Below, David J. Lynch shares five key insights from his new book, The World’s Worst Bet: How the Globalization Gamble Went Wrong (And What Would Make It Right).
David is the global economics correspondent for The Washington Post. He has reported from more than sixty countries for the Post and earlier in his career with the Financial Times of London, Bloomberg News, and USA Today. In 2021, he received the National Press Foundation’s Hinrich Award for Distinguished Reporting on Trade.
What’s the big idea?
Back in the 1990s, the Cold War was freshly over, democracy and free markets were spreading across the globe, and U.S. leaders were optimistic about the future. Globalization was promised to deliver a double-barreled win for Americans: widespread prosperity at home and peace abroad. But that didn’t happen. Instead, the U.S. has turned its back on free trade, China and Russia have doubled down on state control of the economy, and experts are warning of a new global divide. So, how did the triumphalism of those initial post-Cold War years lead us to the rise of economic nationalism today?
1. The U.S. took a gamble on globalization.
We may not have appreciated it at the time, but U.S. leaders effectively bet that we could enjoy all the benefits of globalization without worrying about the costs. Globalization—the easy movement across borders of goods, money, people, and ideas—made Americans richer. Lower-priced goods from China helped keep inflation under control for more than a decade while we enjoyed a wider choice of products. I grew up in Connecticut in the 1960s and can recall a time when we could only get corn on the cob for about six weeks every summer. Here in Virginia, where I live now, we enjoy fresh fruits and vegetables 365 days a year, thanks to trade with countries like Mexico.
The gains from globalization were significant, but our leaders overlooked (or downplayed) the costs. American factory workers lost their jobs to people overseas who would work hard for far less money. Not much was done to help the Americans who were hurt, even though politicians repeatedly promised that they would be taken care of. Meanwhile, companies that focused only on lowering costs made their own risky bets, eventually relying on Chinese manufacturers for critical needs throughout the economy—leaving us vulnerable when the pandemic struck. And U.S. officials were slow to respond to China’s emergence as a strategic rival, rather than the partner Washington hoped for at the dawn of this era.
2. Globalization is a matter of life and death.
How countries choose to globalize has real-life consequences. I saw that in 1998 in Jakarta, Indonesia, when I covered the final days of the dictator Suharto. A financial crisis that began in Thailand the year before (caused by largely unregulated flows of money from Western investors) was spreading across the region. At first, everyone got rich. Then the investors became spooked and began pulling their money out quickly. Indonesians began protesting after Suharto imposed price increases on food and fuel as part of a deal to secure the international financial support he needed to stay afloat. The protests turned violent, and hundreds died, including many in a terrible shopping mall fire. I found myself in the Jakarta morgue one sweltering summer afternoon, staring at the first dead bodies I’d ever seen and talking to anguished relatives of the victims. I’ll never forget one desperate father who was searching for his 20-year-old daughter. I don’t think he ever found her.
“How countries choose to globalize has real-life consequences.”
People also suffered back home. In a factory town in northwest Tennessee, workers who produced Goodyear tires saw their jobs vanish amid a flood of cheap Chinese imports, what economists called “the China shock.” Some of those laid off took up farming. Others found new jobs that paid a third of what they’d earned by making tires. Kent Greer, who had 20 years of experience, was able to transfer to another Goodyear plant in Alabama. But that meant working 12-hour shifts for two weeks straight before driving six hours back to Tennessee to spend a short weekend with his family, then turning around and returning to Alabama. He kept up that grueling schedule for nine years. Then the Alabama plant closed, too.
3. Policymakers made mistakes.
You’d never know it by listening to the debate over President Trump’s reversal of traditional U.S. trade policy, but the architects of the U.S. approach to globalization acknowledge that they got some things wrong. When I suggested to former President Bill Clinton that the U.S. had failed to keep its promise to help workers adjust to a globalized economy, he said: “I agree with that.”
I consider Clinton the godfather of U.S.-led globalization. He steered the 1994 North American Free Trade Agreement (NAFTA) through Congress and celebrated China’s entry into the World Trade Organization a few years later. He always said that globalization was a fact, not a choice, and that while it would make the U.S. richer, there would be individual winners and losers. But Clinton said that the winners would help the losers with training, relocation assistance, and whatever they needed to take advantage of the new opportunities that globalization created.
“Clinton is not alone in acknowledging error.”
Unfortunately, that never happened. Other things—like budget deficits, the war in Iraq, the desire for good relations with a rising China—always took precedence over providing for disadvantaged workers. Clinton is not alone in acknowledging error. President George W. Bush’s top economic advisor, President Obama’s chief trade negotiator, and leading economists like Paul Krugman and Larry Summers all say that either workers deserved more help or that elites oversold the benefits of trade agreements.
Many U.S. leaders also thought that expanded trade would change China more than it would change the U.S. That helps explain why politicians were slow to respond to working-class discontent and why top CEOs allowed their supply chains to become dependent upon China, which ultimately defied American expectations by doubling down on authoritarianism rather than opening up.
4. Globalization backlash started long before Trump.
Tim Draper bills himself as the first Silicon Valley venture capitalist to invest in China. Soon after Beijing joined the global trading system around 2000, Draper scored a $1 billion win by investing in an Internet search company called Baidu, the Google of China. He was so enthusiastic that he described Communist China as a “free” country where people could make money without worrying much about the government. That judgment turned out to be wrong.
The marriage of Silicon Valley cash and Chinese brainpower showed another dimension to China’s economic rise—one that would eventually dominate relations between Washington and Beijing. The big profits that investors were making in China at the time help explain why people were slow to see the country as a threat.
By 2014, things had changed. One of the companies Draper invested in, a third-party payments provider called YeePay, started having unexplained problems with local authorities. Regulators fined the company repeatedly, citing all sorts of vague infractions. Draper struggled to get straight answers about exactly what was happening. Then a state-backed private equity firm made an unsolicited bid to buy YeePay for a fraction of what it was worth. All of this happened when the company was under pressure to change its corporate structure in a way that would have sidelined foreign investors.
“The big profits that investors were making in China at the time help explain why people were slow to see the country as a threat.”
The once-enthusiastic American had had enough. He told his investors: No more money into China. Just like that, one of China’s biggest American boosters became one of its harshest critics.
5. We need to learn from our globalization mistakes.
It’s too late to do anything for the workers who were hurt by our inadequate response to the China shock, which ended around 2010. But that won’t be the last time profound economic change upends American workers (just think of artificial intelligence). Our system for helping workers rebound after losing their jobs is still flimsy.
Both Republicans and Democrats have answered globalization with policies, such as tariffs and industrial subsidies, that seem tailored to the problems of the past rather than the challenges of the future. We should be helping workers by experimenting with labor market policies, like wage insurance, and paying for them by closing loopholes that allow corporations to avoid paying hundreds of billions of dollars in taxes. Rather than trying to reclaim lost factory jobs, we should promote good-paying work in service industries like healthcare and education.
I saw the contrast between future and past in a father and son I met in Niles, Ohio. Both men lost their jobs when the local factory closed and sent its work overseas. Bob Ulrich, the dad, found another manufacturing job but it paid a lot less than he was used to. Ultimately, like so many others, he ended up on disability and retired. His son, Brian, however, went back to school, earned a nursing degree and joined one of the state’s biggest medical centers. His starting pay was about what he had made in the factory and after working his way up to a supervisor’s position, his salary entered six figures. Brian’s happy ending carries important lessons for other Americans.
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