Free Trade in a Populist World

William Hague, Foreign Secretary under former UK Prime Minister David Cameron, sat down to share his views with BCG’s Alexander Roos on the effects of the current economic, technological, and cultural environment in Europe.

Globally, there's quite a bit of upheaval in elections. Why is that? What's happening?

Well, something big is happening in the political world, and I think we should see it as the effects of globalization. There are economic changes, technological changes, and cultural changes—and not everybody is in a position to make the most of that or to prosper from that.

For some people, the change means a perceived threat to their livelihoods or their neighborhoods. More intense competition from overseas. Technological change that they weren't trained for—and that threatens their jobs. Waves of migration, as it seems to them, that take their jobs or impose burdens on their public services.

And those people feel that they've not been well represented. They're saying, "We want somebody who was not in politics before." Someone like Donald Trump or Emmanuel Macron.

We should expect that trend to continue to some extent because some of the causes are going to continue and even accelerate. So this more populist, nationalistic trend will be a force to be reckoned with in politics for quite a long time to come.

Obviously for the next two years or so, the post-Brexit conditions are going to be rather unclear. What do you say to business leaders you are meeting these days regarding their investment in Britain?

I would say think long term. The UK looks likely to suffer some disruptional cost as a result of leaving the EU, but whether or not we're in the EU will not be the main determinant of our prosperity.

In my view, the main determinants are: Will we continue to have a tax system that is pro-enterprise? A world-class higher education system? Will we continue to invest in our infrastructure? To be an open economy that is open both to foreign direct investment and to talent from the rest of the world?

So Britain will continue to have these things, and that will create many business opportunities and make the UK an important center of economic activity in the world. There are other bigger, long-term factors than the negotiations about Brexit—and I think these create rather more certainty for businesses about Britain.

For the first time in recent history, global trade as a percentage of global GDP has shrunk. Is this the end of globalization?

I don't think it's the end of globalization. I think of this as a structural effect. If China moves from this huge expansion of trade to greater internal consumption, then naturally, more of the world's economic growth is consumed internally in the second-largest economy of the world. In the United States, becoming energy-independent means that trade is a less important factor.

None of these things mean that globalization has come to an end or is necessarily bad for the world economy. We cannot mathematically expect trade to always grow faster than GDP. This would clearly be impossible in the long run.

However, there are more protectionist actions being taken in the world as well—this rise of nationalistic sentiment and populist sentiment. That does have an economic effect. There are developing countries that are saying, "We are going to make sure more of our raw materials stay in our country for processing." And that has a big effect on some businesses.

We'll have to bear in mind from now on that there will be a bigger variation in national policies. It probably means there needs to be more local decision making, more local intelligence. Leaders will also have to bear in mind that there is more political uncertainty, and they have to build resilience into their organizations to cope with that.

So this steady progress, this steady acceptance of ever-freer trade is now contested, but it's contested rather than at an end. There's still a lot of scope particularly for bilateral free trade agreements in the world, and Britain will be seeking radical free trade agreements after it leaves the European Union.

Lord Hague, thank you very much.

Thank you.