The New World of Trade – How 40 Years of Change Brought Globalisation Without Trust

Making sense of daily trade policy turbulence has become a major challenge. President Trump is just one part of a complex ever-changing picture.

Stop the world to catch up is an understandable response – but not available. A 40^th anniversary – congratulations to ACITA on supporting UK trade through this time – provides the perfect opportunity to offer explanations by looking back and predictions going forward.

This whole period has been one of quite staggering change. In response, citizens expect governments to show a level of control – that turns out to be impossible in a modern inter-connected world.

Brexit, Trump, and the rise of populists across the world reflect this unfulfilled demand. Trade restrictions are an unsurprising development.

That vacuum has to be answered by leaders offering new frameworks to make choices. These need to have 2025’s economy and an ageing population in mind – rather than assuming a 1980s industrial structure with the growth of the 2000s.

Such an approach can in turn rebuild confidence and provide the foundation for a revival of stable national politics and international relations.

To distort the words of a 1985 hit single – we need to know where we’ve come from to come off this road to nowhere.

The Last 40 Years

To illustrate just how different life was 40 years ago, at this time in 1985 nobody in the UK would have been watching English football on television. There was a dispute between clubs who believed their crowds affected by coverage, and broadcasters who refused to pay more.

A then MEP told me their case load overwhelmingly consisted of dealing with goods stuck in customs at Calais.

The Amstrad word processor was a leap forward in computing particularly for small businesses. A whole keyboard, monitor, printer and 512kb of RAM at a cheap price. The launch of the 386-chip may have been of greater long-term significance.

Judging by the music charts, it was a more optimistic time, with three UK chart top ten hits called “The Power of Love” in the space of a few months.

Technological developments were improving daily life, through shipping containers, cheaper household goods and the expansion of supermarkets. These were an early sign of a wave of technology-driven innovation that would transform the world.

Milestones came thick and fast.

• 1989 and the fall of the Berlin Wall plus European communism was seminal – and quite unexpected a year before
• Launch of Windows 3 the following year was perhaps less noticed then but subsequently ubiquitous
• In 1992 we welcomed the new European single market, in 1995 the Schengen area, and then new members of both – meaning almost a whole continent of free movement of goods and people
• World Trade Organisation and Easyjet started in 1995, and eBay in 1996. India Premier League cricket arguably changed the sport world from 2008, with the English Premier League – or EPL – similarly becoming a global mega-sport-export
• Most of all the internet for consumers from the mid-1990s – never mind the dial-up speeds – and for companies exemplified in the rollout of SAP R/3 in 1992
• Then social media, with twitter established in 2006

By any standards, a golden age of new developments and opportunities, growth and better public services. Although at least in Europe paused to a degree by the global financial crisis around 2008 – wealthy and full of opportunity though countries still are by any historic parallel.

Trade changed and expanded hugely during this time. Sprawling single-site factories making all the parts of a product were replaced by sprawling global supply chains. Services became an integral part of goods, whether through service contracts or software embedded within the product.

Consumers were increasingly able to buy goods or services directly from another country. Music changed from being mostly purchased as a physical product to consumed as part of a service. Video rental shops started stocking DVDs and were then superseded by streaming.

Choice of music or virtually anything else at affordable prices increased year-on-year. Local shops faced competition from online shopping, fed by warehouses – the new factories? – all around the country.

For families and workmates, communication was transformed. In 1985 people would barely dare call abroad for the cost, now it is free video calls. International co-working is normal, travel much easier.

Companies became logistics and brand providers as much as makers of products and services. Every day their sophisticated largely invisible processes fill shelves globally. Meanwhile their decisions affect localities all around the world, not least given fewer people in total are needed to make things.

That meant for many communities the loss of jobs through decisions made somewhere else. A natural consequence of rising productivity and footloose production.

There was so much more choice in sourcing decisions. China was already developing its manufacturing in 1985 in competition with other local players like Japan. Progress since has been remarkable. Vietnam, India and many others have joined them in aiming to be hubs of the new economy.

All of these developments – happening in different ways in different countries – also drove growth, though that has slowed as new global corporate leaders established.

