Globalization has contributed enormously to world prosperity. The rationalization of production through global supply chains and the application of new technology worldwide — not just where it was invented — made the 60 years following the Second World War the most prosperous era in human history.
But today globalization faces strong political headwinds. The very term triggers protest from the political left — it has come to be blamed for the prosperity of the top 1 percent, stagnant wages for everyone else and the excesses of Wall Street.
While globalization gets blamed for post-Great Recession maladies, it is actually not flourishing. For seven years and counting, world trade growth has failed to outpace — and thus drive — world GDP growth, while annual world foreign direct investment flows have fallen well below their 2007 peak of $2.2 trillion. “Micro-protectionism” has become the political flavor of the moment, exemplified by “Buy America” and “Buy Brazil” practices, restrictions on digital flows in response to privacy and espionage concerns, and barriers to mergers and acquisitions by foreign firms.
On the other side of the ledger, promising flowers now bloom in the realm of trade and investment policy. Here are some potentially significant trade deals to look out for this year:
Pacific Rim Pivot
Foremost is the Trans-Pacific Partnership (TPP), a group of 12 countries anchored by the United States, Japan and Australia. TPP members are close to inking a pact that will dramatically slash barriers to trade and investment. But can President Barack Obama secure Congressional ratification in 2015, over the strident opposition of his political allies in the Democratic Party? This will be a decisive test. TPP failure in the U.S. Congress could well mark the end of post Second World War policy liberalization, and indeed open the political gates for new waves of “micro-protectionism.”
On the other hand, if TPP succeeds, the path will be paved not only for eventual membership by Korea, Indonesia, Thailand, Colombia and Costa Rica, but also for close association by China. Critics such as Public Citizen have derided TPP as “NAFTA on steroids.” They could prove right — not in the derogatory sense intended, but rather as a much-needed boost to globalization.
Across the Atlantic
Following TPP is the Trans-Atlantic Trade and Investment Partnership (T-TIP). T-TIP negotiations between the European Union and the United States are progressing slowly, but if the Obama administration and the European Commission can give the talks a strong push in 2015, the outcome could be breathtaking.
Tariffs, already low, could be eliminated entirely. Government procurement, a protected bed of economic inefficiency, could be opened to fresh competition on both sides of the Atlantic. Standards and regulations might be harmonized to the extent that U.S. automobiles could be sold in Europe and vice versa, and expensive testing of new pharmaceuticals would no longer need to be duplicated on both sides of the Atlantic. Rules on consumer privacy, digital trade and government snooping might be agreed. All this and more would create a 21st century framework for expanding global trade and investment.
A Global Spark?
Not to be forgotten is the World Trade Organization. Thanks to approval of the Trade Facilitation Agreement — which will curtail corruption and reform antiquated practices in ports and airports around the world while delivering a $1 trillion boost to the global economy — the WTO is back in business as a serious negotiating forum. This could be followed by a new Information Technology Agreement, eliminating tariffs on everything from iPhones to servers to MRI equipment, as well as agreements on free trade in environmental goods, fair play by state-owned enterprises, and much else.
A triple play by TPP, T-TIP and the WTO would make 2015 a year to be remembered for restarting the engine of globalization. Political defeat of all three would make 2015 a year to be remembered as the sad turning point toward economic nationalism.
Top image: Freight depot in Ho Chi Minh City, Vietnam (Courtesy of xuanhuongho, iStock Editorial)
Gary Hufbauer is the Reginald Jones Senior Fellow at the Peterson Institute for International Economics.