Get ready for post-globalisation era
Trade, climate change and the role of multilateral development banks are critical areas
HE ELECTION of Donald Trump as US President, coming after the Brexit vote, is widely seen as a thumbs down for globalisation. Herewith some comments on implications for trade policy, climate change and the role of multilateral development banks.
Trade policy MONTEK SINGH AHLUWALIA
The most immediate worry relates to global trade. A slowdown is already under way and pessimists worry that if the threat to raise tariffs, which was mentioned in the campaign, is implemented, it may trigger a Smoot-Hawley-type process, precipitating a severe downturn as happened in the inter-war years of the last century. Things may not turn out as bad, but a fresh protectionist turn in the US will have a negative effect on the global economy which will affect us as well.
Industrialised countries have turned against globalisation because of the perception that it has hollowed out manufacturing and shifted jobs to developing countries. The perception is exaggerated: some jobs may have been offshored, but other jobs have been created, and more could be created if industrialised countries were to undertake the reforms to restart growth and re-skill their labour. From our perspective, the key issue is whether we should remain open or respond by turning inward.
There are good reasons for us not to turn inward. The US, Europe and Japan are likely to have a continuing comparative advantage in the development of new technology, but to sell the products embodying these technologies in world markets, each industrialised country has to be as competitive as possible and it helps them to exploit the lower manufacturing costs in developing countries. There is much talk of robotification and 3D printing reducing labour costs in industrialised countries and thereby shrinking global value chains (gvcs). The technology has indeed advanced impressively, but it is not clear that it would be sufficiently costeffective to offset the lower costs of skilled labour in developing countries.
If gvcs are here to stay, even if they expand less aggressively, it follows that we need to position ourselves to derive full benefit from them. Sceptics will be quick to point out that we have not benefited as much as other developing countries from the growth of gvcs in the previous decade, but this is largely because we have not implemented policies that would make us competitive. The policy lesson for us is to focus on overcoming these disadvantages rather than turning our back to continued openness. This is strengthened by the fact that Asia is the part of the world most likely to experience rapid growth, and this region is likely to remain open and pursue trade integration. We should plan to be part of the Asian growth story and encourage deeper trade integration with the other fast-growing Asian countries, including China. Early conclusion of the Regional Comprehensive Economic Partnership (rcep) agreement would send the right signal at this time. Unfortunately, the Indian industry has been lukewarm about our regional integration efforts, and some parts of it have even opposed the steps taken. Industry needs to reconsider its position in terms of what is in its longer term interest. They should work harder to persuade the government to remove impediments to our competitiveness, rather than argue for higher tariffs on the assumption that these impediments are here to stay.
We also need to rethink our strategy in the wto. Trade negotiators have to fight hard to protect national interests, but successful negotiations are also a matter of give and take. Unless industrialised countries can present the outcomes to their domestic constituencies as providing a gain from their perspective, they will marginalise the wto and push for plurilateral negotiations outside it. This is what led to the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership, but as these agreements appear to be stalled, there is a window for showing progress in the wto. We should review our position on ongoing wto matters, such as trade facilitation, government procurement, the Information Technology Agreement II and the Trade in Services Agreement. We often act in the wto on the
A fresh protectionist turn in the US will have a negative effect on the global economy which will affect us as well. But there are good reasons for us not to turn inwards