Many attribute the last five decades of global economic prosperity to free trade and globalisation. In an increasingly economically interdependent world, countries have learned to specialise in what they are good at and import those goods and services that others can produce more efficiently and at a lower cost.
But this formula seems to have run out of steam as many countries are now resorting to ‘economic patriotism’ as millions of workers in western countries have lost their jobs and are now insisting on their political leaders to reverse the tide of globalisation and introduce protective measures to safeguard local jobs. The export of jobs is a dirty word for many who have been ill-prepared to face the consequences of free trade.
The most significant winners of globalisation were mainly far eastern countries that had a labour force that was young, easily trainable and prepared to work hard to improve their living standards. China and India led the way in the manufacturing and services sector, providing western economies with reliable and low-cost goods that were far less expensive than similar products manufactured in the West.
Cars, electronic equipment and white goods manufactured in Far Eastern countries, especially China and India, flooded the Western markets. But the losers in this development were workers in manufacturing and office jobs in the West who were no longer needed to keep factories and specific office functions going in Western countries.
Donald Trump got elected partly as a result of his promise to reverse this trend. He told US voters that he would make sure that manufacturing jobs would return to America by scrapping free trade agreements with other countries and trading blocks. He kept his promise by imposing a hefty 25 per cent tariff on steel imports and 10 per cent on aluminium. As a result of this, the world trading system is on the verge of collapse.
Trump, like other politicians before him, favoured the return of trade protectionism, on the pretext of national security interests. He now wants to negotiate bilateral treaties with individual countries, hoping to get a quid pro quo for slashing some or all of the steel and aluminium tariffs. If this trend continues to evolve, the World Trade Organisation may be fatally wounded. After 17 years of horse trading, the WTO has still not concluded the ‘Doha round’ meant to update its rules.
Malta needs to support all EU measures to promote free trade
Europe is not in a much better position than the US. Populist moves in France, Italy and Germany are scaring EU leaders from defending the principles of free trade. Ironically, China has now become the champion of free trade and is the best chance of the WTO surviving.
Chinese commerce minister Zhong Shan was accurate when he said that: “There are no winners in a trade war. It will only bring disaster to China and the United States and the world.”
Trump may be underestimating China’s clout in world trade. China’s metal industry urged the government to retaliate by targeting US coal – a sector that represents the core of Trump’s political base that believed his promise to restore American industries and blue-collar jobs.
The significant problem with globalisation is that the economic changes brought about by free trade were never matched with the social changes needed to enable societies to adapt. Rather than prepare workers to acquire new skills through improved educational attainment and training, politicians adopted a laissez-faire attitude with the result that whole generations of workers are now wallowing in unemployment with little or no demand for their old skills.
Malta’s manufacturing base is in no way as meaningful as it was 40 years ago. But with our open economy, we cannot be complacent. Malta needs to support all EU measures to promote free trade as what happens in the rest of Europe will undoubtedly affect us at some stage. The threat on our services industries will come from fiscal changes in the EU that are increasingly aiming for more tax harmonisation. Whether fairly or not, many larger EU member states consider Malta’s light-touch fiscal legislation as being detrimental to completion in the services market.
Our best strategy is to strengthen our educational system to make sure that our schools are preparing young people for the skills needed for today’s industries. Some educational achievement statistics remain depressing. Admittedly, there is more to this problem than educational policy and curricula.
The family environment is crucially important in determining the success of students in our school system.
johncassarwhite@yahoo.com