Globalisation and the Recent Trade Wars: Linkages and Lessons
| Date | 01 September 2019 |
| Author | Richman Dzene,Benedict Oramah |
| DOI | http://doi.org/10.1111/1758-5899.12707 |
| Published date | 01 September 2019 |
Globalisation and the Recent Trade Wars:
Linkages and Lessons
Benedict Oramah and Richman Dzene
African Export-Import Bank, Cairo
Abstract
Anti-globalization sentiments have risen significantly in developed economies, impacting the outcome of national elections in
the US and the BREXIT referendum in the United Kingdom. It has also led to tariff escalations and trade wars, especially
between the US and China. These developments run contrary to the conventional wisdom that globalization has positively
Impacted the global economy and that the distribution of gains has been in favor of developed economies. This paper argues
that it is the incomplete implementation of the main pillars of globalization that has created rising discontent in developed
countries. Conceived as the process of integration of goods, capital, technology and labor, globalization was premised on free
movement of goods and factors of production within and across countries as well on the assumption that factors of produc-
tion would be perfect substitutes everywhere. The paper posits that it is the immobility of labor across and within countries
that has led to the globalization-induced dislocations in some developed economies. Across countries, artificial immigration
barriers restrict labor movement while within countries, labor market rigidities and absence of perfect substitution in the labor
market constrain the migration of labor from the declining to the booming sectors of the economy creating large income
inequalities. Implications of the foregoing for the future of globalization and Africa’s export-led industrialization are presented.
Globalisation has been defined as the process of interna-
tional integration of goods, technology, labour and capital.
A global economy is one in which firms and financial institu-
tions operate transnationally. In its purest form, globalisation
requires factors of production and assets to be perfect sub-
stitutes everywhere (Oramah, 2000). Various studies have
shown that the process of globalisation is a function of
three factors, namely: Openness, that is, the pace at which
various legal, regulatory and political obstacles to trade and
factor movements are removed; competitiveness, namely, the
ability of domestic producers to establish a strong position
in the international division of labour; and harmonisation,
that is, the international standardisation of rules, institutions
and technologies.
Although the history of globalisation dates as far back as
the early 19th century, especially following the signing of
the Cobden–Chevalier Treaty of 1860 between Britain and
France which extended most favoured nation (MFN) status
to contracting parties, it was not until after World War II that
it gathered momentum under the aegis of the General
Agreement on Tariffs and Trade (GATT). GATT led to signifi-
cant tariff reductions in many markets, starting in the late
1940s. The creation of the World Trade Organization (WTO)
in 1994 accelerated the process.
Different perspectives
Proponents of globalisation, who drove the massive trade
and investment liberalisation that began with GATT and
deepened under WTO, argued that it would lead to conver-
gence –that is, reduction in disparity between rich and
poor countries in key indices of economic well-being,
namely income, trade, technology, etc. This was expected to
arise through a combination of efficiency gains, faster capi-
tal accumulation and higher productivity across the board
(Oramah, 2000). The efficiency gains were expected to be
derived from: (1) increased trade which would foster special-
isation, enhanced competitiveness and more uniformity in
prices; (2) greater capital mobility which would re-enforce
the gains from trade. In addition, it was thought that global-
isation would allow savings to be pooled and enable a more
efficient international allocation of capital across boundaries
and sectors. It was thought that developing countries would
benefit as capital would move from low return, capital-rich
developed economies to high return, capital-scarce develop-
ing economies; and (3) transfer of technology and manage-
ment skills based on relative returns across sectors and
geographies.
Some 20 years since the creation of the WTO, the jury is in
and the verdict is not what some had hoped for. On the one
hand, globalisation is credited with contributing to the great-
est reduction of poverty levels over a very short period.
Almost a billion people are estimated to have been pulled
out of poverty, largely in Asia, thanks to globalisation. Recent
technological advancements, product innovations and the
emergence of global value chains are attributable to the ‘bor-
derless nations’created by globalisation. For developed coun-
tries, benefits of globalisation include greater access to
developing markets, increased economies of scale and scope,
productivity growth, job creation and access to raw materials
(natural resources). Among developing countries, evidence
shows that improved access to technology and capital/finan-
cial flows has helped raise productivity, standard of living and
helped lift millions of people out of extreme forms of poverty.
Global Policy (2019) 10:3 doi: 10.1111/1758-5899.12707 ©2019 The Authors. Global Policy published by Durham University and John Wiley & Sons Ltd.
This is an open access article under the terms of the Creative Commons Attribution License, which permits use,
distribution and reproduction in any medium, provided the original work is properly cited.
Global Policy Volume 10 . Issue 3 . September 2019 401
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