Anti-Globalization or Xenophobia?

Caroline Freund (PIIE)

The current backlash against globalization is different from previous movements: It comes from
the far left and the far right, attracting the young and educated from urban areas as well as the older
and underemployed from the heartland. The one thing its most fervent supporters have in common
is perhaps the lack of racial diversity.

On both sides, the movement’s strength appears to be born of fear. Unemployment, immigration,
and terrorism typically rank high on polls about the critical threats to America. Importantly, the
government also tops the charts on people’s worries about the country (see table). Globalization is
a tangible target for these powerful emotions and who better to deliver the message than anti-
establishment candidates. Donald Trump’s blame of foreigners and government insiders for the
country’s perceived problems, in particular, appears to conquer the top six American fears in one
fell swoop. Border barriers limit cross-border traffic in goods, people, and capital, protecting jobs
threatened by foreigners, via trade, outsourcing, or immigration; such barriers also support national
security.

What do you think is the most important problem facing this country today? [OPEN-ENDED]

November December January February

2015 2015 2016 2016

% % % %

Economy 17 9 13 17

Government 15 13 16 13

Immigration 9 5 8 10

Unemployment/Jobs 7 6 5 10

National security 3 5 3 7

Terrorism 3 16 9 7

Federal budget deficit/Federal debt 5 2 5 6

Poor healthcare/High cost of healthcare 6 3 4 6

Note: Shown are problems listed by at least 6% of Americans in February 2016

Source: GALLUP.
RECENT TRENDS IN MOST IMPORTANT US PROBLEMS

The concerns are real and reflect a changing global environment, but nationalism is not the answer.

Two unrelated but large shocks happened in 2001. The first was economic: China liberalized its
economy, joined the World Trade Organization (WTO) and opened to trade, and the economy
grew at double-digit rates. As China took off, the US share of world output fell from 20 percent in
the 1990s to 16 percent now, and the US share of world exports fell from 13 to 10 percent over the
same period. The decline does not reflect shrinking US trade activity, but rather faster growth in
relatively poor countries like China, but also India, Russia, Brazil, and others. While foreign
growth is good for the US economy as a whole, US global economic power has receded, and some
workers in sectors competing with Chinese production lost their jobs.

Over precisely the same period that US global economic power declined, security threats
intensified. The attacks of September 11, 2001, had a profound impact on America’s outlook
toward national security. And while terrorist attacks in the United States are rare and their
incidence has actually fallen since the early 1990s, the nature of attacks on American soil changed,
with an increase in number of events targeting private citizens. In addition, global incidents have
risen sharply according to the Global Terrorism Database. This shift in attitudes on security (and
liberty) is apparent in polls showing that a significant share of voters is sympathetic to a temporary
ban on Muslim immigrants, despite widespread criticism from the leadership of both parties.

Presidential candidates have been quick to capitalize on people’s fears and assign blame for US
weaknesses to foreigners. Slogans such as “race to the bottom” and Donald Trump’s promise to
“build a wall” on the border play to that message. It is a simple story: Foreigners and their flood
of goods are the economic problem, foreigners and their conflicts are the political problem.
Turning inwards is a pretty straightforward solution. From this perspective, it is not surprising that
the candidates who are most staunchly against trade are also those with a largely white American
base. (A recent poll shows 71 percent of Hispanics support free trade.)

One indication that the anti-globalization movement is tied to broader economic and security fears
is timing. 2016 is a strange time for trade and immigration to play such an important role in election
politics. Global trade is slowing, immigration from Mexico is declining, and China’s economy is
struggling and its currency is overvalued, so blaming globalization for any current or future
economic woes is misguided. The wall idea is especially odd, given that in recent years more
Mexicans have left the United States than have come in.

The United States is not doing great, but as Adam Posen aptly put it, it is currently the least
ugly advanced economy. The openness and flexibility of the US market have allowed the country
to recover from the global recession more quickly than other advanced countries and kept
American companies at the forefront of innovation. US unemployment is now at precrisis levels,
and growth, albeit slower than precrisis, continues to outpace that in other advanced countries.
Four of the five largest technology companies in the world are American. These companies
increasingly look to the relatively fast-growing emerging markets to maintain their positions.
The vast majority of Americans benefit tremendously from globalization via cheaper goods, more
varieties, and productivity gains from enhanced competition. Research shows open commerce is
especially important for the poor, who spend a higher fraction of their income on traded goods.
Immigration has boosted innovation and growth, with the skills of foreign-born workers
complementing those of the US-born labor force. Perhaps more importantly, especially in these
turbulent times, US leadership on economic and political issues depends on a firm commitment to
open commerce. Sanctions, for example, do little damage in an autarkic world.

The sudden strength of the anti-globalization movement is connected to a decline in the US ability
to control global commerce and security, making some Americans want to retreat from the world
economy. While free trade may not always be the best policy, one thing is certain: Nationalism is
not a solution to America’s woes. US strength in the global economy allows us to prevail in setting
global rules. If we retreat from the world, we leave that space open for others. With the US
economy serving as the global engine of growth, now is the time to push ahead on the mega trade
deals that will cement the US position as a global leader. Globalization also provides low prices to
consumers and keeps our companies the most innovative in the world. Closing borders is not a
solution, rather a grave mistake that would severely damage long-run American prosperity and
leadership.