When a global pandemic came, we also saw vaccines developed and deployed in record time. Equally though governments started to become nervous of what their countries didn’t control or make.

Bilateral trade agreements, mutual recognition of rules, and the extension of trade rules to services and regulations as part of the formation of the WTO contributed – in letter and spirit of openness. China joining the WTO in 2001 accelerated their export growth.

Free trade was though always subject to restrictions. Governments retained elements of protectionism towards certain sectors, like agriculture, aircraft, and steel.

There was a related rise of regulations across the world, particularly in developed countries. Initially these were market making and opening, later they were more driven by public demand for government to derisk life in numerous respects. Sometimes they incentivised local production, and featured in trade policy discussions.

Alongside the economics we saw social change, in the continuing decline of manufacturing employment, greater equality in the workplace, huge increases in house prices in many countries, the rise and fall of the share owning democracy, and above all more people living longer.

A transformation that many people were asking for in 1985. A healthier world with greater opportunity and hundreds of millions lifted out of poverty. This was what trade rules were invented for, even if their role was probably secondary to technology developments.

Be careful of what you ask for perhaps. All of this evidently has not led to greater happiness.

What Is the World Today

Surveying the immediate past is essential given how much of today’s political narrative seems set in a 1985 world of factories, national production and government control of economies.

That world has gone. Never has it been so easy or cheap for goods, services, money, and people to move between countries. Global markets are a reality in many sectors.

What we might have called western economic leadership has gone – Europe and the US are no longer driving globalisation. This is barely surprising for example in electric vehicles where the largest consumer market is China.

Developed countries still feel the pressure to maintain their pre-eminence. Emerging economies want to maintain their rise.

Insecurity is widespread in this new world – for countries, governments, or individuals within them, working for large multinationals or as sole traders.

Cooperation, between countries or political parties, becomes difficult in this environment. “Take Back Control” was the winning slogan in the Brexit referendum for a good reason.

Turning that into governmental reality has though proved impossible in an inter-connected world. UK governments discovered that major companies did not want a no-deal Brexit. Later, that bond markets were rather important.

Others would do well to learn. The EU is now discovering they cannot regulate on behalf of the world to deliver action against climate change. Additional burden on its businesses is just too much. Even President Trump may be discovering that tariffs can’t on their own bring back manufacturing to the US.

For global markets are integrated in the political economy of every country. Consumers expect wide, affordable choice. Businesses need quality inputs soured globally at low costs to deliver that. Operating globally is the new default.

Trade has delivered. Modern supply chains are undeniably complex but surprisingly resilient.

Government control of them is limited, with influence more about regulation and tax than direct intervention. Business actions are now subject to hundreds, thousands and maybe more pages of rules, imposed for all the best of reasons.

This though has consequences. Space for smaller players is becoming increasingly hard whether in services or goods.

There are still millions of small companies trying to find their niches. In an ideal world we would be encouraging their growth across the country to challenge the big players.

In this one, however, we are all simply too dependent on the global corporations, for good and bad. They can be seen in most sectors, not just for goods like cars and pharmaceuticals. The same applies to technology, most obviously, distribution, broadcasting, retail, travel, finance, and perhaps more controversially sport and higher education.

Scale allows them to deliver supply chains overcoming trade barriers but at a cost of economic dynamism. Their investment is however seen as crucial by governments.

At least though they offer some protection against Trump’s assaults on world trade.

What Will the Next 40 Years Bring?

As ever, there are plenty of predictions about what happens next.

Some see as an age of deglobalisation, with countries rejecting hyper-liberalism. Others see an Asian century, or competing blocs of countries. Then there are the worries of global breakdown and war say if China invades Taiwan.

Artificial Intelligence or quantum may fundamentally change the world – according to their advocates. Tackling climate change may become an ever more pressing issue.

Too many of these stories though miss the transformation that already happened, and that nation states need to catch up with how to manage this reality. While they do so, stable international law is unlikely to return.

