THE BASIS POINT

Globalism.

There is much talk of late about globalism. People tend to lump several things together and then take a stance of the assemblage. That makes no sense. I want to detail several parts of what people talk about when they say “globalism” and remind folks that one can have a view on each.

1) trade of goods and services. This is about “free trade.” I use the expression “free trade” to mean trade free of tariff, import quotas or outright restrictions. This has been realized, in part, by regional free trade groups such as NAFTA and the EU. While there are not total free trade groups they are. for practical purposes, close enough.

Free trade groups are about free trade for other members of the group. There are still trade restrictions and even tariffs on those outside the group.

2) free flow of capital. This is extremely important but not often discussed. Capital can flow freely from one nation to another. For example, in recent years, interest rates have been low in the United States. Those possessing wealth and seeking better returns loaned or made capital investments of significant quantities of money in emerging nations. This can help spur growth in a nation not possessed of sufficient capital but the downside is that once increased risk is perceived that capital flow can stop and the nations receiving the inflow of capital will lose industry it does not have the capital to support. This can not only be a financial issue but can be politically destabilizing.

It is beneficial here to look at the U.S. balance of trade, for example. The U.S. runs a trade deficit of about $40 billion per month. We import about $40 billion of goods and services more than we export. What happens to the difference? The difference is made up almost entirely of a surplus of capital inflow. Foreign nations, corporations or individuals but $40 billion/month more of U.S. assets. This can be debt, real estate, equities or whatever.

For the U.S. at present this works because we have a relatively low savings rate and need of this inflow of foreign capital.

It is important to note that the trade deficit is comprised almost entirely of voluntary transactions: people buying foreign made stuff at store because it is less expensive or people buying BMW’s because they like BMW’s.

The free flow of capital can threaten nations when they believe that too much is flowing out. This is probably happening presently with China. Bloomberg estimated outflow of capital from China at $1 trillion in 2015. Capital outflow can come from many sources, It can be a nation repaying debt help externally. It can be from citizens feeling that their assets are not safe in a nation’s currency of that returns are better elsewhere.

When a nation gets concerned about the outward flow of capital it can adopt capital controls. Capital controls can be outright restriction of capital flow or limits on it. Restricting cash withdrawals from banks can be a form of capital control. Whenever there is an International financial crisis such as the post-Lehman liquidity crisis (2008) , the Russian ruble crisis (1988-1989) or the Asian currency Crisis (late 1990’s) politicians seek to blame someone else for the problems and blaming the flow of foreign capital is an easy way to convince voters that it was someone else’s fault. This is the standard reason politicians have for anything which goes wrong. It is always someone else’s fault.

Recently we have seen in some nations increased controls on inflow of foreign capital. This stems from fearing that the ill effects of the later outflow of that capital outweigh the benefits of the inflow. It can also be targeted. Nations may not want foreigners owning its telecommunications infrastructure, its agricultural land, its energy producing infrastructure, or its tech industries.

3) Free flow of people. This is becoming a big issue in Europe with so many people fleeing middle-Eastern nations for western Europe. Lack of border controls equals free flow of people. In the U.S. this has become an issue made by Trump involving largely folks illegally crossing into the U.S. from the southern border. The political issues tend to be “these immigrants are taking our jobs” and “these immigrants are getting expensive because they need some of the social benefits citizens have.” Since this issue has become politicized it is almost impossible to have a rational discussion on the subject.

4) Foreign government regulations/ world government

This is most interesting. It involves the concept that somehow a thing such as TPP (Trans Pacific Partnership) is merely a step toward a world government. I think that Brexit was in part about British voters saying “I don’t want Brussels telling me what to do.”

More practically, an agreement such as TPP does involve surrendering discretion to an international authority or at least an International set of rules. Environmentalists, for example, are generally opposed to TPP because it could restrict the ability of the U.S. to impose certain environmental regulations.

I do not see EU membership or TPP as being inevitable steps to world government as long as something akin to divorce is possible. A successful conclusion of Brexit makes a thing such as the EU and TPP more palatable because a nation can bail when the group is perceived and no longer benefiting the citizens of a given nation.