♠ Posted by Emmanuel in Trade
at 10/12/2012 09:57:00 AM
I was visiting the MarketWatch website where I encountered his latest call that the WTO's 'golden age' has ended. (He uses the 'WTO system' as shorthand for increases in world trade volume that have outstripped global GDP growth for several years.) This being Andy Xie, his fixation on tax havens becomes the basis for explaining why the backlash against these Romneyesque hidey-holes symbolizing inequality will ultimately spill over into the trade realm:
While the WTO system provides a platform for globalization, multinational companies have led it. Their pursuit of profit maximization has caused trade to grow twice as fast as GDP. This is why they are in good shape despite multiple global crises. And they continue to report record profits in a global recession.Multinational companies are the big beneficiaries of globalization. Their political influence in the West is the key to the success of the WTO system. The global financial crisis of 2008 soon became a global economic crisis and has become a political crisis. Redistribution through tax has become a focal point in recent elections in the West. But businesses resist rising taxes. They can redistribute profits around the world to low tax havens like Switzerland or Singapore. Their resistance is bound to have political repercussions.
Although the MIT-trained economist Xie probably doesn't recognize it, he is using the idea of relative deprivation popularized by the late Samuel Huntington and its emphasis on social frustration amidst visible evidence of others becoming far better off. This causes certain kinds of political mobilization harmful to the erstwhile Masters of the Universe in the context of world trade:
Further:When the pie is growing, tax dodging is viewed as being clever. When most people are suffering, such activities will be viewed very negatively. While politics is slow relative to business, it eventually catches up. This is why multinational companies may lose influence in their original home countries. For example, the EU is bound to coordinate tax rates for the foreseeable future. If Britain doesn’t like it, it will have to leave the EU. The rules for profit calculation are likely to be tightened up to stop tax haven shopping.The difficulties in resolving the inequities from globalization through increasing taxes will eventually shift politics to focus on trade directly. The rules for governing multinational activities will become more complicated in future. The barriers against outsourcing will multiply. Import duties may rise. Selective use of anti-dumping cases will be used more frequently to protect existing industries.
So yes, he does concur that globalization has gone too far. It's a common theme among globalization scholars that if the social system evolves at a slower rate than the economic one, then there is bound to be a political backlash. While his points of emphases and neglect are certainly idiosyncratic--he doesn't even mention the protracted Doha Round--Xie is one of the few Chinese economists whose name recognition approaches that of his Western peers who presents a unique Asian counterpoint.The golden era of the WTO system is coming to an end. Indeed, trade disputes could multiply sufficiently to overwhelm the WTO system. Economists tend to blame the trade protection policies of the Western economies for causing or worsening depressions. The reality is probably more complicated. The labor market has limited capacity to cope with globalization. The political backlash against globalization is inevitable when the later [sic] moves too fast.Trade has grown twice as fast as GDP in the past two decades. This relationship is unlikely to continue. The best scenario is for the two to grow at the same pace. The global economy will probably be stuck around 2% to 2.5%. So would trade.
