Global perspectives from the IMF and World Bank annual meetings in Washington DC highlight shared challenges and opportunities around trade deals amid political uncertainty
Washington DC really comes alive at the time of the International Monetary Fund and World Bank annual meetings. The sense of something happening is palpable, as policymakers, journalists and NGOs from around the world rush between seminars on how to structure debt in emerging markets, debates on globalisation - and martinis on red-bricked patios as the sun sets on the city’s iconic buildings.
In and among the hustle and bustle of motorcades, dark-shaded Secret Service agents, suits and traditional dresses, you can’t forget that rising populism, anti-globalisation and fears of rising protectionism are global phenomena.
Indeed, reflecting on my trip during the bumpy ride home across the Atlantic, I was struck by just how many of the economic and political issues the UK is grappling with that are common not just to the US but to countries around the world.
Protectionism could curb growth
Economists at the IMF and businesses in the US are worried about the threat rising protectionism poses to the apparently steady but less than stellar growth in the world economy. An Eeyore-like gloom hangs over those who were closely involved in either TTP, the Transatlantic Trade Partnership set to lower trade barriers in the US with the Asian tiger economies, or TTIP, the Transatlantic Trade and Investment Partnership. Hopes that TTIP, which will bring tariff-free trade between the EU and the US, would reach an agreement by the end of President Obama’s term are now dead in the water.
TTP’s fate is no better, since it won’t make it through Congress before the end of the Presidency either. Unfortunately, the tone of the Presidential Election campaign has turned against trade integration, as many parts of American society feel they aren’t sharing in US growth and blame cheap competition from China and elsewhere. In its World Economic Outlook, published alongside the annual meetings, the IMF suggests that the positive case for trade as a driver of global innovation, growth and prosperity is not being heard. It highlights a rise in protectionism as the biggest threat to the world economy.
Trade will spur innovation
Despite pessimism in the corridors of power on delivering more trade deals, businesses were clear on the benefits. The manufacturers I met saw openness to trade and competition from around the world as a spur to innovation. I was struck by how similar their outlook and concerns are to those of their counterparts in the UK. Manufacturers in the US want an open approach with a focus on getting the basics right, to ensure that the US is competitive in a global economy. But they worry that investment is being held back by fears about the political future.
They told me how hard it was to find young people with the right skills for a rapidly changing manufacturing industry. Traditional images of jobs in sawmills or greasy car assembly plants take a long time to fade, but there is a real need to showcase the wave of innovation that is transforming what a career in manufacturing is all about, through robotics, nanotechnology, 3D printing and artificial intelligence.
In the US, the tremendous growth in shale gas technology is also driving a revival in the chemicals and engineering industry. And with the US facing corporate tax rates at some 40 per cent - by far the highest in the G7 - they do look with some envy on the UK’s corporate tax roadmap for rates falling to 17 per cent. With such focus on uncertainty, it’s important to remember some of the UK’s competitive advantages as a place to do business - we’re ranked sixth in the world on the ease of doing business by the World Bank.
The role of infrastructure
Turning away from free trade with America’s partners has featured heavily in the Republican campaign for the White House President, but at least both candidates agree on infrastructure investment. Even more than in the UK, the US is being held back by infrastructure that is out of date.
Arriving in Dulles airport, shuttled to the main terminal on rusty transport buses that rise up and down on accordion-like legs, you could be forgiven for thinking you were on the set of The Empire Strikes Back rather than landing in the capital of the world’s largest economy. Like the UK, the US needs to see better connections between its mid-size cities, proper connections between its airport hubs and nearby cities and a step up in the maintenance of its roads.
Of course, the talk of the town was Brexit. That Article 50 will be triggered by March has really brought home to many Americans that the UK will actually be leaving the European Union. The US is the UK’s biggest trading partner outside of the EU, and many wanted to know whether goods will be prioritised in the negotiations, and what will happen with financial services.
The Prime Minister’s timetable for action has sharpened minds but there’s bewilderment around some of the comments about foreign workers and foreign investment. The Government is sending mixed signals about whether it really is open for business. The sombre attitude on the terraces in DC, reflecting on both a very divisive Presidential campaign and discontent with globalisation, is a stark reminder that the road ahead is not going to be smooth.
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