Putting an end to Merkantilism


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Hello from Frankfurt. We’ve spent the past few months musing about the phrase that has for decades characterised German trade policy.

Wandel durch Handel, or change through trade, has encapsulated a belief among the country’s business and political elite that they were not just exporting goods, but democratic values. Recent events suggest that, while the past three decades have seen a lot of handel, the wandel was lacking somewhat.

Of course, Merkantilism is a phenomenon that Alan Beattie has bashed on several occasions — and long before Russia’s invasion of Ukraine. Our question for you dear reader is, post invasion, should the concept be binned for good? Or are there examples of closer economic links altering political set-ups that us sceptics ought to bear in mind?

While we’re in the mood to slaughter sacred cows, we want to weigh in on the deglobalisation debate. Our main piece will ask whether it is, or isn’t, an actual thing.

Charted waters looks at the reasons why Africa’s vaccine producers are struggling to find customers.

Get in touch. Email me at claire.jones@ft.com

Globalisation’s death has been greatly exaggerated

A conversation has been taking place on the pages of the Pink ’Un in recent weeks about whether or not world trade is about to fall off the rails. We ran a piece on the eve of Davos about how global business leaders were heralding the end of three decades of untrammelled globalisation.

Russia’s war in Ukraine had, in the words of one senior executive, put geopolitics at the “front and centre” of business decisions. Combine that with disrupted supply chains, market turmoil and talk of a global recession, and the prognosis for exporters doesn’t look good.

Reporting from the slopes of the Swiss resort that hosts the World Economic Forum underlined the bleakness of the mood, with Gideon Rachman highlighting how, after decades of viewing the entire planet as a market, chief executives were “masters of the universe” no longer, ceding ground to lawmakers and generals.

Then Martin Sandbu chipped in, pointing out that — for all the talk — the hard data indicate trade is actually doing rather well.

Our own views are somewhere in between the two camps.

We agree with Martin that export flows have held up far better than the deglobalisation rhetoric would have you think. We’d add that this is about more than the pandemic-induced pivot from goods to services. Foreign direct investment is also on the up. While it remains below 2019 levels, global greenfield projects strongly rebounded in the year to March 2022 compared with the same period the previous year, according to data by fDi Market, a Financial Times owned company tracking cross-borders investment. The number of global projects was up 15 per cent in that period, reflecting the easing of Covid-19 restrictions.

But we don’t think that means the world will survive as was post-Ukraine, either. Even those German lawmakers, such as Olaf Scholz, who fully signed up to the Wandel durch Handel creed, have been forced to concede that their full-throated defence of trade as a force for good was, at best, naive and, at worst, a cynical attempt to brush under the carpet all sorts of human rights abuses in the name of boosting gross domestic product.

Then there’s the flipside. The decision by the US and Europe to freeze $300bn-worth of the Russian central bank’s assets has raised eyebrows in capitals from Beijing to Riyadh. Will countries that are not exactly perfectly aligned with the US’s foreign policy aims be willing to further integrate themselves with businesses in countries that are?

So why is this trumping of geopolitics over economics not showing up in the data? Well, as Christopher Cox, Citi’s global head of trade and working capital solutions, pointed out to us, companies have a fair few more pressing concerns. “Businesses are still dealing with the impact Covid has had. Logistics channels are still disrupted, inventory levels are still low, and then there’s the global macro environment to consider,” Cox says. “Interest rates are going up, there’s huge inflationary impulses. People are really preoccupied with these issues at the moment.”

That’s not to say the will isn’t there, Cox adds. He thinks that what we’re set to see is less an overall retrenchment and more a shift in the structure of trade links. “There are and will continue to be great benefits to globalisation. It’s not so much about deglobalisation, it’s more about those benefits being redistributed.” 

Leaders in the western hemisphere cannot so stridently claim that their trade goals neatly tally with their geopolitical objectives as they did pre-Ukraine. That will have a knock-on effect on business’s thinking too.

One thing we might see more of is, as Martin dubs it, “friendshoring”, where countries trade within groups of states with similar foreign policy aims. We are less sure we are moving to a world quite so multipolar. What’s more likely, in our view, is that CEOs and governments in places such as India and Brazil will aim to keep the likes of Washington and Brussels onside, while maintaining cordial relations with Russia and China too. Our bet is that there will be plenty of missteps along the way as businesses aim to get the balance between growth and geopolitics right.

Additional reporting by Valentina Romei

Charted waters

The future of Africa’s biggest vaccine manufacturing plant Aspen Pharmacare is in doubt, not because of lack of need for jabs to bring down Covid-19 rates but because of a lack of demand.

In South Africa, where Aspen is based, only 5 per cent of people have received a booster shot and less than a third of the 60mn population are double vaccinated.

This has serious consequences. The widespread reluctance to get jabs — and poor health infrastructure — means Africa could continue to be blighted by the disease long after Covid has become endemic elsewhere, according to experts interviewed for this FT analysis piece. (Jonathan Moules)

The head of DP World, the Dubai-based group that owns P&O Ferries, has insisted it is too late to reverse the decision to sack 800 sailors, as he praised its management for doing an “amazing job” in restructuring the UK company.

Most carbon markets are failing to achieve the aim of limiting climate change because they are not taxing emissions enough, according to an analysis by The Economist. This is an issue because they are now one of the most widely used methods of tackling the rise in greenhouse gases with carbon pricing covering 21 per cent of the world’s emissions at the end of 2021, up from 15 per cent at the end of 2020.

Central banks are raising rates rapidly in the most widespread tightening of monetary policy for more than two decades. Policymakers around the world have announced more than 60 increases in current key interest rates in the past three months, according to an FT analysis of central banking data — the largest number since at least the start of 2000.

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