Is globalization the end of democracy

Free trade versus protectionism

Johannes Pennekamp

Johannes Pennekamp is an economist and works as the editor responsible for economic reporting at the Frankfurter Allgemeine Zeitung (F.A.Z.). He has been awarded the econsense journalist prize twice.

Less growth in global trade than before, nationally oriented politicians, an uncertain world situation: economically, politically and geostrategically, the process of globalization seems to have faltered. But maybe it's just a change in face, says business journalist Johannes Pennekamp.

Johannes Pennekamp (& copy F.A.Z.)
If there has been one certainty in the past two decades, it is this: The world is growing ever closer. The megatrend of globalization hit the world economy in a new wave shortly after the fall of the Iron Curtain. Thanks to the Internet, distances shrank, suddenly it didn't matter whether the business partner was in Passau or Beijing. World trade grew rapidly, the value chains became global, the division of labor more and more delicate. And the prosperity gains were enormous.

For a long time it seemed as if it were set in stone that it would go on and on. After all, technological change does not stop and not all regions are equally affected by the change. But in recent years this certainty has cracked. Economically, politically and geostrategically, there have been increasing signs that globalization is stalling - or at least taking on a different character. World trade is no longer growing as fast as it was before, the Doha Round of the World Trade Organization (WTO) is considered a failure - as are the negotiations on the Transatlantic Free Trade Agreement (TTIP) between Europe and the USA. Parties that rely on isolation and national tones are on the rise. And the large number of refugees who moved to Europe, especially in 2015, revealed another side of globalization that was previously barely visible to many people in the West.

The first visible indication of the counter-trend was the weaker dynamic in global trade in goods. As early as 2015, a study by the International Monetary Fund (IMF) and the World Bank came to the conclusion that the global exchange of goods had only grown by around three percent a year since the financial crisis of 2007 - before it broke out, it was an average of more than seven percent been. Shortly after the crisis, world trade even contracted for a short time. This development is not simply a result of a weaker overall growth of large economies and emerging countries, they have also structural reasons. For example, export companies in China and the United States are increasingly relying on inputs in their own country instead of importing them. So fewer parts are bought from abroad and fewer production facilities are relocated there.

Nationally oriented politics - not only in the USA

Recently, world trade grew a little stronger again, but the rhetoric of US President Donald Trump (“America first”) and his trade minister Wilbur Ross in particular fuel doubts as to whether globalization will advance. And not only in the USA is an increasingly nationally oriented policy being made, just think of Brexit or the governments in Poland and Hungary.

It fits into this picture that the WTO, which currently has 164 member states, has been trying in vain for a decade and a half to remove the trade barriers in the Doha Round. Hardly any expert believes in a breakthrough that would lead to tariffs being abolished across the board. The alternatives are now smaller, regional agreements: after the USA, for example, let the Trans-Pacific Partnership Agreement (TPP) of the Pacific countries break, the remaining states have now reached an agreement without America.

Growing political uncertainty is another braking factor for globalization. Crises, wars and terror keep companies and the population in suspense. The world order has become more confusing. There is no longer a single hegemone: the US is less involved in the world, while China claims to be a world power.

Refugees are also part of the global process

The approximately 65 million people who, according to the UN Refugee Agency, are on the run worldwide, reinforce the desire for isolation in many places. This is also a setback for globalization - because refugees and migrants are part of this global process. Not only are goods and services becoming more mobile, but also workers. Many people are fleeing war and political persecution. But many also leave their homeland in order to have more opportunities for work and a better future.

Modern means of communication and the growing knowledge of living standards in industrialized nations should strengthen this mobility. If you follow the argument, you don't see the end of globalization, but its changed face. These changes are far from over. The Hamburg economist Thomas Straubhaar, for example, assures that globalization will no longer be so much about traditional freight transport, but about data and services that revolve around the globe. Their quantity is growing rapidly - and they could change everyday life just as much as t-shirts and smartphones from cheap Asian factories.