The current model of hyper-globalisation has run its course. It’s time to re-think – and actually do something – before the whole edifice comes crashing down.
In 2018 my colleague David Boyle and I wrote a book titled Backlash: Saving Globalisation from Itself. We argued that the current form of hyper-globalisation was politically unsustainable. That China driving a coach and horses through the supposed ‘rules based’ system had been tolerated for far too long. That persistently high trade imbalances mattered. As Lord Andrew Lansley put it in his endorsement: “Politicians, who have too often taken the inevitability of globalisation, and with it the benefits of free trade for granted, need now to read this and think fresh thoughts, radical thoughts, about how to make trade again serve the public and our democracies, not overbear them.”
Nothing changed.
Then came Covid and the consequent disruption in trade. We all talked about the importance of shifting from a singular focus on efficiency, cost saving and a penny off to resilience and national security considerations. We all promised to ‘build back better.’
We didn’t. All we did was to go back as quickly as possible to the status quo ante.
Now President Trump has lobbed a hand grenade into the system.
We might not like his methods. But it is unclear that any other method, any other crisis, would be sufficient finally to re-think and re-organise a trade system that is out of control and damaging.
Getting past the binary
One of the issues with any discussion of globalisation and international trade is that the world rapidly splits into two irreconcilable camps. Those who argue that open trade is an unalloyed evil and those who argue that it is an unalloyed good and must be preserved at all costs.
Both are wrong. As in every area of policy, trade represents a series of trade-offs.
What is quite remarkable is that, still today, many still mechanically trot out the same old line that globalized trade produces a ‘net benefit.’ It’s as though in the world of mathematical economics and commercial logic dissociated from the social and political realities of life, as long as the final single number is positive, it doesn’t much matter what else is happening around it.
Mechanistic thinking by spreadsheet. The kind of thinking that allows economists to, for example, shift employment from one sector to another in economic models when the reality is that such shifts are at best difficult, at worst impossible to achieve in real life.
Let us take NAFTA as an example.
“A multi-sector, multi-country analysis concludes that NAFTA increased US ‘welfare’ by 0.08 per cent [in itself, hardly stellar]. But half of this gain did not come from an increase in efficiency but from the US being able to use its muscle to improve its terms of trade (achieved at the expense of other countries, mainly Mexico).
Analysis of the distributional impacts of NAFTA shows very sharp adverse effects for certain groups of workers. For instance, high school dropouts working in industries that were heavily protected by tariffs on Mexican exports prior to NAFTA experienced a fall in wage growth of as much as 17 percentage points relative to wage growth in unaffected industries.”[1]
The question, therefore, is not whether the deal was an absolute good or an absolute bad. The question is whether the trade-offs (and there are more trade-offs than just the wage growth mentioned above) are worthwhile. Whether such trade-offs are politically sustainable. And, by the way, what exactly do we mean by ‘welfare’?
There is also much discussion about the separation between goods trade and trade in services. Many argue that goods trade is becoming of marginal importance as the world moves towards a service-led economy. Again, simplistic thinking. The reality is that many high value services are tied to the production of goods. Financial services get money to flow to manufacturing investment. If Rolls Royce sells an aircraft engine or Lockheed Martin sells an F-35 fighter jet, they both build future revenue streams in servicing such products. In such situations, and there are many, does it make much sense to separate goods trade from trade in services?
Trade as a peace project
Countries that trade with each other don’t go to war.
This is another staple of the pro-trade lobby. The trouble is that there is scant evidence that this is the case. Pre-World War I, international trade was at its highest compared to previous periods. Margaret MacMillan, Professor Emeritus of International History at Oxford University puts it like this:
“The outbreak [of WWI] came as a shock to many Europeans, but signs were visible before 1914. Jobs for Europe’s skilled workers were vanishing, or their wages were lowering, as production moved to areas of the world where labor was cheaper. Populist leaders stirred resentment against minorities—Jews, immigrants, elites. Revolutionaries condemned the whole system as unequal and unjust and called for the creation of a new order. At the same time, the willingness of the great powers to work with one another, as they had done in the first half of the century in the Concert of Europe, evaporated.”[2]
Sounds scarily familiar?
The world has changed
When discussing trade, we are routinely regaled with the wisdom of eighteenth and nineteenth century economists – Keynes’s famous slaves of some defunct economist. Today’s world is unrecognisable from the world in which such wisdom held true. To take but one example among a multitude: “the contemporary world, unlike the nineteenth century, the political economy is not well suited to such persistent trade imbalances with their consequent effects. If that is too subtle, another way to put it is that such a system could be sustained in a world of empires and colonies, but not readily now” according to the governor of the Bank of England.[3]
Today’s world is fundamentally different from Ricardo’s world of cloth and wine. Ricardo did not have to consider that technology transfer could happen in a matter of months. Nor a world where brand competitive advantage could be created in weeks. Nor the widespread tax and regulatory arbitrage of multi-national corporations. Nor the flow at lightning speed of hot money across the globe.
Ricardo’s theory also made clear that the objective was to benefit from true comparative advantage. He specifically excluded trade on the basis of lower cost of production. Yet, the latter is what a significant portion, though not all, of today’s international trade is based on.
Where to now?
“Bureaucracy defends the status quo long past the time when the quo has lost its status.” Canadian writer Lawrence J Peters once wrote. As do those who have built their career by hewing to one particular ideology and line of argument.
That a mercantilist China, with its some $1 trillion in annual trade surplus and decades of gaming the rules, now presents itself as the defender of a supposedly rules-based open trading system is both unsurprising and unpersuasive. The reality is that the world of hyper-globalisation and almost purely cost-driven competition has reached a point where it is no longer tolerable. It is no longer politically viable either for domestic economies or for a world with increasing geopolitical tensions.
Many will feel that President Trump’s wrecking ball approach to the issue is unreasonable, dangerous and destructive. That may well be so. So far, we have found no other routes to shaking people out of a comfortable complacency with the obsolescent status quo. What other routes are there to saving globalisation from itself? Suggestions welcome.
[1] Zammit-Lucia, J. The New Political Capitalism: How businesses and societies can thrive in a deeply politicized world. Bloomsbury, 2022, p. 123.
[2] MacMillan, M. This is the way a world order ends. The Atlantic, April 30, 2025.
[3] Bailey A. Growth: What does it take in today’s world? Lecture Given at the Chancellor’s Distinguished Lecture Series, The University of Leicester. Published 24 March 2025.
This blog was originally posted in Joe’s Random Thoughts newsletter on Linkedin.
