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D I P L O M AT I C A| F ore ig n Affairs

The high price of global retrenchment

fen Osler h Am pson


F. de La Mure/MAEE


ur globalized world is unraveling. This is not the end of globalization, but it is something we have seen before. It is called retrenchment. It is a phenomenon characterized by declining levels of interdependence in global trade and investment, beggar-thyneighbour policies as states (especially new entrants in the global economy) look out for their own interests and don’t play by the rules, a corresponding weakened capacity for collective action among the world’s leading nations, and the progressive weakening of international institutions that are the bedrock of a sound global order. The first great era of globalization unfolded in the second half of the 19th Century. It was an era marked by a dramatic increase in worldwide trade, investment, labour mobility and prosperity. But it was followed in the 1920s and 1930s by declining interdependence as countries introduced a wide range of protectionist measures to shield jobs and local industry. Great Britain introduced the Commonwealth Imperial system, which granted favourable access and free trade on reciprocal terms to its Dominions (Canada among them) and colonial territories. In 1926, Britain introduced the Empire Marketing Board to encourage Britons to buy goods from their current and former colonies. The United States wanted it both ways. Although the U.S. pressured Canada to abandon the Imperial preference system, it still wanted to keep its own tariffs and restrictive policies in place. The SmootHawley Tariff Act (1930) smacked America’s trading partners, including Canada, hard. By some estimates, worldwide trade in the 1930s shrank by almost a third as countries retaliated against each other.

U.S. President Barack Obama and Prime Minister Stephen Harper converse at the G20 Summit in Cannes, France, in November.

The retrenchment phenomenon of the inter-war years also had an ugly political side as countries struggled with massive unemployment, inflation and the broader consequences of economic depression in their societies. In Weimar Germany and Italy, national socialism reared its ugly head as Hitler and Mussolini rode to power on a xenophobic wave of popular protest, replacing democracy with brutal dictatorship. The leaders of the Anglo-Saxon world (Britain, the U.S., Canada, Australia) wrestled with a different kind of problem — isolationism — as their societies turned inward and refused to deal, at least initially, with the dark storm clouds that were gathering over Europe. The League of Nations, an instrument for collective global security which had been crafted out of the Paris peace settlements following the end of the First Great War, also proved incapable of dealing with a series of aggressive acts by the Axis Powers in the 1930s. History does not repeat itself. But today, in the second decade of the 21st Century, we too are grappling with a renewed

bout of retrenchment and the attendant political risks that come with a downturn in global economic fortunes and a weakening of international institutions. The causes of the current crisis are complex, but they are rooted in a variety of ills. The world continues to struggle with the fallout of the 2008-09 financial crisis, and now a second one with the impending collapse of the Eurozone monetary regime. The deep bonds of European integration have been weakened by Italy, Greece, Portugal and Spain who are wrestling with unsustainable levels of public debt and are struggling to cut public expenditures at a time when their own economies are contracting and many people — especially the young — are out of work. If the Eurozone collapses, the ambitious enterprise that was launched by Jean Monnet and the other founders of the European Union will be seriously compromised. Democracy, too, is paying a price as unelected technocrats are catapulted into positions of power in countries such as Greece and Italy to fix fiscal problems that the politicians can’t, or won’t. If Europe is not able to manage the WINTER 2012 | JAN-FEB-MAR

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Diplomat Winter 2012  

Diplomat & International Canada magazine is a leading source for international affairs and Canadian foreign policy. Diplomat is the magazine...

Diplomat Winter 2012  

Diplomat & International Canada magazine is a leading source for international affairs and Canadian foreign policy. Diplomat is the magazine...