Photo: Mark Makela/Getty Images
Can Globalization Be Salvaged?
Populist opposition will shape how trade and immigration expand, if at all
By Greg Ip
No matter what happens in this election,” venture capitalist Peter Thiel said in Washington this week, “what Trump represents isn’t crazy and it’s not going away.”
When it comes to globalization, Mr. Thiel, a prominent donor to Republican nominee Donald Trump, is almost certainly right. Mr. Trump is unique, but his antipathy to free trade and increased immigration isn’t.
Those sentiments are shared in differing degrees by the Democratic voters who propelled Vermont Sen. Bernie Sanders to second place in the party’s primary, by the Britons who voted to leave the European Union in June, and in the populist parties gaining strength across Europe. Hillary Clinton may have turned against the negotiated, unratified 12-nation Trans Pacific Partnership to fend off Mr. Sanders, but is unlikely to flip back. Why spend scarce political capital on a treaty much of her party despises?
For advocates, salvaging globalization requires understanding what’s behind the backlash.
Many populists think it’s a zero-sum game that the U.S. is losing. “The sheer size of the U.S. trade deficit shows that something has gone badly wrong,” claims Mr. Thiel. Actually, it doesn’t: The U.S. has had one of the developed world’s fastest growth rates since 1990 despite that deficit, while Japan has had one of the slowest despite a surplus.
Advocates of free-trade deals think the real problem is that the country as a whole benefits from more trade and immigration while only a minority of workers get hit, blame outsiders and turn to politicians like Mr. Trump. Their prescription is to help that minority transition to new and better jobs, something on which the U.S. spends far too little.
Yet this may not be an antidote to populism. The economic impact of free trade is easily overstated. Trade barriers have steadily declined. This means the gains to incremental liberalization are quite small—one reason the number of new pacts has also been slipping. Two studies conclude the Trans-Pacific Partnership would eventually raise U.S. output by 0.2% to 0.5%, a positive but hardly life-changing sum. The gains to Canada and Europe from the just-completed Comprehensive Economic and Trade Agreement are similarly slim.
Nor is opposition to globalization primarily economic. “It’s about fairness, loss of control, and elites’ loss of credibility. It hurts the cause of trade to pretend otherwise,” Dani Rodrik, a Harvard University economist and longtime skeptic of globalization, wrote recently.
Treaties such as TPP seek to level the playing field for companies operating across borders, for example in product regulation, settling disputes with governments, and intellectual property protection. Left-wing populists consider this a surrender of national sovereignty to corporate interests.
Lori Wallach, of the left-leaning advocacy group Public Interest, and Jared Bernstein, a former adviser to Vice President Joe Biden, recently proposed that U.S. agreements should henceforth ditch investor-state dispute settlement, constraints on domestic regulation and other features that favor corporations.
This might satisfy some critics on the left. Indeed, similar concessions by Canada and the EU overcame opposition from the Belgian region of Wallonia to the Canada-EU deal. But it also leaves little to liberalize beyond tariffs, which are already quite low. Narrowing talks down to just that in the U.S. would make it hard to get the support of businesses and Republicans.
For populists on the right, immigration is a bigger worry than free trade. But they too are concerned about more than just their pocketbooks. Many are bothered about cultural change, the pressure on public services, and the inability to control the number of foreign entrants. As my colleagues report this week, support for Trump is strong in counties where the immigrant population has grown the most, even as unemployment falls in these same counties.
Similarly, in Britain, support for Brexit was stronger in regions that experienced larger increases in the migrant share of the population, according to an analysis by Monica Langella and Alan Manning of the London School of Economics. Unemployment had no effect.
So stronger wage growth likely won’t defuse the populist backlash against immigration. What can help are immigration policies better tuned to the host country’s absorption capacity and labor force needs. Canada supports legal immigration by picking candidates for language and work skills, and keeping illegal arrivals to a minimum. For Britain, losing some of the economic benefits of the EU’s common market will be the price of regaining control over immigration. In the U.S., a deal to legalize the illegal population will require satisfying skeptics that strong controls over illegal immigration are in place.
Broad majorities of the public still think free trade and immigration are good things. The bad news for globalizers is that the populists on the right and left who disagree are increasingly able to stop the process. Contemplating the obstacles to completion of the EU-Canada deal two weeks ago, Donald Tusk, president of the European Council, the EU’s oversight body, and former Polish prime minister, worried that it “could be our last free-trade agreement.”