Nation states against global rules is one of the issues as we seek new balances, Others include:

• Between local places, domestic production and global markets;
• Between climate change, regulation to manage risk and economic activity
• Between corporate and personal taxation, and young and old, in paying for, providing and receiving public services
• Between consumers wanting global access and local producers wanting protecting
• Between ageing populations and immigration
• Between the old west and the rest of the world, and old industries like steel and new ones like AI
• Between formal legal commitments and best endeavours
• Between simple quick but probably wrong answers and the difficulty of delivering for all

All this means a far more complex operating environment for policy makers. They have to think through multiple consequences and dependencies for every issue.

That’s why those simple answers such as immigration control, tariffs or targeting large companies are seductive but don’t in fact deliver.

That though does not mean we must have a technocratic government. Quite the opposite.

We need to rediscover the art of prioritisation after a golden age of growth through opening economies. There is a huge gap for new political frameworks that take account of today’s circumstances – to prioritise the choices needed to find a way through the complexity.

This is the case whether deciding on trade partners or the object of extra public services. Quite possibly successes of the 90s and 2000s blinded politicians to the need for rationing of government attention.

Diminishing growth alongside demographic change make distributional questions even more pressing. For example, will there be a leader brave enough to seek to persuade the elderly that they should receive proportionately less? Or indeed that immigration could be the answer?

Overlaying onto politicians who want to deliver everything is the shrill sound of social media demanding apparently easy answers and ready to cry failure when they or anything else inevitably fail.

Political structures based on class systems that were already breaking down in 1985 do not seem to be the answer. The next generation know little and care less of the world that was then. Their interests lie more in climate change as well as basic questions of acquiring home and family.

Reassembling political coalitions will of course be difficult – arguably impossible until there are leaders who can tell the stories of today. Political contests between populists and centrists may thus endure for a while.

In the UK at least, discussing all this or “putting the world to rights” over a few drinks in the pub was once the norm. Today’s version is more likely to be a roundtable and team building exercise.

Like all of these changes, some things are gained and some lost as a result. Either way, specialists do need to play a role in finding the new paths.

What This Means for Trade

Trade should support consumer welfare. Countries earn in exports what they can then import. By increasing efficiency, this earns more for the efforts of its population.

We have indeed all gained from trade whether from the phones we carry to the goods we can more easily afford. Of course, we may have lost in other functions as workers or in our communities.

Benefits of trade are however easily forgotten when so few politicians will speak about them. Price rises are the most obvious result, as more barriers are imposed. UK inflation has consistently been running above that of the Eurozone, and US prices are starting to rise.

There will always need to be a balance between consumers and producers. What is needed though is awareness that these are the choices being made.

What we are more broadly seeing is a softening of world trade laws, where binding commitments become more like best practice guidelines. Already most commitments in new sectors like digital trade resemble this, with carve-outs for a good policy reason.

Yet the underpinning MFN principle is likely to persist as a core principle of trade, if not always followed. There is an attractiveness to the idea of charging the same tariff and applying the same regulation for the same good to different countries.

By contrast, the US combining 17,000 tariff codes and 200 countries would lead to more than 3 million specific tariffs. This is quite some waste of resource.

By contrast, one Trump method that may spread further is country-company agreements alongside those with other countries. Once mostly confined to utilities, this is now being seen in the pharmaceuticals sector regarding investment and pricing.

Given the importance of large companies to national economies, other examples will probably follow. Commitments to discipline the behaviour of state-owned enterprises will fade away.

Quite whether one can have MFN treatment for country-company agreements is a reasonable question. This though is an illustration of the outdated nature of WTO rules.

They barely cover climate change or e-commerce, while economic security is either national security and therefore carved out, or not considered at all. Regulations are only slightly covered in terms of commitments, more in notifications.

Meanwhile interlinked supply chains providing plentiful opportunities for what is being called the “weaponisation” of trade – interference by government in supply or demand justified by national security or not. All of the EU, US, and China have tried this in some way.

Each may claim to be within WTO rules in doing so. In turn they discover the inter-linkages which will prevent them doing exactly as they want – or indeed simply retreating behind walls.

Economic security of countries is undoubtedly and rightly of growing interest. Global markets by themselves cannot guarantee countries the varied supply or demand they need. Inter-connection makes critical infrastructure vulnerable.

