But a funny thing happened on the way to the free trade free-for-all: A lot of people were becoming less rich and more angry, to the point that globalization seems set to go into reverse.
Let's hand the epic bad-timing award to the Canadians and the Americans who spent years trying to propel globalization to a new level. The outcome of their labour is CETA and TTIP, the acronyms for their separate transatlantic free-trade deals with the European Union, each of which is the logical extension of the hoary old North American Free Trade Agreement.
The trouble is that the new deals are coming just when globalization is getting a bad name. Twenty or 30 years ago, globalization was still infused with romantic possibilities. The global playing field (or large parts of it) would be levelled through the reduction or elimination of tariff and non-tariff barriers. Markets would become more competitive, prices would come down, regulations would be harmonized, and job creation and innovation would take off. Mercantilism and protectionism would go quietly into the night.
But a funny thing happened on the way to the free trade free-for-all: A lot of people were becoming less rich and more angry, to the point that globalization seems set to go into reverse.
Maybe it should. The shocks unleashed by globalization have yet to be absorbed. The senseless deregulation of financial services and the globalization that went with it set the stage for the 2008 financial crisis, whose damage remains. Real average wages for low and middle-income earners have stagnated for decades in North America and Europe. Jobs continue to shift to countries, notably China, where costs are lower and industries are moving up the value chain. Disinflation is turning into outright deflation – falling prices – in some regions.
Still, the Canadians and the Americans apparently want to make one more push for globalization with CETA, the Comprehensive Economic and Trade Agreement between Canada and the EU, and TTIP, the Transatlantic Trade and Investment Partnership between the United States and the EU. Support for both is languishing, though TTIP, the far larger deal, is taking the most blows. Anti-free-trade protests have gripped Europe.
The downturn in support is striking in Germany, once the European champion of free trade. An April YouGov poll revealed that just 17 per cent of Germans support TTIP, down from 55 per cent two years ago. TTIP cheerleader Barack Obama wants to see the deal signed this year, before his possible successor, Donald Trump, tries to shred all of America's international trade pacts, including NAFTA ("a disaster," in his words).
The genesis of postwar globalization is hard to pin down, but there is little doubt its greatest champions were Ronald Reagan and Maggie Thatcher. The bigger driving force was China's entry, like a turbocharged bulldozer, in the global trading and financial system. On Dec. 11, 2001, China joined the World Trade Organization. At that point, half a billion skilled and semi-skilled workers, with minuscule wages compared to those in the West, entered the global market.
The result was a massive transfer of manufacturing to China from the West and other parts of Asia. With it came the deflationary forces that contributed to wage stagnation in the rich world. The gutting of Western European and North American manufacturing was accompanied by a credit bubble, created by the export of China's massive financial surpluses to the West. In the United States, China bought endless fortunes of treasuries and other credit instruments, which drove down interest rates and drove up property values. Those inflated values were then used to finance home equity loans.
Western governments did virtually nothing constructive to manage the worst effects of globalization on their populations, such as the loss of millions of jobs.
No wonder more and more Europeans and North Americans are not buying the free-trade hype any more. The marginal trade gains could be more than offset by greater pressure on working-class jobs or laxer regulations on, say, food quality. Europeans also fear that both TTIP and CETA are essentially undemocratic. They were negotiated almost entirely behind closed doors, and both have dispute resolution mechanisms that would allow companies to sue governments for damages if profits are hit because of changes in government policy or regulations. In effect, the provisions would rob their governments of their sovereignty.
CETA is probably not doomed. The negotiations are over and the deal is under the radar compared to TTIP. The main debate is whether CETA will require the approval of both the European Parliament and the legislatures of individual countries before it is implemented.
TTIP may not make it, or may make it only in a highly diluted form. If the pact turns into a dud, the governments that championed it can only blame themselves for not taking care of free trade's losers. The free-trade backlash that the U.S. presidential candidates and the surging anti-establishment European parties are tapping into is no fluke, nor is it exaggerated.
Eric Reguly