(Bloomberg Businessweek) -- Globalization seemed to be on the ropes. Nationalist politicians had maligned it as the source of closed factories, stagnant wages, and unwanted migrants. Washington had pulled out of international pacts on climate change and trade. The British were abandoning Europe’s grand experiment in peaceful integration.
Recent weeks brought more body blows. The White House turned darkly protectionist, threatening the global trading system. China’s leadership—which sees itself as the patron of globalization—put it at risk by promoting the very industrial policies that fostered anti-trade sentiment in the U.S. and Europe. Italian voters flocked to political parties that rail against immigrants and the euro. Globalization, which helped to flatten the world’s economic playing field, seemed about to be flattened itself.
But the dramatic events of the past several weeks don’t show how weak the power pulling the world together has become, but rather how many punches it can absorb without collapsing. Enough of the world has benefited from globalization to know which side of the fight to be on. The message to the new nationalists is clear: Persist in your fight against globalization, and you may end up down for the count.
Just look at Donald Trump’s tariff fiasco. Critics pummeled him after his off-the-cuff announcement on March 1 of across-the-board tariffs on imported steel and aluminum. A crowd of economists and business leaders warned of job losses, damaged industrial competitiveness, and higher costs for businesses and consumers.
Government officials from China to Canada were outraged. The European Union vowed to impose punitive duties on Levi’s jeans and Kentucky bourbon. U.S. stock markets tanked. Trump’s chief economic adviser resigned, and his Republican colleagues, who have all too often acquiesced to his divisive antics, this time stood up to him. More than a hundred members of Congress signed a letter demanding he back down.
Undeterred, Trump doubled down. Peter Navarro, his trade czar, insisted that no country would be exempted from the coming tariffs. Speaking of a trading system rigged against U.S. interests, Navarro said, “We’re not going to take it anymore.”
Apparently, they are. The final tariff plan, signed on March 8, didn’t pack much punch. Trump excluded Canada and Mexico, two of the largest steel exporters to the U.S., and offered to leave out other close allies, too. The president’s supporters praised the move—right-wing website Breitbart heralded it as a “triumph for economic nationalism.” But that’s just spin. Globalization won the round.
The situation isn’t so different in Italy. In the March 4 national election, parties with anti-Europe sensibilities—the populist Five Star Movement and a coalition including the immigrant-hating League—won a majority of the votes. Fears rippled through the continent that Italy, like Britain, could withdraw from Europe.
But markets took the election results in stride—for good reason. The anti-Europe parties, facing the reality of actually having to govern, tried to appear not so anti-Europe. Matteo Salvini, the usually rabid chief of the League, said that even though the euro “was, is, and remains a mistake,” he had no intention of yanking Italy off the currency. Holding a Brexit-like referendum over Italy’s participation in the monetary union was, he said, “unthinkable.” Five Star leader Luigi Di Maio has also backed off his party’s calls for a referendum, stating in February that “we want to remain part of the EU and the euro zone.”
Perhaps Salvini and Di Maio are aware that, despite the success of their parties, most Italians still prefer to be engaged in Europe. Even the much criticized euro isn’t all that unpopular. In a late 2017 poll, 59 percent of Italians supported the single currency. Or perhaps they realized the damage that would be inflicted on their country if they did withdraw. Investors would dump Italian stocks, bonds, and other assets en masse.
In China, the Communist Party is no less wary of a rollback in globalization. In his address to the annual National People’s Congress on March 5, Premier Li Keqiang pledged to hasten the government’s efforts to upgrade the country’s manufacturing prowess, even though officials in Washington consider the subsidy-rich program an assault on fair competition and a likely target of future import restrictions. But behind the swagger, China’s leaders are not oblivious to how a disruption of global trade would inflict serious hurt onto a Chinese economy riddled with excess capacity and dependent on exports for millions of jobs. Clearly worried, Beijing recently dispatched Liu He, one of its most influential economic mandarins, to Washington to try to restart trade negotiations with the Trump administration—though to no avail. Concerns about a trade war could be why Beijing has blustered about retaliating for the U.S. metals tariffs, but so far has pulled its punches.
America’s new economic nationalists may whine that free traders care too much about supposed economic efficiency and not nearly enough about a deteriorating middle class or threats to national security. Resistance to protecting vital industries and the workers employed within them, they say, damages national interests in a global economy where others don’t play fair. Of course, globalization has its downsides. Foreign competition in an environment of open markets has forced factories to close, pressured many industries, and undercut the welfare of some American households. And it’s true that not all U.S. trading partners play the trade game fairly. But one fact is almost impossible to refute: Reversing globalization helps the few and harms the many.
The voices opposed to the metals tariffs represented the many. The tariffs may be a boon to a handful of steelmakers and their employees, but the cost would be hoisted onto everyone else, in higher prices, lower sales, and fewer jobs. That’s why so many Americans remain unconvinced by the anti-trade rantings of Trump and his allies. A Pew Research Center poll released in November reported that 56 percent of Americans believe the North American Free Trade Agreement is good for the U.S., vs. only 33 percent who say it’s bad. Navarro and his nationalist buddies might be willing to pay more for their cars or washing machines and to protect steelworkers at the expense of others. Most of their fellow Americans are not.
That’s the lesson Trump, Salvini, and other anti-globalists should take away from recent events. Complaining about globalization is easy; fighting its transformative power is not. Championing a closed steel mill or attacking poor immigrants makes for good TV; closing doors to the world hurts those watching at home. Most people are wise enough to realize they gain too many benefits from being connected to the global economy—lower prices, better job opportunities, and fatter profits—to run the risk of sacrificing them.
Trump’s tariffs are almost certainly not the final round of his boxing match with globalization. On March 12 he blocked a bid by Singapore-based Broadcom Ltd. to acquire U.S. chip giant Qualcomm Inc., citing national security. The case presents a classic contest between the advantages of open markets and the realities of maintaining a technological edge in a competitive world. His administration is also expected to slap duties on a wide range of Chinese products to counter the country’s alleged intellectual-property violations. The Chinese would almost certainly retaliate. Next time Trump gets into the ring, he should be prepared for another bloody nose.
To contact the author of this story: Michael Schuman in at contactschuman@gmail.com.
To contact the editor responsible for this story: Eric Gelman at egelman3@bloomberg.net.
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