The 2018 Ideas Network 2030 Launch Event

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Session introduction

Session summary

Introduction
Global trends to 2030:
What is the future of international trade and investment?

For a generation, international trade has been on a trajectory of ever-increasing openness.  Cross border trade and investment has become increasingly central to the global economic system and the UK’s national economy, continuing to generate growth, innovation, economic efficiency, job creation and development.  Containerisation, falling transport costs, the development of new communication technologies, the fall of the USSR and the integration of China into the global economy have all played a crucial role in doubling the importance of trade to the global economy since 1960, with global goods exports now thirty-eight times the level they were in 1950.

The spread of international markets, technology and global value chains has led to an unprecedented increase in global prosperity, helping propel more people from poverty since 1990 than at any point in human history.  The world, taken as a single economic entity, now enjoys unprecedented levels of prosperity.  During the 1990s, the World Bank found that those developing countries which lowered barriers to trade had, on average, seen per capita incomes grow three times faster than those that did not, while the OECD Growth Project found that a 10% increase in trade openness was associated with a 4% rise in per capita income.

In industrialised economies, however, discontent with globalisation, trade and investment has been increasing, despite the continued strong support shown by citizens in the developing world.  Adverse distributional trends within wealthy economies have, in some cases, led to a perception that globalisation has been responsible for a stagnation in real incomes.  This feeling is compounded by the growth in the share of wealth of higher earners and structural changes in traditional industries generated not only by trade but also by changes in technology and automation.

For example, between 1948 and 1973 real wages for working class Americans increased 91.3%, while from 1973 to 2015, the era of globalisation when many jobs in traditional industries moved abroad, wages rose by only 11.1%.  In addition, on average in 1965 an American CEO earned 20 times what a worker did, by 2013 on average the number was 296 times higher.  In the UK, 22% of the workforce was employed in manufacturing in 1981, a number which had slipped to 8% by 2017.

Consequently, some argue that these developments have been partly responsible for the growth of populism as an outlet for political dissent, and that weakening support for international trade and investment has troubling implications for global economic growth, peace and ultimately, stability.  Certainly, trade tensions have been increasing with the election of President Trump in the United States and his efforts to impose tariffs on economic allies and rivals alike.

But what do these trends mean for the UK and policy makers?  And what likely developments will we witness both in the UK and the rest of the world in the lead up to 2030 and beyond?
The panel will focus on three main dimensions:

Economic Dimension

            • The World Trade Organisation has noted a modest rebound in trade growth 2017 and 2018.  Do structural factors suggest that growth in trade and investment will return to the high rates of the last 30-40 years, or are we likely to witness stagnation or even regression?
            • Will firms continue to develop complex global value chains, or will new advances in technology such as artificial intelligence and 3-D printing see the reshoring of production processes to developed countries?
            • What measures might be taken to ensure that small and medium sized businesses are better able to take advantage of the opportunities of increased trade and investment and the integration of markets?  How can policy makers ensure that women are also able to be better integrated into global value chains and online trade?
            • Will the trade in services continue to grow at current rates, becoming more important to the global economy, and will this trend see more higher value jobs off shored from the developed world, as they have been in some manufacturing processes?

Social Dimension

            • Will the benefits of international commerce be more evenly shared in both the developed and developing world in the years ahead or will we continue to see certain segments of society benefit more than others?  Will these trends lead to greater support for international trade and investment or are we likely to see increased political pressure to halt or even reverse the processes of globalisation?
            • What policies can, and should, governments develop and deploy to ensure that those who stand to lose from increased trade and investments flows, as well as the possible disruptive structural changes this will entail, find new employment in sectors that will gain from globalisation?

Political Dimension

              • Have trade and investment rules kept pace with developments in the global economy?  Will political actors be able to reach agreement, and successfully design new rules and frameworks to take account of rapid economic and demographic changes?
              • At a critical juncture for the global economy, are we likely to see a retreat from multilateralism, or will institutions and frameworks be able not only to keep up with the pace of change and meet the requirements of the modern economy while developing new models of representation and inclusiveness?
              • What role can the UK play in modernising global institutions and frameworks to ensure that they remain relevant and enjoy the confidence of governments, businesses and citizens?
              • Is the recent rise in trade tensions likely to herald a new era of competition and protectionism between different actors in the global economy, or will policy makers find new of working together to reduce tensions, address imbalances and inequality and accommodate differing interests to achieve win-win outcomes in an orderly system?

Session summary
Global trends to 2030:
What is the future of international trade and investment?

Chair – Alex Boyd

Comments raised regarding trends:

            • It should not be assumed that current trends will continue in future, for example, it remains an open question if trade in goods will continue to increase at current rates.  In addition, previously fragmenting supply chains could begin to reconsolidate on shore in industrialised countries, boosted by the possibilities offered by new technologies such as additive manufacturing.
            • The future of trade in services remains uncertain. However, volumes are likely to continue to grow, becoming increasingly important to the global economic system.  Coupled to this, liberalisation may lead to increased offshoring of services jobs, with increasingly well-educated populations in developing and emerging economies integrating in to services supply chains through the “human cloud.”
            • Research has found large variation in wage growth for lower socio-economic groups in certain developed and developed countries. For example, since the 1980s wages in the bottom third of income distribution in the US have stagnated.  This may be on because of several factors:
              • Increased low skilled immigration
              • The offshoring of traditional industries, often to take advantage of cheaper labour inputs
              • Technological changes which have resulted in automation of jobs previously performed manually by workers
            • The opposite has been observed in India, where almost all jobs impacted by the spread of by free markets have seen rising wages. This suggest that, while global competition has benefitted the poorest in the developing world, it has had the opposite effect for the poorest in the developed world.
            • Such changes could have important political and social implications.  It helps explain, to some degree, why certain sections of a population within a country who have not seen their wages increase with market liberalisation might hold certain political views or outlooks and seek political changes which might affect policies seen by them as desirable.

Comments raised regarding governments:

            • Scepticism was expressed regarding the ability of governments to increase trade flows, moreover, the previous consensus among governments that increased trade and investment were good for all is beginning to weaken, and in some cases, breakdown.
            • Some parts of the world are witnessing a return and/or strengthening of the role of the nation state, with an increasing emphasis on what role the state might play in global trade and investment to achieve certain established political objectives.
              Coupled to this governments have failed to address structural problems associated with recent economic trends – for example, they have not succeeded in upskilling those sections of the work force which suffer because of decreased global competitiveness.
            • It is important to ensure that governments choose solutions of continuing relevance to those whose jobs are lost to international trade liberalisation and technological change, for example, continuing lifelong learning policies, while taking account of cultural sensitivities.  Governments should experiment with pilot projects to assess different approaches to resolving these issues.
            • Important to ensure that smaller businesses can take advantage of emerging trends in trade and investment.  Governments should ensure assistance to enter new markets as well as awareness that such possibilities exist.
            • Online platforms are playing a key role, possibly more important than that of governments, in increasing the participation of SMEs in global value chains and international trade.  They are also ensuring more women can integrate into international commerce.

Comments relating to the UK:

            • In some countries, particularly in the UK, trade has become a “political football.”  Rather than analysing problems from first principles and proposing solutions, actors are increasingly using trade to further other political objectives.
            • The UK government should assess its priorities up to 2030.  Policy should be determined by engaging stakeholders regarding a set of overarching priorities, rather than individual country negotiations.  The UK should first take a more general reflection on what form trade and investment policy should take.
            • The UK needs to build frameworks with countries to cement rules-based systems.  UK needs to devise ways of both encouraging other countries to create frameworks and ensuring that trust in such arrangements can be maintained.

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