David Wu | International Trade and Economy Fellow
President Donald Trump’s ‘America First’ economic policy agenda and the United Kingdom’s ‘Brexit’ from the European Union are developments that threaten the system of international economic openness that has supported economic growth in the post-Cold War period.
Is the recent shift towards economic populism in many developed countries part of a systematic breakdown of the process of globalisation or are they merely detours from the path of continued integration? What do these developments mean for countries like Australia?
In the post-Cold War period, there has been the unprecedented movement of goods and services, as well as people, across borders. These movements have been facilitated by membership in international organisations such as the World Trade Organization and the growth of migration and mobility schemes such as those among members of the European Union.
For Australia, from 1996 to 2018, Australia’s annual total goods and services trade with the rest of the world more than quadrupled from A$204.7 billion to A$853.3 billion. Over the same period, the number of overseas-born Australian residents has grown from 4.2 million to 7.3 million—an increase from 23.3 percent to 29.4 percent of the total resident Australian population.
The global movement of goods and services and people across borders have spurred economic growth in both developed and developing countries. It has enabled developed countries to use the best technology globally, fill labour shortages and attract talent from abroad.
It also allows countries such as Australia to access new markets and specialise in high value-added activities.
Analogously, developing countries have had the opportunity to pursue economic growth through low-skilled and labour-intensive export-led manufacturing, the import of needed technology from abroad and the education of citizens abroad.
But the global integration of countries has also produced local change in these countries—change which has in some instances been a source of substantial economic, social and political discontent.
Most prominently, manufacturers in developed countries such as Australia and the United States must now compete in global marketplaces where they may not maintain a competitive advantage. For instance, Australian car manufacturer Holden was unable to compete with Japanese and South Korean manufacturers such as Toyota and Hyundai. In 2017, despite receiving billions of dollars of subsidies from the Australian government, Holden ceased manufacturing cars in Australia and the brand is slated to be retired by 2021.
And in the United States, furniture, toy, clothing and other manufacturers in the country’s Midwest, Southeast and Northeast experienced increased competition from Chinese manufacturers.
Together with increases in manufacturing productivity driven by technological advances in developed economies, this has led to a shrinking of these and other segments of manufacturing labour markets in developed countries as no-longer competitive manufacturers downsize or shut their doors.
At the same time, the migration and mobility schemes that have enabled developed countries to remain globally competitive in areas such as high technology and to fill labour shortages in industries such as agriculture have changed the composition of labour markets and the societies these markets are embedded in.
This has given rise to a widening of the income gap between low-skilled and high-skilled workers and fast-paced cultural change, particularly in large cities such as Sydney, New York and London.
The failure to adequately manage these changes has produced social discontent in particular segments of society in developed countries. This has in no small part fuelled the resurgence of populist economic policies and actions, including Trump’s America First agenda and Brexit, as well as the US-China trade war.
A movement away from economic multilateralism towards bilateralism and unilateralism poses a substantial threat to the system of international economic openness that has supported economic growth in both developed and developing countries.
As long as developed countries do not implement domestic reforms that will enable a more sustainable and equitable management of the labour market pressures that arise from internationally-integrated markets, then the appeal of economic populism will continue and grow—particularly during periods of turbulence such as during and in the aftermath of the global financial crisis.
For developed countries, if the recent shift towards economic populism is to only be a detour from the path of globalisation, then what is necessary is domestic renewal at home. This should include programs for up-skilling and retraining workers in shrinking industries and social programs and benefits for those left behind when industries shrink, as well as the renewal of services, infrastructure and housing in line with population growth expectations.
Here, Australia has fared better than many of its peers on account of more equitable social security systems and robust demand for its goods and services abroad, particularly from China. Still, continued domestic rejuvenation will be necessary to enable the sustainable tapping into of sources of growth abroad.
David Wu is the International Trade and Economy Fellow for Young Australians in International Affairs.