarding matters like the TPP, TTIP, NAFTA with Mexico and Canada, which doesn’t change the fact that all either happened or are in place. Further, candidates who are more interested in being favored, versus sticking to their guns are switching sides on topics because of that pressure.
ReplyDeleteI think one interesting aspects of new trading policies is that there is still an element of danger from the relaxing of control over the trading itself. That can invite criminal elements, which seems to be what both presidential candidates and voters alike are worried about.