How do countries respond to the big wave of anti-globalization? Can the Chinese strategy of “Belt and Road” withstand trade protectionism and become a new drive for globalization?
Nicholas Kwan: Trade barriers cost the world USD 800b in profit gain
Speaking of anti-globalization, Hong Kong people may perhaps be most familiar with the large group of Korean farmers who came to protest against the WTO when the 2005 WTO Conference was held in Hong Kong – it was indeed a classic example of an anti-globalization demonstration. Nicholas Kwan, Director of Research of Hong Kong Trade Development Council, pointed out that using the financial tsunami in 2008 as the dividing line, anti-globalization activities that took place prior to that were only limited to certain regions and cities. The financial systems of many countries were hit hard after the tsunami and trade barriers took their turn to roll out. Anti-globalization made its formal appearance on the international stage.
Rise of protectionism causes huge losses
From the perspective of world trade, Kwan described globalization as an integration of cross-border capital. As the name suggests, anti-globalization is to hinder cross-border trade and to reduce the activeness of capital flow. “Almost ten years have passed since the financial tsunami. Yet, data from cross-border finance, capital flow and other aspects show that performance at the international level is not as good as before.” The WTO also commented that the growth of global trade is slower than that of production over the past few years, which is a trace left behind by anti-globalization.
Kwan pointed out that companies in Hong Kong, the Mainland and overseas countries all reflected that trade barriers have made it more difficult to conduct business. “Many countries suffered a heavy blow from the financial tsunami. All these years, G20 members have set up quite a list of import restriction measures. Studies of the impact on trade activities brought by these trade barriers indicate that about USD 800 billion is lost in total trade value between 2010 and 2015 in G20.”
Globalization is irreversible
Last year’s Brexit referendum was the fuse that set off the explosion of anti-globalization events, which became a topic of international political importance. Kwan anticipated the pace of anti-globalization would accelerate with an upcoming domino effect. “US president Donald Trump has a political tendency towards protectionism – any slight actions of his might affect the overall situation.” 2017 is a critically important year, as both Germany and France would be running their general elections. Whether the election outcome would strike a blow at the European Union is yet to be found out. Kwan said that the EU is a symbol of the unification of Europe; if it disintegrates, anti-globalization could only escalate.
Kwan commented that globalization is virtually irreversible. “Although Trump advocates protectionism, he is only saying that global trade has to be examined, instead of totally overturned. This suggests that it is impossible to shut all doors and close borders.”
Belt and Road: Chinese style globalization
According to Kwan, there are checks and balances between the “Belt and Road” initiative and anti-globalization. However, since the “Belt and Road” is still at its initial stage, with mostly small countries along it, challenges are expected amidst the wave of anti-globalization from advanced economies like Europe, the US and Japan, etc. He stressed that the key to success for the “Belt and Road” depends on whether China’s successful experience can be replicated and disseminated.
As Kwan observed, while the US, the world’s largest economy, seems to be heading towards protectionism, China, the second largest, supports globalization. The circumstances for Hong Kong remain optimistic with China as its hinterland. “Protectionism does affect Hong Kong as it relies heavily on trade. However, with the very strong Chinese factor backing us, the impact would be minimal.” He foresees that new trade barriers would continue to emerge in international trade in the next decade, but they probably would not trigger serious conflicts amongst countries.
Francis Lui: Protectionism cannot stop development in globalization
First, Britain voted for Brexit; then America voted for Trump; next, Italians voted to reject constitutional reform, and then Eurosceptic parties are on the rise in different countries. All these have made us believe that 2016 was a year that globalization took a giant step backwards.
There is little doubt that China is reaping benefits from globalization. Equipped with the productivity of the “world’s factory”, China is conducting business with the entire world and accumulating strengths for steady growth. At the same time, companies in developed countries are flocking to China to set up factories, earning big profits with the country’s low labour cost. Francis Lui, Professor at the Department of Economics of Hong Kong University of Science and Technology, reckoned that the situation is certainly good news for some, and not so for others. Consortiums and developing countries are certainly happy to see globalization flourish, but we must also note how some people are losing more than they gain under the wave of globalization.
Globalization benefiting two-thirds of the world’s population
The “elephant chart” created by economist Branko Milanović, which lists out the world’s income distribution between 1998 and 2008, reveals that income growth for different income groups are uneven under globalization. Based on his analysis of the chart, Lui pointed out that “the elephant’s tail” to the “elephant’s trunk” are in the following sequence low-income Africans, workers in developing countries, the working class of developed countries, global capitalists and the rich. The biggest income growth is found at “the elephant’s back” and “the elephant’s trunk” – apparently people in these income groups are the biggest gainer from globalization. Income growth for the “elephant’s tail” and “the elephant’s mouth”, however, is unimpressive, with some stagnated or even declined.
Lui pointed out that certain people in Africa are too poor; without the competence to participate in global trade, they could hardly benefit. The insignificant income growth in the other three groups, however, could not be used to conclude that globalization is going the wrong direction. “In fact, the majority of people are at the ‘elephant’s back’. Over the years, their income grew as much as 60% — 80%, with per capita income of Chinese people surged by 400%. From the perspective of the well-being of humankind, two-thirds of the world’s population are leading a better life as a result of globalization.”
Nevertheless, many people who are not enjoying the outcomes of globalization consider themselves being deprived of their own interests, which leads to growing dissent. Lui mentioned that the working class of advanced economies speaks louder about their opposition against globalization and they easily draw media attention. Yet, he is skeptical whether this opposing force is strong enough to withstand the progress of globalization.
Belt and Road gives new momentum to globalization
At the moment, globalization remains the mainstream, but a new momentum should be explored in a timely manner. Unavoidably, people look at China for a new drive. As Lui put it, the “Belt and Road” initiative advocated by China in recent years is regarded as a new driving force for globalization. “The ‘Belt and Road’ is undoubtedly an emerging starting point for globalization. However, the new concept does take time to mature. You can consider it a new force to promote globalization, but it certainly is not the major one for now.”
Lui stressed that the fundamental drive for globalization, after all, relies on the joined forces of countries around the world. Although voices of anti-globalization are heard in Europe and America, the gross interests for different countries from international trade are on the rise, and each and every country is sharing the fruit.
“Globalization creates a bigger ‘cake’, and every country gets a bigger slice – this is the shared interests of countries and the major drive for globalization in the future.” Lui reckoned that countries along the “Belt and Road” would definitely support globalization, and they would rather see its acceleration. To put it in a wider context, the vast majority of countries should be happy to see globalization making further progress.
Exit by US does not stop globalization
Trump, the new US president who has just taken office, might be the poster boy for anti-globalization. Lui commented, “Donald Trump’s speeches during election time turned many heads. It is expected that he must roll out certain trade barrier measures at the beginning of his term because he had to live up to what he promised to his supportive voters. That said, there is no need to be overanxious.”
The US has profound influence over the world. After Trump spoke about exiting the Trans-Pacific Partnership Agreement, many countries immediately felt at lost. However, Lui emphasized that although the political and economic power of Europe and America are important, the development of today’s world is not unilaterally led by them.
As protectionism rises in Europe and America, Lui said that it could only be a good strategy if other countries insist on free international trade. “The internal issues in Europe and America are what made locals dissatisfied with globalization. While we can hardly interfere with the wave of protectionism in Europe and America, we must not forget that when other countries set up trade barriers, the first thing to do, according to economic theories, is not to be reciprocal. Revenge could only result in hurting both sides. Under general circumstances, maintaining our own open trade would be the wise thing to do.”
