The politics of globaloney
Pankaj Ghemawat and Steven A. Altman say the world is far less globalized than protectionists think
Donald Trump’s election was propelled by the wave of anti-globalization anger that is sweeping the United States and other Western advanced economies. Trump has echoed that anger in his rhetoric. In his inaugural address, he lamented that America has “made other countries rich, while the wealth, strength and confidence of our country has dissipated.” And now he is responding to that anger with policy. In his first days in office, he signed an order to withdraw from the Trans-Pacific Partnership, pledged to renegotiate NAFTA and prepared a moratorium on new multilateral agreements. He directed construction of a wall along the southern border and threatened a 20 percent import tax on goods from Mexico. And he blocked refugees, immigrants and travelers from seven Muslimmajority countries.
All of this reflects genuine skepticism of the benefits of globalization, opposition to trade deals and anxiety about immigration among large portions of the U.S. population, protests notwithstanding.
But as the Trump administration moves to reduce and restructure U.S. international engagement, America urgently needs a reality check. The United States is far less buffeted by international trade, immigration and other aspects of globalization than many Americans assume; the whole world is far less globalized than people tend to believe. And policies rooted in overestimating globalization — “globaloney” — could harm the people they purport to protect.
If you had to guess, how much do you think the United States imports relative to what’s made in the U.S.A.? Or what percentage of the U.S. population do you think is made up of first-generation immigrants? If you guessed without looking at the graphics above, you probably just guessed too high.
Given the political rhetoric of late, it may seem like the United States is one of the world’s most globalized countries. It’s not. Based on how much goods, services, capital, people and information flow across the nation’s borders compared with how much stays inside the
country, the United States ranks 100th out of 140 countries, according to the 2016 “DHL Global Connectedness Index,” which we released last November. (Deutsche Post DHL sponsored the study but exerted no influence over the results.)
On trade and immigration — two of the big issues in U.S. politics right now — the contrast between rhetoric and reality is especially striking.
The United States imported goods and services worth 15 percent of its gross domestic product in 2015. That makes America less reliant on imports than almost every other country. Just five nations imported less relative to the size of their economies: Sudan, Argentina, Nigeria, Brazil and Iran. And despite the American cliche that everything is made in China, less than 3 percent of money spent in the United States goes to Chinese imports — and a good portion of the price of Chinese products sold here actually goes to U.S. companies transporting, selling and marketing those goods.
Turning to immigration, first-generation immigrants make up about 14 percent of the U.S. population. The United States ranks 27th in the world on this metric — above average, but nowhere near the top. And yet Americans tend to think there are far more immigrants in the United States. On average, Americans estimated that 33 percent of the country’s population was born abroad in a 2015 survey conducted by Ipsos Mori. U.S. respondents were even further off the mark in a 2013 German Marshall Fund study, guessing on average 42 percent — three times the correct answer. Interestingly, simply telling respondents the actual level of immigration into the United States cuts the proportion who think there are too many immigrants in half. As for the standard refrain that immigrants are to blame for the loss of American jobs, mainstream economists agree that technology has cost far more jobs than has immigration or international competition.
If you ask Americans how globalized the world is as a whole, you get more globaloney. When we surveyed 1,720 U.S. adults in 2012, we found that they thought, on average, that the world is about five times more globalized than it really is. Respondents guessed that eight times more people live outside the countries where they were born than actually do, and they overestimated the proportion of trade across national borders by about 50 percent. They also had exaggerated perceptions of the international proportion of telephone calls (actually 5 percent), fixed investment (10 percent), and even connections on Facebook (14 percent) and Twitter (25 percent).
Why do people get it so wrong? People tend to believe whatever they desire or fear the most. And their misperceptions about globalization are fed both by political rhetoric and by popular accounts — by critics of globalization, like Trump, and by those who embrace it. In his best-selling book “The World Is Flat,” updated twice since its initial 2005 publication, Thomas Friedman declares that we have witnessed the creation of “a global, Web-enabled platform for multiple forms of collaboration . . . . This platform now operates without regard to geography, distance, time, and, in the near future, even language.” But in fact, international flows are still strongly constrained by distance, as well as cultural, political and economic differences between countries. That’s why, along with China (with its huge manufacturing base and consumer population), Canada and Mexico are the United States’ top trading partners, each accounting for about 15 percent of U.S. merchandise trade. And when American companies establish a single foreign operation, that outpost is in Canada, Mexico or Britain (because language and history matter) more than 60 percent of the time.
Another reason people overestimate globalization: They believe in the power of technology to shrink the world. Yet people have been saying that the technology of the day was making distance irrelevant as far back as the 1850s. The telegraph didn’t do it — nor did the radio, the automobile or the airplane. And the Internet won’t either, because online interactions mirror offline relationships. While Facebook makes it technically possible to “friend” someone on the other side of the world as easily as your next-door neighbor, people don’t really choose their friends at random.
So what’s at stake? Globaloney would be funny if its consequences weren’t so dangerous.
Exaggerated perceptions of globalization make actual problems harder to solve. Income inequality in the United States, for example, has risen to a level last seen in the 1920s. It is politically expedient to place the blame abroad, but the limited role of imports in the U.S. economy fits with research suggesting that domestic factors such as technological change and the decline of unions are bigger contributors. The real solutions for inequality involve domestic policy: taxes, education, labor regulation and so on. If we respond instead by cutting international flows, we distract ourselves from the hard compromises that are really required. On top of that, deglobalization would depress growth, cutting our capacity to fund more effective policy responses.
The same pattern repeats itself across many policy areas. Concerned about big corporations consolidating and harming consumers? Globaloney would lead you to focus on global market concentration, but it’s usually national or local concentration that matters. Push out foreign competitors, and problems of domestic market concentration would get worse. Worried about food security? Only 6 percent of milk, 9 percent of rice, 12 percent of corn and 22 percent of wheat are traded internationally on a global basis, but trade is a savior when local harvests fall short.
Globaloney can also distort our view of our allies. If the world really were flat, Mexico might be no more strategic to the United States than Spain or Indonesia, two countries with similar-size economies. It is because distance matters that it is so worrying that U.S.-Mexico relations have reached what former president Vicente Fox calls “the very lowest point since the war between Mexico and the United States” that ended in 1848.
Finally, it’s worth remembering what happened last time globalization went into reverse. After the United States passed the Smoot-Hawley Tariff Act of 1930, reprisals followed and global trade plunged by twothirds. The collapse of the first wave of globalization was a major contributor to the Great Depression. And there are eerie similarities between that historical period and the present one: rising inequality, a growing power (China now, Germany then) challenging the established order, and an increase in overt expressions of racism and xenophobia, among others.
Though there is less globalization today than many presume, it would still be an error to assume that we can turn back the dial on international integration without suffering too much. History suggests that deglobalization can have disastrous consequences. And since international trade and investment intensities are three to four times higher now than they were before the last great reversal, the damage of deglobalization today could be even worse than last time around.
Workers pack avocados in Uruapan, Mexico. Distance still limits global trade, which is why Mexico and Canada are two of America’s top trading partners.