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The current era of globalisation, which began in the 1990s, has frequently been compared to the “golden age” of worldwide economic integration that started almost a century earlier in the 1870s. Then as now, there were protests against the perceived inequalities and vicissitudes of trade, and demands for tariffs to protect producers from foreign competition. But it took the first world war — and later the Great Depression — to bring that era of globalisation to an end.
The end of the current age has often been predicted. A series of shocks have tested the resilience of the world trading system — the September 11 attacks on the US in 2001, the huge rise in oil prices and the global financial crisis of 2007-2009 chief among them.
Trade in goods has indeed slowed over the past few years. Yet, until now, the new golden age has failed to come to a crashing halt. But if there is one person who threatens to endanger this relative peace, it is Donald Trump. While many US presidential candidates have talked tough protectionist language on the campaign trail, Mr Trump’s rhetoric is different. The president-elect’s plans to impose huge tariffs on imports from China and Mexico and to rip up trade deals unless they are fundamentally renegotiated would be the biggest shock to world trade for decades.
When he enters the Oval Office, Mr Trump will survey a global trading system that looks worse off than it actually is. Trade in goods grew around twice the rate of world GDP in the years before the global financial crisis; since then it has slowed barely to keep pace. But although some have posited that protectionism has played a role, the most likely explanation is that some supply chains that had previously been divided up between countries are now increasingly taking place inside a single economy, notably China.
In principle there is nothing wrong with that: it is the effect of emerging markets moving up the value chain and companies making appropriate business decisions. But widespread government intervention and protectionism would be a different matter. Mr Trump has bought into the idea that the global economy is essentially a zero-sum game, with jobs created in China coming directly at the expense of those in the US. He has been staffing the trade section of his administration with people who seem to think the same.
Mr Trump’s picks for commerce secretary and to head a new administration trade council are, respectively, Wilbur Ross and Peter Navarro, both instinctive protectionists. His choice for US trade representative, Robert Lighthizer, is a trade attorney who has fought for decades for protection of the steel industry from cheap imports.
The question is whether Mr Trump genuinely wants to start widespread trade conflicts or simply to score some points that will play well in the Midwestern states that gave him his victory. Since the election, he has touted a couple of decisions — the moves by Carrier and Ford to keep some production in Michigan rather than expanding it in Mexico — as evidence that the prospect of his presidency is keeping jobs in America.
These decisions, which involve a few hundred jobs, are of small significance. If Mr Trump is content with some symbolic victories he may hold off on the bigger conflict and global trade may continue relatively unabated. But if he really wants to use the power of the presidency to force producers to make their goods in the US there are several significant steps he can take.
As Gary Hufbauer of the Peterson Institute think-tank in Washington DC points out, US presidents have far more power to tear up trade agreements than they do to make them. Mr Trump could quite easily fulfil his threat to abrogate the North American Free Trade Agreement (Nafta) — which has been a cornerstone of US trade policy for more than two decades. Moreover, by declaring that he was retaliating against unfair practices by trading partners, or reacting to an emergency situation, Mr Trump could raise tariffs sharply.
Of course, such actions would be subject to litigation at the World Trade Organisation (WTO), but if Mr Trump has truly decided to go for broke he could ignore any WTO ruling and dare his trading partners to impose trade sanctions, or even pull out of the organisation altogether.
After so long defying the threat of protectionism and depression, it is remarkable that the future of the world trading system depends so heavily on the whims of one man. Yet the US’s pre-eminent role in global commerce, plus the extremism of Mr Trump’s stated views on trade, unrivalled by any presidential candidate let alone president-elect since the Great Depression, mean that the second age of globalisation faces an extraordinarily uncertain future in 2017.