New threats to globalisation

Two things stand out about the US Commerce Department’s recent ruling on coated paper imports from China: first, users of these products have no “standing” in the legal procedures by which producers are able to procure court rulings which ultimately lead to higher prices for them. The system is “stacked” in favour of producer interests.

The second is the sheer hypocrisy inherent in the laws under which such rulings are procured.

The basis for last month’s rulings by the US Court of International Trade and the Commerce Department is that the Chinese Government allegedly subsidises the export of coated paper products (something which China of course denies). The US Trade Representative’s Office has also listed steel, petrochemicals, high technology, forestry and paper products, textiles, plywood, machinery, copper and other non-ferrous metals as sectors which (in its opinion) receive subsidies from the Chinese Government through administrative measures such as tax reductions or exemptions, credit allocations, low-interest loans, debt forgiveness and the reduction of freight charges. Last month’s rulings will no doubt encourage US producers in these sectors to seek similar rulings.

Why is it illegitimate for countries to subsidise the export of manufactured goods - so that WTO rules allow other countries, under certain circumstances, to impose “countervailing duties” on imports of those goods from those countries - but it is quite legitimate for countries to subsidise the export of agricultural commodities, as the United States (in particular) and the European Union do?

The answer is, of course, because WTO rules do not preclude agricultural subsidies.

But given that, and given the persistent refusal of the United States and the European Union to agree to bring trade in agricultural products under the same set of rules as those pertaining to manufactured goods, is it any wonder that nations (particularly those in the developing world) whose comparative advantage lies primarily in agricultural commodities see those rules as being stacked against them?

The second reason why protectionism may be gaining in popularity may be the growing dissatisfaction, particularly in the United States, with the way in which the rewards of globalisation are being distributed. There are two aspects of this on which I want to focus.

The first is the growing share of national income accruing to businesses as distinct from households. In 2006, after-tax corporate profits represented 12.2 per cent of US GDP. By a wide margin that is the highest proportion since at least 1929.

Similar trends are apparent in many other countries.

In the sense that globalisation has resulted in a significant increase in the global supply of labour relative to that of capital - the IMF’s latest World Economic Outlook, published this week, suggests that the effective global labour supply has quadrupled over the last 25 years, with most of the increase taking place since 1990 - this result is exactly in accordance with the long-established predictions of economic theory.

To the extent that enhanced trade and productivity have boosted the size of the “total pie”, workers may still be better off in absolute terms even if their share of that pie has diminished - and the IMF suggests that this is indeed the case in all advanced economies.

But this may be of little comfort to householders - that is to say, voters - to whom their diminishing share of national income appears to be of greater importance. Nor has it been of any assistance in alleviating those grievances in the United States in particular, that taxes on corporations have been cut at a time when their share of national income has been rising sharply.