Changing tunes of Globalization

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There isn’t any judgement here. Nor any opinion. It’s just plain observation of how things have changed and are changing – an observation of changing tunes of Globalization. Growing up in the 80s, as any other young adult the world-news that was available in the traditional news outlets then, left much to be desired for. India was closed economically, culturally (no MTVs, Channel Vs yet) and news wise too. The World this Week by Prannoy Roy and bits & pieces on DD news was all there was. International trade was not high on a teenager’s agenda when it came to news segment. Nevertheless, I was too curious to not to gobble up any piece of news those days. “Super 301” was one such rhetoric that was heard many times. That was a weapon, a threat wielded in the face of an “economically closed” countries like India by US. Protection to domestic players was high on priority for most under-developed/developing countries and India was no exception. A discussion on merits and demerits of it can be saved for another day. Refusal and restrictions on US multinationals to operate and sell their goods in India was not liked by any US presidency whether it was Democrat or Republican. I believe it is the same even now.

Open markets was the mantra every western government preached and pushed. Globalization was western societies’ pet child.  Pure capitalism at the global level was the justification given for such a stance. And such capitalism was expected to benefit one and all. It also meant their markets were open to rest of the world – but mind you with plenty of fine print. First one would be quality, then child labour, then human rights and then environmental protection clauses and the likes of such would effectively make many products produced in developing countries ineligible for US imports.

Globalization – Production Efficiency Theory

According to Production efficiency theory, which is the premise for free trade, each nation should produce which reflect the most efficient use of its resources. For example, country A can produce bicycles and grow mangoes, and so can country B. Question is should both countries produce/grow both products? As per this theory – answer is NO. Let us say Country A is bestowed with fertile land but limited manufacturing skill sets and set up. And country B has excellent manufacturing skill sets but not so fertile agricultural land and very little water resources. So, A should use all its resources to grow mangoes and B should focus on manufacturing bicycles. A can export mangoes to B and import bicycles from B. In essence, each country should stick to its core strength and produce that reflect the most efficient uses of resources. Country B trying to grow mangoes may not be the most efficient way to go about it and Country A will waste its resources if it tries to produce, inefficiently, bicycles.

Section 301

Section 301 under US Trade Act of 1974 gives the President the power to retaliate against a foreign government if he/she feels US business is facing unfair disadvantage and it is detrimental to their interests. He can do by increasing import duties (tariff based) from that country, block the goods from entering US. Trump used this very clause to impose restrictions on Chinese exports to US. ( Section 301 Tariffs: US-China Trade War Worsens).  

Since China embraced capitalism in 1979 its main agenda, in addition to replace US as sole superpower, has been to lift its billion plus people out of poverty. It became factory of the world and countries like India, Philippines became places to body shop for software services. US companies embraced every idea of outsourcing whether it was manufacturing or software development. Jobs left US as they got “Bangalored” every day. Both Democrats and Republicans stayed put for the past three decades – as US MNCs’ profitability seemed to have overshadowed loss of US domestic manufacturing capacity and jobs (around 6 million such jobs were lost in a decade between 2000 and 2010).

Why Trump won?

Much before 2015, when Trump was toying the idea of running for POTUS, he made it clear of his agenda. Less outward looking and more inward looking. Less of global leadership and more of fixing things internally. Probably he is the first US President to speak against globalization. He sounded like a head of state of an under-developed/developing country.

“Why Trump won?” is an interesting topic that every political analyst worth his salt has tried to answer with his own angle. Most democrats blame it to the rise of the racist white America. But analysts & media on the right credit the win to a whole set of other reasons.  Prager University is one such American conservative media outlet on the right. Their video “Why Trump won” has former PM of Canada Stephen Harper as anchor. The video among all, says Globalization has not worked for Americans. With jobs shipped overseas, incomes of ordinary Americans have declined decade after decade. The laws and regulations are “influenced” by Global Institutions. Nationhood is no longer at the helm of society.

This argument is echoed across all sections of rightwing media. Without getting into fact checking of such claims, if the argument itself is presented, as plain text – removing all references to country and author, would look like a claim made by the likes of George Fernandes or Swadeshi Jagaran Manch (George Fernandes was instrumental in kicking out Coke from India in mid-70s.)

Remember conservatives are vehement proponents of “Open market” and Laissez-faire policy. Market forces are free to decide the prices, quantity of production and everything else.  But same conservatives are singing a different tune now – they want tweaked version of Globalization. Country first is the cry & hence MAGA!

Globalization – A full circle journey!

So, does that mean “Globalization” has come full circle, with the most powerful country on the face of the earth voting yes for protectionism openly. Putting national interests above international trade pacts like NAFTA and WTO. Exiting Paris Accord. Or has it always been selectively used to propagate political influence in the guise of business? Will this end if Trump loses 2020 elections?

What do you think?

Deepak Kanchi is a Chartered Accountant. He also attended GMP at University of Chicago Booth School Business. He has worked in India and Middle East in various Finance roles. Currently he is based out of Bengaluru. He has wide range of interests from science to management to history.

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