De-globalization: Trade Remains In Retreat

Northern Trust

  • After decades of increasing globalization in trade, capital flows and people, the tide has tilted towards de-globalization. Measures of trade openness have been on a steady decline over the past decade. Since 2017, the United States has been a leading exponent of protectionism, a posture likely to remain in place regardless of the election outcome.
  • In aggregate, globalization has generally been beneficial for countries and consumers, particularly for low-income economies. Exports are an avenue through which poor nations can develop their economies and reduce poverty. Free trade has also been a key driver of the prevailing low inflation and low interest rates seen in major markets.
  • But the benefits of globalization can be uneven, leaving some markets and communities behind. This has drawn the attention of politicians, including the U.S president. The current administration has enacted a range of tariffs covering a variety of goods (see table). Over the last four years, the U.S. has withdrawn from two critical trade negotiations: the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP). The White House also threatened to walk away from the North American Free Trade Agreement as leverage to strike a new deal. Merely a month after the enactment of the new United States-Mexico-Canada Agreement (USMCA), the administration revived tensions with Canada, a traditional ally, by reinstating 10% tariffs on Canadian aluminum imports.
  • Trade accounts for over one-fourth of America’s economy. Trade frictions have therefore caused more harm than good to the U.S. economy in the short-term. According to recent studies, the trade war has already cost the U.S. economy nearly 300,000 jobs, up to 0.7% of gross domestic product and over $45 billion in tariffs paid by American corporations. Over 3,500 companies have filed lawsuits against the U.S. government to challenge its China tariffs. To compensate them for lost international sales, U.S. taxpayers have shared $46 billion in aid to farmers.

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