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Are we in a crisis? Learning from Trump’s lawfare endgame

Are we in a crisis? Learning from Trump’s lawfare endgame

Is there a crisis in the United States, as many commentators would make us believe? If so, what is the nature of that crisis? It has become very fashionable to ...

‘EleNão!’ ‘NotHim!’ Women’s resistance to ‘the Brazilian Donald Trump’ by Marina Graciolli de Paiva

‘EleNão!’ ‘NotHim!’ Women’s resistance to ‘the Brazilian Donald Trump’ by Marina Graciolli de Paiva

The run-up to the Brazilian presidential election to be held on 7 October reminds spectators of the coming to power of Donald Trump two years ago. Jair Bolsonaro, a right-wing ...

Economic diplomacy: bilateral relations in a context of geopolitical change by Peter A.G. Bergeijk and Selwyn J.V. Moons

Economic diplomacy, although perceived as marginally important by neoclassical economists, is a highly relevant topic first and foremost because it works in practice, but also because it provides an essential policy answer to the increasing uncertainty of international transactions. In this article, Peter A.G. van Bergeijk and Selwyn J.V. Moons, editors of the recently released Research Handbook on Economic Diplomacy, briefly introduce the topic of economic diplomacy and highlight the value of the new publication, to which several ISS researchers have contributed.


The eminent breakdown of multilateralism and supranationalism due to Trump and Brexit has led to a revival of the debate on economic diplomacy, properly understood as a broad field that comprises those aspects of diplomacy that are aimed at:

  • the opening of markets to stimulate bilateral cross-border economic activities such as imports, exports, mergers and acquisitions and greenfield foreign direct investments;
  • the building and use of bilateral cultural, political and economic relationships between countries in order to assist domestic companies; and
  • the use of bilateral economic relationships, including (the threat) to discontinue these activities, as a tool of diplomacy.

Neoclassically oriented economists in the past have considered this topic of marginal interest only. Their analysis typically heralds the costs of government intervention and the benefits of free international trade and investment flows. Consequently, the economic analysis of positive and negative diplomatic interactions did not feature prominently on their research agenda. But it is increasingly being recognised that economic diplomacy is  a highly relevant topic, especially in Development Studies, (a) because economic diplomacy works (Moons 2017, 2018, Muniz 2018), (b) because it is more important for developing countries and emerging markets (Rhana 2018) and (c) because it provides an essential policy answer to the increasing uncertainty of international transactions (Bergeijk and Moons 2018).

Surprise and confusion

The international economic reality of 2018 is surprising and confusing. Europe struggles with its trans-Atlantic ally, and the UK’s exit and a new Italian government with an anti-EU attitude contribute to this sense of confusion. America is separating itself from its traditional partners (the EU, NAFTA, and the OECD). The trade relationships between the world’s economic #1 and #2 are more strained than ever before. Trust in the multilateral backbone of the world economy evaporates and US hegemonism is weakening. Clearly a new and better understanding of the interactions between governments is necessary because of the changing playing field and dynamics.

Brave new world

Four key stylized facts that apply to this new environment make the Research Handbook on Economic Diplomacy: Bilateral relations in a context of geopolitical change timely and highly relevant:

  1. In the brave new world of Trump and Brexit, trade and investment uncertainty increases significantly with a negative impact on trade and investment;
  2. Trump’s open confrontational approach to foreign policy as a form of negative diplomacy bears costs both in the US and abroad;
  3. Bilateral relationships become more relevant and valuable, especially for developing and emerging economies; and
  4. Bilateral economic diplomacy needs to be carefully designed and properly managed in order to generate optimal impact.

