On Tuesday the 17th, all eyes were on Xi Jinping as he spoke at the World Economic Forum in Davos. History was made as he became the first Chinese leader to attend and speak at the annual meeting, at which the world’s elite gather to trade key insights and discuss pressing issues on global economic events. Earlier that day, the UK’s Prime Minister Theresa May gave her own speech outlining her government’s negotiating strategy for withdrawal from the EU. The two talks are tied together by their place in changing attitudes towards globalisation.
The New Face of Globalisation
With Donald Trump’s presidency being expected to bring a wave of greater protectionism from the US in a bid to “make America great again”, Xi Jinping felt it necessary to establish China as a leading force in championing the greater integration of world markets. It is no secret that global growth has been sluggish, running at its slowest pace in seven years, and global trade has been even slower.
The Chinese president said that he believed the main factor holding back sustained global growth in recent years has been the lack of a robust driving force. He went on to mention a few solutions that he believes are paramount to tackling this fundamental problem.
He also argued that there is a need to develop a dynamic growth model centred around innovation. This, in itself, is a somewhat controversial statement given growing concerns amongst economists about the effect that the proliferation of technology is having on jobs.
In addition, he said that everyone must adopt new policy measures and advanced structural reforms in order to create more space for growth and sustain its momentum, in tandem with ensuring that the leading challenges of climate change are appropriately addressed. In order to achieve these objectives as a global community, it is essential that everyone is committed to free trade and global investments. As a result, the Chinese president pleaded with world leaders that they all increase efforts to develop global connectivity, to enable all countries to achieve interconnected growth.
To further cement his idea of greater globalisation being a key factor for world growth, the Chinese president came out with some creative metaphors to capture the minds of his audience:
“Perusing protectionism is just like locking oneself in a dark room: while wind and rain are kept outside, so are light and air.”
A Global Britain
On the same day, Theresa May outlined her plan for a Global Britain in the wake of a clean departure from the European Union. Outlining her Brexit strategy to the world, she stated that Britain would be leaving the EU single market.
Leading up to May’s speech, tension had been building up in world currency markets as speculators waited in anticipation of an announcement concerning’s Britain’s future place in European trade. This tension was evident as just days before the speech the pound dropped to its lowest level against the dollar since the October flash crash, falling to below $1.1985 before rallying back to just over $1.20.
Theresa May did an excellent job of decorating and presenting this arguably bad news, as she outlined her intentions for Britain to still trade as freely as possible by establishing a series of separate comprehensive free trade agreements. She also went on to say that it is in Britain’s interest for the EU to flourish.
This was Theresa May’s way of nicely saying that she would like to retain as much of the benefit that being a part of the single market gives without actually being a part of it, or contributing to it. In addition, stating that she still wants the EU to flourish could be viewed as an attempt to keep friendly relations with EU leaders in order to minimise the difficulties that Britain may encounter during the break-up negotiations.
The speech also served to build confidence by emphasising the fact that there were greater global trade opportunities out there for Britain.
“Britain’s culture and history is profoundly internationalist. We are a European country and proud of our shared European heritage, but we are also a country that has always looked beyond Europe to the wider world.”
These inspiring words from Prime Minister May, coupled with the promise to put the final withdrawal deal to a parliamentary vote, evidently had a strong impact on confidence: the pound increased by nearly 3% directly afterwards. However, before UK importers start getting excited in the hopes that this signals the beginning of further rises in the pound, it must be stated that analysts at Goldman Sachs share no such optimism, as they have told their clients that they believe this increase only serves as a better entry point to short the pound.
There is still a lot of uncertainty as to how freely Britain will be able to trade with EU countries following Brexit. However, Theresa May’s hopes of Britain being able to expand its horizons by forging new trade agreements with countries across the world fits in perfectly with Jinping’s vision of a more globalised world.
Furthermore, though being a part of the single market has greatly benefited Britain economically, it could also be argued that the EU is essentially just a mechanism that extends the borders of protectionism. Instead of individual countries within Europe adopting protectionist policies against each other, the EU acts as a single entity isolating (to some extent) the bloc from the rest of the world as it trades freely within its own bubble.
Goldman Sachs’ chief economist Jan Hatzius expects global growth to be 3.5% in 2017. However, European economies are only expected to grow at around 1.4%. So it may well be that exploring other trade opportunities in a global economy that is growing much faster than Europe will allow the British economy to expand at a greater level than previously possible.