The return and rise of the populist politician, in countries from Germany to the UK to the US, has baffled legislators in the emerging world, according to a series of interviews with GlobalMarkets during the annual IMF meetings this week.
Carlos Dominguez, finance minister of the Philippines, complained that trade was “a primary tool in our drive to reduce poverty and economic openness. Trade and openness lead directly to growth and development.”
He said Filipino companies never encounter talk about the need to impose restrictions on the flow of goods or labour or capital until they leave the Asian arena and fly to Europe or North America.
“We are a member of the Association of Southeast [Asian] Nations and we don’t hear about trading restrictions there,” he said. “They all want to be part of the world. Japan isn’t anti-trade. China isn’t anti-trade. It’s all coming from the West. And it’s ironic that the loudest voices touting protectionism come from the markets that once vigorously promoted free trade.”
Protectionism has arrived in many forms, from right wing politicians in eastern and central Europe, to the inflammatory anti-trade rhetoric of US presidential hopeful Donald Trump, to the UK’s decision in June to leave the European Union.
RAMPANT INEQUALITY
Yet experts were divided on its cause. Ksenia Yudaeva, first deputy governor of the Bank of Russia, said the West’s pushback against unfettered trade stemmed directly from rising income inequality, which has, she said, “risen dramatically over the past 30-40 years. This is a hot topic for populists, who simply blame a crooked system in which the deck is stacked against ordinary people.”
But the blame also lies at the feet of politicians who struggle to explain what’s going on. “No one in the West is really explaining the benefits of free trade,” she added. “It’s very badly communicated. Protectionism is already here. It has already risen. I hope it will not rise further.”
To Paul Sheard, global chief economist at Standard & Poor’s, much of the underlying stress that fuels anti-government and anti-trade sentiment is stoked by the rise of technology, which crushes prices but also eliminates millions of blue — and increasingly white — collar jobs. Into the mix step hucksters such as Trump, keen to elevate themselves by instilling fear in others.
Trump has in recent months accused the US-led North American Free Trade Agreement of “destroying” the US and pledged not to sign the Trans-Pacific Partnership (TPP) if elected president. Sheard said it remained “unclear” how Trump would wield power.
“Some of his rhetoric around trade is a concern,” he said. “We simply don’t know what trade policies he would put in place. But battening down the hatches against free trade would be terrible for the global economy.”
He added: “Policymakers need to pay more attention to what’s going on. They need to create mechanisms that ensure that all of the gains from free trade aren’t lost.”
Some hope the West’s newfound distrust for free trade is a passing phase, but others believe the problem is chronic. Sudhir Shetty, East Asia & Pacific chief economist at the World Bank, said that trade and openness led to investment — which led to a lifting of all boats.
“My concern is that we are seeing a wave of discontent about globalisation,” he said. “It’s sweeping across the world, touching mainly developed and some developing markets. I see once pro-free trade politicians becoming protectionist hawks. Look at someone like [Ohio senator] Rob Portman, a former free-trader who has just come out against TPP. It’s very, very worrying.”