9781784710835Representing a move away from Eurocentric books on the topic, the Research Handbook offers relevant and focused contributions that provide three valuable lessons for current and future policies. First, in addition to the full coverage of positive interactions, our contributors also explicitly consider the impact of negative interaction. Second, the Research Handbook in addition to the analysis of OECD markets provides a comprehensive set of detailed empirical analyses of developing and emerging economies in Africa, Asia and Latin America. The contributions by 31 leading experts from industrial nations, emerging economies and developing countries in five continents provide a unique perspective on both the heterogeneous dynamics of economic diplomacy and the tools to analyse the impact and efficiency of economic diplomats both qualitatively (case studies, interviews) and quantitatively (macro-economic gravity models, micro-economic firm level data, surveys, meta-analysis, cost benefit analysis). Third, the Research Handbook provides detailed discussions of information requirements, data coverage and the impact of (changes in) the level and quality of diplomatic representation. The studies in the Research Handbook thereby reveal how and under which conditions economic diplomacy can be effective, providing clear guidance for evidence-based policy.

Evidence base

What are the major findings and implications of recent research? First, economic diplomacy works and this is true both for positive and negative interaction. One can build on positive interaction to strengthen economic ties and similarly the twitter tsunami of the current US president and his increasing reliance on economic sanctions will carry a significant cost (Rose, 2018). Second, uncertainty itself already reduces international specialisation: the threat of trade disruption and discontinuation of treaties in itself influences perceptions and thereby the behaviour of consumers, firms and governments. Third, a one-size-fits-all approach does not work. Economic diplomacy should be aimed at the niche where its contribution can be most significant: complex products, complex markets and countries with diverging political, cultural and historical background (Moons 2017).

Relevance for developing countries and emerging markets

Bilateral economic diplomacy is important for building a good country image and to promote an emerging market as a reliable trading partner with high quality export products, especially in developing countries. It is a relatively more significant determinant of bilateral exports among African states compared to regional integration (Afesorgbor 2018). New modes of economic diplomacy and (development cooperation) are being developed based on China’s pioneering approach to development (De Haan and Warmerdam 2018). Economic diplomacy, however, is not a panacea as Maharani (2018) clarifies while discussing challenges such as lacking exporter preparedness, substandard logistic infrastructure and budgets that remain below those of neighboring countries.


References:
Afesorgbor, S.K., Economic Diplomacy in Africa: The Impact of Regional Integration versus Bilateral Diplomacy on Bilateral Trade chapter 20 in Research Handbook on Economic Diplomacy: Bilateral Relations in a Context of Geopolitical Change, editors P.A.G. van Bergeijk en S.J.V. Moons, Edward Elgar: Cheltenham, UK
Bergeijk, P.A.G. van en S.J.V Moons (2018) ‘Introduction to the Research Handbook on Economic Diplomacy’, chapter 1 in Research Handbook on Economic Diplomacy: Bilateral Relations in a Context of Geopolitical Change, editors P.A.G. van Bergeijk en S.J.V. Moons, Edward Elgar: Cheltenham, UK
Bergeijk, P.A.G. van, S.J.V. Moons en C. Volpe-Martincus (2018) ‘The future of economic diplomacy research’, chapter 23 in Research Handbook on Economic Diplomacy: Bilateral Relations in a Context of Geopolitical Change, editors P.A.G. van Bergeijk en S.J.V. Moons, Edward Elgar: Cheltenham, UK
Arjan de Haan and Ward Warmerdam China’s foreign aid: towards a new normal? chapter 22 in Research Handbook on Economic Diplomacy: Bilateral Relations in a Context of Geopolitical Change, editors P.A.G. van Bergeijk en S.J.V. Moons, Edward Elgar: Cheltenham, UK
Moons, S.J.V (2017) Heterogenous Effects of Economic Diplomacy: Instruments, Determinants and Developments. PhD thesis ISS.

pag van bergeijkAbout the authors: 

Peter van Bergeijk (www.petervanbergeijk.org) is Professor of International Economics and Macroeconomics at the ISS.

