“GLOBALISATION CAN BE MADE MORE SUSTAINABLE”

CLOTHING FROM ASIA, FRUIT FROM SOUTH AMERICA – THESE ARE MUCH-QUOTED EXAMPLES OF GOODS THAT HAVE TO TRAVEL FAR TO GET TO US. HOW GLOBALISED IS OUR EVERYDAY LIFE, ACTUALLY?

Clara Brandi: Despite current political trends, globalisation continues unabated. According to the World Trade Statistical Review 2019, trade in goods increased by more than 26 percent between 2010 and 2018. A large part of the exchange of goods is limited to each country’s three leading trade partners, and the latter tend to be neighbouring countries. In Germany, international trade plays a crucial role in the economy. Almost one in four workplaces depends on exports. However, the situation here in the home of the often-mentioned “export world champion” is somewhat different, because Germany’s leading trade partners are not to be found exclusively among its neighbours. Its three most important economic partners in terms of export and import turnover are currently China, the Netherlands and the USA. Approaches of the “Our Nation First” type endanger globalisation and are currently undermining cooperation on global trade policy, for example within the framework of the World Trade Organization (WTO). This mostly affects smaller developing countries, which are particularly dependent on a rules-based global trading system that protects them from the power of the stronger nations.

FOR A LONG TIME, THE GLOBALISED ECONOMY STOOD FOR GROWTH AND PROSPERITY, BUT IN RECENT YEARS IT HAS COME UNDER INCREASING CRITICISM. WHEN AND WHY DID THE ATTITUDE TO GLOBAL TRADE CHANGE?

Brandi: The reason for this change can be found in the fact that, for a start, trade rules are increasingly pushing forward into national areas of political sensitivity. Some of the more recent trade rules often reach far beyond the abolition of tariffs and touch on issues such as consumer and environmental protection too. In the TTIP negotiations, one of the major fears of the Europeans was that the negotiators would agree on the lowest common denominator for US and EU standards and, in the process, weaken consumer and environmental protection. And there’s another reason: not all people benefit from free trade. Within national economies, more trade leads to more income, but also to more inequality. Free trade changes the structure of the economy: when countries specialise within the new international division of labour, the sectors in which more favourable production factors can be made to count become larger. Conversely, this means that jobs are lost when certain stages of the production process can be carried out at lower cost elsewhere – one example in this regard is the assembly of iPhones in China. This more efficient division of labour therefore produces winners and losers. For a long time, policy-makers have paid too little attention to these distribution issues.

WHO PROFITS FROM GLOBALISED TRADE, AND HOW? WHAT ADVANTAGES GO HAND IN HAND WITH IT?

Brandi: It’s the consumers, not least, who profit from the globalisation of trade. A more efficient international division of labour leads to lower prices that benefit all consumers. However, recent researchshows that the poorer sections of the population have benefited less from free trade than the richer because of differences in consumer behaviour. The prices of goods such as PCs, which are consumed primarily by the richer sections of the population, have fallen more sharply than, for example, agricultural products, which the poorer members of the population spend a large proportion of their income on. Even if there are winners and losers, the bottom line is that the welfare gain from free trade is large enough to enable the winners to compensate the losers, for example through income redistribution facilitated by means of tax policies. In the future, the different effects of free trade need to be better taken into account, and appropriate policy measures discussed, for example on the basis of tax policy, but also with environmental and social standards in mind. New empirical studies also confirm that globalised trade leads to more convergence, that is, less inequality between countries. The increased global division of production underlines the importance of reducing trade barriers. In order to be competitive in global value chains, imported intermediate goods must be available at low cost too – the individual parts of an iPhone, for example – and this requires a clear rejection both of import duties and of the protection of domestic industries. Indeed, global value chains offer great opportunities, especially for developing countries, because by using foreign intermediate goods, developing countries can take over those parts of the production process that they can best produce or supply – without their needing themselves to build up an entire industry from scratch.

REGIONAL ECONOMIC MODELS ARE GENERALLY INVOKED AS BEING MORE SUSTAINABLE. IS IT POSSIBLE THEN FOR US TO DIAL GLOBALISATION BACK A NOTCH? DO YOU THINK THAT’S REALISTIC?

Brandi: The global economy must become more sustainable. This is also an important goal within the framework of the 17 Sustainable Development Goals (SDGs) of the 2030 Agenda that the international community has agreed upon. An important starting point for a more sustainable global economy is, for example, to decouple global economic growth as much as possible from raw material consumption, ecological destruction and climate-damaging emissions. The transportation of things around the globe also presents a challenge for those trying to attain more sustainability. Nevertheless, it’s not really a good idea to try to reverse globalisation partly. Deglobalisation would be inefficient. It must be emphasised that the global trade in goods is concentrated relatively strongly within the existing economic blocs, and this means that, despite global flows of goods, this trade is also to a significant degree regional. The export of intra-regional goods accounts for more than 50 percent of all exports. But there are significant differences, with the share of intra-regional trade varying markedly from region to region. Africa, for example, is an exception: here the share of regional trade still plays a very minor role. Efforts to change this are now under way. The African Continental Free Trade Area, which was established in 2019, aims to strengthen intra-regional trade. After all, the continent still has lots of potential to be tapped. This requires not only the dismantling of trade barriers, but also the development of trade-related infrastructure, for example roads and ports.

WHAT ROLE DO INDIVIDUAL PEOPLE PLAY IN ALL THIS? DO WE, AS RESPONSIBLE CONSUMERS, HAVE MORE LEEWAY AND OPPORTUNITIES TO PARTICIPATE IN SHAPING THE FUTURE THAN WE THINK?

Brandi: Consumers play an important role. Their purchasing decisions can help make globalisation more sustainable. Many voluntary standards for more sustainable production are already in place, including those by Fairtrade or MSC. Yet the demand for products that have been certified as sustainable is still relatively low. Even though the market share of fair-trade coffee has been growing steadily in Germany, it’s still below five percent. This is the sort of area in which consumers have lots of opportunities to help shape the future. At the same time, approaches such as these should not absolve policy-makers from using governmental measures to make globalisation more sustainable.