Globalization and the escalation of trade tensions

May 9, 2018

For several decades, globalization and technological progress have left many in advanced economies with low-paid-low-quality jobs or no jobs at all.

This has fueled inequality, social discontent, and distrust in establishments. Anti-trade sentiments have risen with the feeling that globalization has disproportionally benefited the few at the expense of the many, and countries that do not play by the rules of open and fair trade. Populist and nationalist politicians in Western democracies have benefited from this discontent, as reflected in Brexit, the rise of anti-Europe and extreme right parties in continental Europe, or the election of Donald Trump in the United States on the promise of an “America first” policy. As the trade tensions between the U.S. and China are escalating, this newsletter recalls that nationalist and protectionist policies will most likely fail to protect those that have been left behind by globalization and technological progress, and overall harm economic growth. The ultimate outcome of the current escalation in trade threats is, however, very open with both highly positive or negative scenarios still on the table. In the meantime, uncertainty and market volatility will prevail.