DJ_20170714_0642Selwyn Moons has a PhD in economics from ISS. His research focus is international economics and economic diplomacy. Selwyn is currently working as Partner in the public sector advisory branch of PwC the Netherlands. Previously he worked in the Dutch ministries of Economic Affairs and Foreign Affairs.

The imperial intentions of Trump’s trade war babble by Andrew M. Fischer

The imperial intentions of Trump’s trade war babble by Andrew M. Fischer

In defence of his trade war with China, Trump claims that ‘when you’re $500bn down you can’t lose.’ The problem with this stance is that persistent US trade deficits with ...

Deglobalisation Series | Backtracking from globalisation by Evan Hillebrand

Deglobalisation Series | Backtracking from globalisation by Evan Hillebrand

While globalisation still enjoys strong support in the Global South, major economies in the Global North now seem less enthusiastic about its purported benefits. This article explores how the United ...

Deglobalisation Series | Is anti-globalisation only a preoccupation in the Global North? by Rory Horner, Seth Schindler, Daniel Haberly and Yuko Aoyama

A remarkable ‘big switch’  has emerged from the turn of the millennium in terms of attitudes towards and discourses over globalisation. But while the world is currently witnessing a new backlash against economic globalisation, considerable support for globalisation within some parts of the Global South should not be overlooked.


While the world is currently witnessing a new backlash against economic globalisation, considerable support for globalisation within some parts of the Global South should not be overlooked. Supporters of the UK’s exit from the European Union seek to “take back control” from Brussels, while Donald Trump’s economic ethno-nationalism has promised to put “America first”. In contrast, the picture that emerges in the Global South is quite different, as part of a remarkable ‘big switch’ that has been taking place from the turn of the millennium in terms of attitudes towards and discourses over globalisation.

Support for globalisation in the global South

The polling company YouGov, in a 2016 survey of people across 19 countries, found that France, the US and the UK were the places where the fewest people believe that “globalisation has been a force for good”. In contrast, the survey found the most enthusiasm for globalisation in East and Southeast Asia, where over 70% of respondents in all countries believed it has been a force for good. The highest approval rate, 91%, was in Vietnam.

From a poor starting point, many in the Global South have experienced some improvement in basic development indicators in the 20th and 21st Centuries. People living in Asia accounted for the vast majority of those who experienced relative income gains from 1988 to 2008. In comparison with the 1990s, the Global South now earns a much larger share of world GDP, has more middle-income countries, more middle-class people, less dependency on foreign aid, considerably greater life expectancy, and lower child and maternal mortality rates.

Less of a backlash in the Global South necessarily means support for neoliberal globalisation—and the optimism in countries such as Vietnam may paradoxically be a result of an earlier rejection thereof. China, in particular, has not followed the same approach to economic globalisation as that which was encouraged by the US and organisations such as the IMF and World Bank in the late 20th Century.

Meanwhile, many of the world’s poorest in the Global South have seen very little improvement in quality of life in recent years, yet they are much more marginal and less well-positioned to express their frustrations than the ‘losers’ in countries such as the US and UK. They must not be forgotten.

China and India warn against deglobalisation

Most notably, the last two World Economic Forum gatherings at Davos have seen explicit statements from the respective leads of China and India warning against deglobalisation. In January 2017, China’s president Xi Jinping said that his country would assume the leadership of 21st Century globalisation. Defending the current economic order, Xi said that China was committed to making globalisation work for everyone—its responsibility as “leaders of our times”.

At Davos in 2018, Narendra Modi, prime minister of India, warned against deglobalisation:

It feels like the opposite of globalisation is happening. The negative impact of this kind of mindset and wrong priorities cannot be considered less dangerous than climate change or terrorism.

 The ‘big switch’ on globalisation

It is remarkable that the backlash most associated with the Brexit referendum in the UK and the election of Donald Trump in the US has emerged from the right of the political spectrum, in countries long recognised as the chief architects and beneficiaries of economic globalisation.

