Globalization Backlash at Odds with Elites Plans for the World
The policy-making elites gathered in Washington for meetings charged with determination that globalization is what is best for the people of this world, and that is at odds with the inequities it creates.
From Britain’s vote to leave the EU to Donald Trump’s championing of “America First,” pressures are mounting to roll back the economic integration that has been a hallmark of gatherings of the IMF and World Bank for more than 70 years.
The calls for less integration and more trade barriers pose risks for elevated financial markets that remain susceptible to sudden swings in investor sentiment, as underscored by recent jitters over Frankfurt-based Deutsche Bank AG’s (NYSE:DB) financial health.
The backlash against globalization is manifesting itself in increased nationalistic sentiment, against the outside world and in favor of increasing isolation, The People are signaling that they are against The New World Order.
In its latest World Economic Outlook released last Tuesday, the IMF highlighted the threats from the anti-trade movement to an already subdued global expansion.
After growth of 3.2% in Y 2015, the world economy’s expansion will slow to 3.1% this year before rebounding to 3.4% in Y 2017, according to the report, keeping those estimates unchanged from the July projections. The forecasts for US growth (once the world’s economic engine) were cut to an anemia 1.6% this year and 2.2% in Y 2017.
Ms. Lagarde said last week that policy makers attending the 7-9 October annual meeting of the IMF and World Bank (WB) have 2 tasks.
- Do no harm, which above all means resisting the temptation to throw up protectionist barriers to trade, and,
- Take action to boost lackluster global growth and make it more inclusive.
Achieving even those Key objectives to prove very elusive.
Rattled by the UK’s June vote to leave the EU, European leaders know it may just be the start of a political earthquake that’s threatening the continent’s old certainties. Next year sees elections in Germany and France, the Euroarea’s 2 largest economies, and in the Netherlands. In all 3 countries anti-establishment forces are gaining ground.
With growing resentment of the EU policy makers have described the current surge in populism as the greatest threat to the bloc since its creation out of the ashes of World War II.
There are also growing signs that the EU and Britain are heading for a “hard exit” that would sharply reduce the bloc’s trade and financial ties with the island nation.
UK Prime Minister Theresa May said on 2 October that she will begin her country’s withdrawal from the EU in Q-1 of Y 2017.
China has been the biggest beneficiary of free trade over the past generation, and it is now seeking a larger role in the existing global framework, with entry of the RMB Yuan into the IMF’s basket of reserve currencies on 1 October the most recent example.
An all-out trade war would be a disaster for China’s economy, with Donald Trump’s threatened tariff potentially wiping off almost 5% of its GDP (gross domestic product), according to a reliable calculation
The growing opposition to economic integration has been fueled by a anemic recovery from the US driven Great Recession of Y 2008.
Recessions in Brazil and Russia are set to come to an end, while in the US cutbacks in inventories and in Oil & Gas drilling will slow.
In the US, both Donald Trump and Hillary Clinton pledge to boost infrastructure spending on roads, bridges and the like.
In Europe, rising populism provides a powerful incentive for governments to abandon austerity ahead of the elections next year and perhaps beyond.
Whether such a shift will be enough to mollify those who have been on the losing side of globalization for decades is debatable, however.
“The consensus in policy-making circles was that more trade meant better economic growth,” said Standard Chartered head of Greater China economic research Ding Shuang, who worked at the IMF from Y’s 1997 to 2010. “But the benefits weren’t shared equitably, so now we see a round of anti-globalization, anti-free trade.
“Globalization will stall for the moment, until we can find a way to share those benefits,” he added.
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