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New threats to globalisation

By Saul Eslake - posted Thursday, 19 April 2007


Yet during this period, beginning with Bismarck’s tariffs of 1879, “there was a powerful and comprehensive globalisation backlash on the European Continent prior to World War I, and it was even more dramatic in the New World”. American tariffs escalated sharply after having been initially increased as a revenue-raising measure during the Civil War.

Here in Australia, the [then] pre-eminent colony of Victoria introduced tariffs in 1865 at a maximum rate of 10 per cent; but by 1893 the maximum rate had risen to 45 per cent. Immigration policy in the United States, Canada, South American and Australia also began to become more restrictive during this period.

Although there were perhaps fewer epoch-defining technological innovations during the 1920s and 1930s than in the last decades of the 19th century, this was nonetheless a period when technologies invented some decades earlier - such as electricity, radio and the automobile - became much more widely diffused than they had been hitherto, at least in the more advanced economies.

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Yet this was, as is widely understood, a period in which governments around the world consciously sought to “roll back” the globalisation of the pre-1914 era, which they emphatically succeeded in doing.

Notwithstanding their devastating economic and social consequences (including not just the Great Depression but the rise of Hitler in Germany and the militarists in Japan) - policies aimed at restricting trade, capital flows and migration enjoyed widespread popular support.

Globalisation is under threat today, not from violent demonstrators motivated more than anything else by a hostility to capitalism and to liberal ideas, but from a growing belief on the part of some governments that there are no votes in it.

The threat to globalisation is evident in the inability or unwillingness of a growing number of governments to complete the Doha Round of trade negotiations, notwithstanding the overwhelming evidence of the benefits to be gained by doing so.

And it is evident in the mounting protectionist sentiment in the United States, most recently exemplified by the Commerce Department’s March 30 preliminary ruling foreshadowing the imposition of “countervailing duties” on imports of coated paper from China.

Given the overwhelming evidence of the damage done by protectionism, why is it so popular?

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Part of the reason, I believe, is because of the way in which politicians and trade officials typically seek to “sell” trade liberalisation to their electorates. Almost without exception, trade negotiations are presented as a matter of making “concessions” to other countries - by lowering barriers to imports from them, or by allowing inflows of investment from them - in order to gain “concessions” in the form of enhanced access to their markets. Yet, in truth, the greatest benefits of trade liberalisation come from the enhanced access it gives a nation’s consumers to a broader range of cheaper and often higher-quality imports.

This “exports good, imports bad” view panders to the widespread belief that tariffs are something a country make foreigners pay in order to get their goods into its market; as opposed to the truth which is that tariffs are something a country forces its own consumers to pay in order to keep foreign-produced goods out of the country.

Little wonder, then, that reducing tariffs is rarely popular; or that imposing or increasing tariffs, especially when described in such superficially heart-warming terms as “protecting jobs”, enjoys such widespread support.

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This is an edited version of an address given to 20th Asian Trade Promotion Forum on April 12, 2007. The full transcript is available here (PDF 72KB).



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About the Author

Saul Eslake is a Vice-Chancellor’s Fellow at the University of Tasmania.

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