We have to remember we’re in a global economy. The purpose of fiscal stimulus is not simply to sustain activity in our national economies, but to help the global economy as well, and that’s why it’s so critical that measures in those packages avoid anything that smacks of protectionism – Stephen Harper
BY ANTONY MUTUNGA
One of President Donald Trump’s major agenda that persuaded the American people to vote him into office was the promise to bring jobs back to America. He accredited the problems the people were facing especially the high rise of unemployment in the country to globalization. This was just the beginning in the fight against globalization, as recently Marine Le Pen, who is seeking the presidency of France, shared in the views of Trump towards globalization. She blamed the problems that France is experiencing on globalization and made it her top priority in her campaign.
As a result, they have both picked up protectionism as a countermeasure against globalization, which they also blame for the problems that the global community is facing. These two are not the only ones, as more people all over the world blame globalization for most of the problems they experience. They believe that ever since its emergence in the year 1492, globalization has always left one side profiting more than the other. However, the Chinese president, Xi Jinping does not agree as he openly defended globalization during his speech at WEF Davos 2017, saying that there was no need for trading wars because globalization should not be blamed for the world’s problems. Most people agree with him, believing that globalization has instead brought about a lot of new opportunities to different economies.
Globalization is said to have occurred in several periods since its emergence. The first stage involved countries, the second, organizations and then finally the most current involves people. Through these stages the world was open to each other and that brought about a richer experience, new opportunities as well as new innovations. Commodities that were once scarce in some areas became readily available and this was all because of global trade. For instance, in the late 20th century the trade of goods and services in China increased from 23% to 46% of the GDP and in India it increased from 19% to 30%.
This trade brought about the diversification of goods, which caused competition among organizations, giving people the opportunity to enjoy commodities at a lower price. The competition also led to more progress as organizations looked to outdo each other in order to improve their products and get more customers. Globalization also helped a number of people who were living under the poverty line to be able to improve their lives.
Despite having these positive impacts on the world, it has also had its fair share of negative impacts creeping up in the dark. For instance, when globalization emerged, organizations and products dispersed all over the world but at the same time it brought about trade deficits. According to the theory of comparative advantage, this should not be the case but alas! Due to capital turning completely mobile, off shoring has become common in organizations.
This causes production to move from one country to another but consumption does not, leading to a trade deficit in one of the parties involved. In Kenya for instance, several organizations have left to move to other favorable nations, contributing to the country’s trade deficit of Sh79, 843 million as of November last year. This has led to an increase in the national debt growing at 55% of GDP. Apart from the national debt, it has also soared unemployment levels, reducing the chances of masses from moving up their social classes. Kenya has 42% of its population living under the poverty line.
It is the common problem being experienced by the World’s largest economy in terms of GDP (Nominal). In 2016, the U.S trade deficit increased by 0.4% to $502.3 billion helping Trump in his move to take up protectionism. His vision is to put up various trade quotas and tariffs to ensure that it is difficult for organizations to move capital to other countries in order to ensure that American citizens do not lose jobs.
In the short run, this will also help domestic organizations to grow and expand due to a reduction in competition, which will be as a result of most foreign organization deciding not to invest in the country or moving out to countries with more favorable policies. The growth of the domestic organizations will enable the employee’s wages to increase as well. However, it, in addition to the lack of competition will eventually cause the prices of commodities to increase, at the expense of consumers, as there is a high possibility of the reemergence of monopolies.
Even though on one hand globalization does encourage competition, it as well brings about an increase in income inequality. This can be accredited to the fact that most of the developed countries have increased their demand for skills, usually encouraging brain drain from developing countries. Unable to develop their skills like they expect, most high skilled workers decide to shift their skills in favor of developed countries. This causes the incomes for high skilled workers to increase, as those of the low skilled workers remain the same. But despite the increase in income inequality, globalization has also increased the average income of employees in different countries.
However, there is need for global policies to ensure that there is no exploitation whenever two countries are involved in trade with each other, even though at the end there must be a winner and a loser. Protectionism also requires some government control to ensure that consumers are protected from organizations. In order to get the best result, there is a need to use both protectionism and globalisation since a developing economy needs to be guarded just as a young baby is by her parents (protectionism). But as developing economies grow further, there is need to let them face the world (globalization).
