Commentary: Global elites are overlooking 'deglobalisation'
Nationalistic policies are sweeping the globe yet many elites still cling onto the hope that trade will regain its shine, says an observer at the Financial Times.
LONDON: All of us, no matter how wise, have our cognitive biases.
Indeed, there’s research to show that elites are less likely to part with their biases than the ordinary person. This is probably because they believe themselves to be better educated and informed than the masses, which may well be true.
Yet many members of the elite were caught utterly unaware by Brexit and by the rise of Donald Trump. These events simply did not fit the mental model of the world so many of us have worked with for the past several decades.
A NATIONALIST ECONOMIC AGENDA
So, what is the next big thing the global elite is missing? Quite possibly deglobalisation.
Just as so many top corporate executives missed the rise of populism, so the global business establishment is in danger of missing the fact that a far-right/far-left consensus is building in the US around a nationalist economic agenda.
This is in some ways reminiscent of the shared concerns of the populist Five Star and League coalition that recently came to power in Italy.
In the US, many supporters of socialist Bernie Sanders agree with Trump administration trade hawks like Peter Navarro and Robert Lighthizer who believe that America should disentangle itself from China and pursue a domestic industrial policy.
The belief systems, agendas and specific policy prescriptions of these two camps vary wildly. But the end goal is the same — they want American companies to keep more capital, jobs and intellectual property at home.
Many corporate leaders I speak to are baffled by this confluence of interests. They argue that the separation is not possible — supply chains are too complex, the Chinese domestic market is too important and other countries cannot yet offer a comparable package of workforce, logistics, infrastructure and vendor networks.
True enough, and yet, their objections may be beside the point. The pro-labour left is seeking to slowly but surely disrupt the corporatist centre of the Democratic party, which would prefer to go back, after Mr Trump, to the previous era of free trade.
YOUNG SOCIALISTS AND TRADE HAWKS
Time and numbers are on the side of the disrupters, who have come of age in a time of economic constraint, environmental degradation and political partisanship. They do not worry about classical economics, and do not recoil when critics say their ideas are “socialist”.
So far these younger voters have not shown up at the polls as regularly as their parents do. But “demographics is still destiny,” says Bruce Stokes, director of economic attitudes at the Pew Center. “It just takes longer than you think.”
Meanwhile, the trade hawks are cleverly using targeted tariffs to make it more difficult for companies to export from China.
“Lighthizer wants US corporations to move into other locations,” says Arthur Kroeber, managing director of Gavekal Dragonomics. His Beijing-based research group has clients who are considering doing just that, though no one has yet pulled the trigger.
“Vietnam is the obvious alternative but there are still too many potholes,” he says. Companies “don’t want to be the one to fill in the potholes. They want to wait for others to pioneer and then see if it makes sense to move.”
FORCES PUSHING AGAINST THE OLD ORDER
Like couples in a bad marriage, many chief executives keep hoping something will change without them having to do anything different. Meanwhile, forces are pushing against the old order.
The updated version of the North American Free Trade Agreement aims to limit the ability of Mexicans and Canadians to negotiate independently with China.
The Chinese, for their part, want to reduce the importance of the US dollar in trade and the commodities markets, launching the yuan-denominated oil futures market in March.
Europeans are trying to create a mechanism to bypass the dollar so that they can keep on buying oil from Iran. Bans on capital flows to and from the US and China are creating regional fragmentation, particularly in the technology sector.
Kai-Fu Lee, a Chinese venture capital investor who has made a number of American investments, recently said he does not expect he will be able to make any further investments in the US. Instead, he will be focusing on the Chinese market.
Chief executives may be in denial, but investors sense all this already, in the anxious way that people know things in dreams.
A LONG GAME
Last week’s market rout and the past few months of unprecedented divergence between US and emerging market equities reflect underlying worries about nationalistic politics.
After all, the divergence began around the same time the US pulled out of the Iran nuclear deal, populists were victorious in the Italian elections and US-China trade tensions ramped up.
Mr Trump could find a way to cut a symbolic deal with China that mitigates growing trade tensions between the two countries, if he decides an agreement would bolster his image.
Indeed, the sharp devaluation of the Chinese yuan during the past few months indicates that Beijing may be creating room for him to do just that.
But such a deal would only be a feint ahead of the November midterm elections. The underlying impulses are not going away: The young socialists and the old trade hawks are all playing a long game.
Business leaders are fooling only themselves if they fail to pay attention.
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