That’s the way globalisation ends, not with one large headline, but with several changes in the direction of policy, caused by events seemingly unrelated to the policy changes they produce. That’s bad news for those who believe that freer trade and an increase in the international flow of capital—the principal manifestations of globalisation—contribute to efficiency, rising incomes and job creation. And they know who to blame— Edward Snowden and Barack Obama.
Neither had a slowing of globalisation in mind when they turned informer on American spying operations (Snowden) and tightened the domestic regulatory screws (Obama). But Snowden reduced the chances of trade-opening deals, and Obama created impediments to an increased flow of capital.
Snowden probably knew nothing about the delicate negotiations under way to create freer trade with the EU, a deal known as the Transatlantic Trade and Investment Partnership (TTIP). But by setting in train the series of events that forced German chancellor Angela Merkel to express shock at the hacking of her mobile phone by America’s spooks, and gave French protectionists an excuse to claim they cannot negotiate with a country that spies on them, Snowden sharply reduced the chance of a successful conclusion to these negotiations. As The Economist puts it: “Many EU negotiators are losing their zeal to discuss a free-trade agreement with America without clarifying their overall relationship.”
After all, can a democratically elected European politician ask her voters to approve a deal cut with an American president who spends his time listening in on her conversations? Surely not. Or at least, surely not until the furore dies down, which might be too late to give Obama time to push TTIP through a Senate that includes many members of his own party who are beholden to protectionist trade unions.
Of course, even before the revelations of spying by America’s National Security Agency—revelations that hardly came as a surprise to our allies, unless you count their surprise at how much better America is at it than they are—completion of freer trade agreements was no sure thing. French farmers want none of it; US consumer groups fear trade deals are the backdoor under which advocates of weaker regulation will slip their legislation; trade unions profess fear that expanding trade will destroy still more “good paying, American jobs.”
So much for the collateral damage created by Mr Snowden. Turn to the damage to investment flows inflicted by President Obama’s drive to expand the regulatory state and revive the power of the trade unions. He sees this as purely domestic policy, and is either unaware of or unconcerned by its negative effect on foreigners’ desire to invest in America.
America’s share of the worldwide stock of inward foreign investment has shrunk to 17% from more than twice that in 2000. Foreign direct investment (FDI) dropped by 28% last year, and this year it is falling further. In the first six months, foreigners invested a mere $66bn (£41bn) in the US, compared with a not overly large $84bn in the first half of 2012.
The president knows that the jobs created by such investment are generally well-paying and stable. The latest job and GDP reports are encouraging, but Obama also knows that unless he can do something to step up the nation’s growth and job-creation rates, his party will enter the 2014 congressional elections lumbered not only with the fiasco of the failed introduction of Obamacare, but with a weak recovery short on job creation. He is desperate to reverse the decline in the inflow of job-creating investment, which the president’s men are blaming on the recent government shutdown and the brawl over the debt ceiling.
They would do better to consider what they offer foreigners—in addition to one of the world’s highest corporate tax rates.
Uncertainty is one unattractive feature of the political landscape since the president has decided that he has the power to enforce some laws while ignoring others or to bypass Congress and rule by administrative decree. Industries in regulation-sensitive sectors have to think twice about making big investments because rules can change with a stroke of the presidential pen.
Then there is energy. Prospective foreign investors, attracted in part by America’s abundant supply of cheap energy, have to wonder just when the president will decide to move against fracking, reducing the supply of low-priced gas, and by how much his war on coal, which fuels about half the electricity generators in the country, will drive up electricity prices. Or whether he will appease his environmental supporters by cutting the US off from Canadian oil supplies. Or what other cost-raising measures he will concoct in the campaign against global warming.
They also have to worry about future labour costs. For one thing, Obamacare will surely drive costs up. For another, the president’s appointees to the National Labor Relations Board seem intent on giving the trade unions a toe-hold in right-to-work states that have until now been the location of choice for foreign investors and for American firms seeking relief from uneconomic work rules and wage rates.
“It’s time for folks to focus on doing everything we can to spur growth and create new high-quality jobs,” says a White House spokesman in an appeal to foreign investors to give us your euros, your yen, your yuan, your investments yearning for a decent return. The decline in FDI suggests that foreigners are insufficiently credulous to ignore the risks of which oft-burned home-grown businessmen, sitting on their cash piles, are all too aware. “We can do better,” the president told foreign audiences last week. Indeed.
The president will have to appease critics of the National Security Agency’s data gathering to get trade deals back on track, and reassure foreign investors that America is not a tax and regulatory trap, to persuade them to step up their presence here. So far, he seems more willing to rein in surveillance than to rein in the growth of the regulatory state.