West Wing The End of Globalization?

Great political change often begins with the smallest of doubts. Such a doubt is beginning to make itself heard in the US presidential campaign. Free trade, Hillary Clinton is saying, may not be so great after all. Could it signal the beginning of the end for globalization?

By Gabor Steingart in Washington

It was the Chinese philosopher Lao Tzu who said, "A journey of a thousand miles begins with a single step." The same can be said of political movements. In their embryonic state, they are often little more than doubts tugging at the corners of a political heart. The Cold War provides a ready example: Growing skepticism with the policy of confrontation eventually gave rise to détente.

Presidential candidate Hillary Clinton is not alone with her growing skepticism over free trade.

Presidential candidate Hillary Clinton is not alone with her growing skepticism over free trade.

China today also owes its very existence to doubts. Communist Party leader Deng Xiaoping had stopped believing in the power of Mao and Marx to build a viable state. Even the British settlers in the New World would still be British today if they had not had their doubts about the good intentions of the mother country. Doubts turned into anger, anger led to war, and in the end the country we know today as the United States was born.

A similar sense of doubt has now entered the US presidential campaign -- and it is one that could lead to change of historical proportions. Democratic presidential candidate Hillary Clinton has distanced herself from the idea of free trade, a philosophy which has shaped America's worldview since the end of World War II. The theory holds that trade between nations automatically increases the wealth of all participants, and that any form of trade is better than no trade at all. Every American president since Harry S. Truman has spent a good deal of his time in office eliminating customs restrictions and barriers to trade.

It is not an exaggeration to say that today's globalization is a product of free trade. There has always been a general, nonpartisan consensus when it comes to the fundamental questions of economic policy. Former President Bill Clinton continued in the tradition of his predecessors when he brought together the United States, Mexico and Canada under the North American Free Trade Agreement (NAFTA).

But candidate Hillary Clinton is now breaking with the legacy of her predecessors, including that of her husband. She no longer believes that trade with other nations is automatically beneficial to her own country. The old theory no longer holds true, she recently told the Financial Times. If she becomes president, she intends to withdraw from the ongoing World Trade talks that began in Doha, Qatar. In Clinton's view, a trade policy that would pick up where that of current President George W. Bush leaves off is "not an option."

The Threat of Outsourcing

Graphic: A double deficit

Graphic: A double deficit

According to opinion polls across the board, a majority of voters in both political camps have the same doubts as Clinton. America's enormous trade deficit -- and that in a country that once exported more goods than any other -- has left its mark on the American psyche. Contemporary America's biggest export now appears to be the well-paid jobs of its middle class. The trend that began with blue-collar workers and has expanded to software engineers will hit investment bankers and pharmaceutical researchers next, says Alan Blinder, a professor at Princeton University and a former deputy chairman of the US Federal Reserve Bank. According to Blinder, up to 40 million American jobs -- representing twice as many people as are currently working in the US industrial sector today -- could face the threat of outsourcing.

In 2001, when Blinder was still a believer, he wrote: "Like 99 percent of economists since the days of Adam Smith, I am a free trader down to my toes." To trace the change of heart of both Blinder and Hillary Clinton, it is worth taking a trip to one of the upper floors of a building at the Massachusetts Institute of Technology (MIT) in Cambridge. There is a long hallway there with the portraits of every conceivable economist of the last few centuries lining its walls, including Adam Smith, David Ricardo and Karl Marx. The hallway eventually leads to an office where a 92-year-old man wearing a bowtie is sitting at his desk eating sushi. Professor Paul A. Samuelson served as an advisor to several presidents, including Eisenhower and Kennedy, and in 1970 he was awarded the Nobel Prize in Economics. His textbook is required reading for every student of economics.

Samuelson reads export and import statistics with the same attention ordinary mortals might pay to the weather report. He monitors the satellite images of the economy and attempts to differentiate between its tornadoes and hurricanes. And he has long predicted that we are about to face an economic tsunami -- a pressure wave that has formed underwater, gaining strength by the day. If we wait until a giant wave hits our beaches, it'll be too late. The force of this economic tsunami will destroy many things, he says, including what is left of American industry. What it will leave behind, in the best case, is what Samuelson calls "an American office economy."

Does he think that globalization is a zero-sum game, in which one party wins, and the other loses? No, he replied after he had finished his sushi. The world's wealth will continue to increase. But, he quickly added, unfortunately this won't apply to all groups within a society.

But won't the profits of globalization's winners offset the losses of its losers? No, he responded, not any longer. According to Samuelson, the consequences of globalization for the United States have been negative for some time now. Compared with Asia's rising economies, the country is now in a "win-lose" situation. Asia, says Samuelson, is gaining economic strength while America is losing its assets.

Free trade critic Hillary Clinton now bases her arguments on Samuelson's. His doubts are now hers.

A Coalition of Doubters

The coalition of doubters has become a majority in America. Many now disparage free traders, once considered the clear-headed shapers of regulatory policy, for their stubbornness. Even deep within the ranks of the Republican Party, they are seen as ideologues defending a principle for the sake of the principle alone. "The next president must understand that there is no free trade without fair trade," says Republican presidential candidate Mike Huckabee.

Do doubts felt, and even voiced, by politicians automatically lead to correct policies? Unfortunately, they don't. Doubt can also signify destruction, for which former Russian President Mikhail Gorbachev is a prime example. The Soviet reformer no longer believed that a system based on the planned economy and controlled by intelligence services could produce wealth. But he was unable to offer an alternative. The Soviet realm collapsed, and industrial production fell. In the end, Russians were less well off than before the collapse of the Soviet Union.

Caution is also advised in the free trade debate. Protectionism -- or US economic isolation -- would be a fatal remedy. If she becomes president, perhaps Hillary Clinton should take a page from the book of Deng Xiaoping, China's great reformer. He was skeptical about everything, including his own worldview. Throughout his life, Deng favored a policy of small steps. "No one has taken this road before," he famously said. "It is necessary to proceed with caution."

Translated from the German by Christopher Sultan


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