Handling these issues will make for huge and costly jobs for governments, not least when even the nature of friend and foe can be rather changeable. They may also further reduce growth.

Existing WTO reform proposals barely cover these issues. Given countries are struggling to make strong commitments on these topics in bilateral deals with allies, it seems unlikely that there will be new comprehensive global rules any time soon. At best expect fragmentation that reflects a multi-polar world.

A former US Trade Representative suggested that the new global trade environment would be poly-amorous – raising some questions perhaps as to his lifestyle. To the extent that this more simply meant a range of smaller agreements with various countries, that seems likely.

Governments see cooperation as essential in the inter-connected world, even while protecting policy space. Hence agreements unlikely to change immediate economic fundamentals, but collectively may over time give shape to the next stage of global trade.

This will be though more a BRIC world of changing cooperation than a G7 one of a few countries strongly bound together. There will be continued linkages though as long as companies and therefore consumers benefit from their exploitation.

Small companies and developing countries will be a real test for institutions. They are the ones who really need strong trade rules, but are currently largely ignored. Ending de minimis exemptions is a classic case of collateral damage for a measure introduced to protect incumbent large business against two Chinese competitors.

Industrial policies and subsidies will probably need reinvention. Governments should rethink their toolbox for the new world where knowledge travels seamlessly, and large companies have resources but also ask for more.

From a different angle, consumers will continue to demand more of their products, making traceability and other regulations on ongoing part of doing business. As a result, countries will not notably deregulate even if there is an economic cost.

Goods trade should benefit from digitisation, and services trade continue to grow with some help from AI. This will inevitably bring forth more challenges of national rights against global companies, such as who owns relevant data, which will never be fully resolved.

In all of this complexity, policy-makers will struggle to define the essential as against those with the largest lobbying budgets or greatest sentimental appeal. Protection will be entrenched for some industries as a result, culture wars will not help.

Governments may try and fail to manage trade more directly, there being simply too many variables – just as there were in the simpler times of 1985 for the Soviets to plan their economies. So, countries will try to benefit from trade, manage its impacts, protect against risks such as subsidising some production, and protect their workers.

They – but more the major companies with the commercial interest – will probably succeed enough to prevent disintegration, but not enough to transform economy or politics. Or perhaps as a colleague put it about quantum technology “decentralised networks of actors, technologies, and interactions rather than from monolithic entities… There is no leader”.

This at least is the world as it looks today projected forward a few years. Then again, there will probably be much that nobody is predicting.

To Conclude

Insofar as October 1985 is now remembered it may be as the key date in Back to the Future, released a couple of months later. Going back to the 1950s from then looked as much a different world as the 1980s would look now.

In trade terms perhaps this should mean another round of multilateral talks in Torquay. That might be as realistic as bringing back the large factories of the period.

There was a postwar settlement of which the GATT was part that crumbled in the 1970s and 80s This was succeeded by an age of technology driven openness including the formation of the WTO which started to break down in 2008.

That Doha round, of fond or not memory, is unlikely to be concluded.

As established patterns fragment, our new world appears to be a patchwork one – a rather confusing set of arrangements ultimately underpinned more by global companies than national governments. This is a level of complexity that policymakers and individuals alike are struggling to grasp.

Today’s challenge is above all to generate a shared understanding of this world against the backdrop of disillusion and social media – then to build majorities for specific decisions.

Realistically assessing trade and global markets must be a part of such conversations.

That hasn’t been going terribly well so far, honesty proving scary when set against easy answers.

Then again, the power of love as well as some home truths and rather hastily rigged arrangements saved Marty McFly from living in the past. Maybe that is always the way with progress and will be once again.

Take Aways:

• Technology has linked the world, changing life, economics, and politics fundamentally
• Openness delivered a golden age but has now become a settled system of major players
• Inter-connected networks driven by those players deliver reliably but with limited growth
• National governments struggle to influence their economies given this world
• Old ideologies were replaced with delivery for all in times of plenty but we now need new ideologies to prioritise given demographic challenges in particular
• In their absence we are likely to see continued battles of populists and technocrats
• Generalised insecurity around this picture means we cannot expect settled international rules