At the turn of the millennium, the primary opposition to globalisation was concerned with its impacts in the Global South. Joseph Stiglitz, former chief economist at the World Bank, in his 2006 book Making Globalization Work wrote that “the rules of the game have been largely set by the advanced industrial countries”, who unsurprisingly “shaped globalization to further their own interests.” Their political influence was represented through dominant roles in organisations such as the World Bank, the International Monetary Fund and the WTO, and the corporate dominance of their multinationals.

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Protests in Seattle against the WTO in 1999. By Steve Kaiser from Seattle via Wikimedia CommonsCC BY-SA

In the 1990s the anti-globalisation movement opposed neoliberal economic integration from a range of perspectives, with a particular emphasis on the Global South. The movement was populated by activists, non-governmental organisations and groups with a variety of concerns: peace, climate change, conservation, indigenous rights, fair trade, debt relief, organised labour, sweatshops, and the AIDS pandemic.

Yet, in the aftermath of the Brexit vote, UK prime minister Theresa May offered a sceptical assessment at the 2017 World Economic Forum at Davos, arguing that “talk of greater globalisation can make people fearful. For many, it means their jobs being outsourced and wages undercut. It means having to sit back as they watch their communities change around them.” The US, under Trump, subsequently began renegotiating NAFTA and withdrew from the Trans-Pacific Partnership.

Significant proportions of the population in the US and other countries in the Global North have experienced limited, if any, income gains in the most recent era of globalisation. Leading global inequality expert Branko Milanovic has explored changes in real incomes between 1988 and 2008 to show who particularly lost out on relative gains in income. He found two groups lost most: the global upper middle class—those between the 75th and 90th percentiles on the global income distribution scale, of whom 86% were from advanced economies—and the poorest 5% of the world population.

Emerging evidence indicates that increased global trade has played a role in economic stagnation or decline for people in the North, especially in the US. MIT economist David Autor and his colleagues suggest that the ‘China shock’ has had major redistributive effects in the US, leading to declines in manufacturing employment.

Economists had previously argued that the “losers” from trade could be compensated by transfers of wealth. Autor and his colleagues found that while there have been increases in welfare payments to regions of the US hardest hit by the trade shock, they fall far short of compensating for the income loss.

Not just globalisation

Not all of the stagnation and decline experienced in the Global North can be attributed to economic globalisation. Technological change is a big factor and national policy choices around taxation and social welfare have also played key roles in shaping inequality patterns within countries. In such a context, ‘globalisation’ has been deployed as a scapegoat by some governments, invoking external blame for economic problems made at home.

The current backlash is not just about economic globalisation. It has involved ethno-nationalist and anti-immigrant components, for example among supporters of Trump and Brexit.

A key lesson from the late 20th Century is to be wary of wholesale attacks on, and sweeping defences of, 21st Century economic globalisation. In light of the difficulties of establishing solidarity between ‘losers’ in different parts of the world, the challenge of our times is for an alter-globalisation movement which addresses all of them.

Moreover, if the stellar growth rates of the last 15-20 years slow down, the relatively positive view of globalisation in much of the global South may not continue, with the possibility of a backlash (re)emerging beyond the Global North.


Also see: Deglobalisation 2.0: Trump and Brexit are but symptoms by Peter A.G. van Bergeijk


About the authors:

Rory_Horner_work_profile_photo.JPGRory Horner, Lecturer, Global Development Institute, University of Manchester321250

Daniel Haberly, Lecturer In Human Geography, University of Sussex;

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Seth Schindler, Lecturer, Department of Geography, University of Sheffield, and Aoyama2016

 

Yuko Aoyama, Professor of Economic Geography, Clark University

 

Trump’s ‘doublespeak’—why academics should speak out by Jeff Handmaker

Trump’s ‘doublespeak’—why academics should speak out by Jeff Handmaker

U.S. President Donald Trump in January 2018 delivered his first State of the Union Address (SOTU). At first glance, he sounded more presidential than ever following his tumultuous first year ...