WHATEVER HAPPENED TO FREE TRADE?

Companies and countries are scrambling to adjust to a strange new world created by a decade of economic retrenchment and an upswing in populism

By Bob Davis and Jon Hilsenrath

After World War II, the global economy rose on a wave of trade and finance, lifting hundreds of millions of people out of poverty in developing countries and providing rich countries with cheaper goods, lucrative investments and hopes for a more peaceful planet.

That tide is now receding.

Nine years after the financial crisis, global trade is barely growing when compared with overall economic output. Cross-border bank lending is down sharply, as are international capital flows. Immigration in the U.S. and Western Europe faces a deepening public backlash.

Nationalist politicians are on the ascent. On Wednesday, the U.K. formally started proceedings to remove itself from the European Union. In the U.S., President Donald Trump pulled out of a Pacific trade pact on his first working day in the Oval Office, declaring, “Great thing for the American worker, what we just did.”

For traditional economists, globalization is a pathway to prosperity. Rooted in the works of Adam Smith in 1776 and David Ricardo in 1817, the classical canon has embraced the idea that trade is the basis of wealth, because it makes nations more efficient by allowing each to specialize at what its workers do best.

Few of them fully grasped globalization’s downsides in a modern economy. Tying together disparate nations economically also expanded the labor pool globally, pitting workers in wealthy nations against poorly paid ones in developing nations. That greatly boosted the fortunes of the world’s poor, but also created a backlash in the U.S. and Europe. At the same time, freeing financial flows led to debilitating financial excesses that ended in crisis.

Falling Behind

Globalization, as measured by annualized, inflation-adjusted export and GDP growth, has gone through three distinct cycles. It is now slowing.

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Peugeot Sets Sights on U.S. Car Market

April 12, 2017 7:00 a.m. ET

Peugeot sells in China, the world’s largest car market, but sees the U.S. as the biggest profit potential. Above, a Peugeot vehicle at an auto show in Beijing last year. PHOTO:KIM KYUNG-HOON/ZUMA PRESS

Peugeot , PUGOY -0.67% on the heels of acquiring General Motors Co.’s GM -1.01% Opel unit in Europe, plans to take on the Detroit auto giant in its own backyard. The catch is it could take a decade to get there.

The French car company is the latest regional player in the auto industry to announce plans to sell in the U.S., joining India’sMahindra Group , EQM&M -0.46% China’s GAC Motor and a flood of electric-car startups with similar ambitions. It has been decades since Peugeots were on sale in American showrooms, and its re-emergence would come as the market is already clogged with offerings.

Discounts are near an average of $4,000 per car sold in the U.S., according to J.D. Power,  and auto makers are engaged in a price war not seen since the financial crisis. Niche brands from Europe, such as Fiat , Jaguar and Maserati, shell out much richer incentives, according to Autodata Corp.

Peugeot understands it is a “dog eat dog environment,” but isn’t banking on being able to appeal to today’s buyer, the company’s U.S. Chief Larry Dominique said in an interview.

Mr. Dominique, a Chrysler and Nissan Motor Co. veteran, said Peugeot will wade into the market first via a car-sharing rental service in Los Angeles and San Francisco to study what he expects to be a relatively rapid shift in consumer tastes.

Peugeot is teaming with startup Travelcar to offer a service that lets customers flying into those cities rent other brands’ cars from travelers who parked at the airport. Peugeot plans to eventually offer a car-sharing service with its own vehicles in the U.S., getting feedback from customers before selling cars in the country.

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GM’s Opel Exit Is Rare No-Confidence Vote in European Market

Pulling out of Europe allows the Detroit car maker to slash engineering costs and lower the amount of cash it needs to keep on hand

By Mike Colias and John D. Stoll
Updated March 6, 2017 7:20 p.m. ET

Carlos Tavares, CEO of PSA Group, center left, stands with Mary Barra, chairman and CEO of General Motors, center right, while speaking to the media following the news conference to announce the GM deal in Paris on Monday. Photographer: Christophe Morin/Bloomberg PHOTO: CHRISTOPHE MORIN/BLOOMBERG NEWS

General Motors Co. sent a message Monday with the sale of Adam Opel AG operation to Peugeot PUGOY -0.67% : Europe isn’t worth the trouble. And more markets could eventually get the same message from the Detroit auto maker.

GM’s exit from Opel and sister brand Vauxhall slashes engineering costs, lowers the amount of cash the company needs to keep on hand and simplifies its business. European buyers have fickle tastes and regulators have drawn up rules, factors that would have forced the auto maker to spend heavily to meet mandates and trends in a market of which it has only a 5.7% share.

Still, the sale is a rare vote of no-confidence in the continued globalization of auto making. Many industry executives have argued car companies need to get bigger to handle the costs of regulatory mandates around the world.

GM, in selling Opel and its finance arm for about €2.2 billion, adds to a series of retreats. In recent years, the auto maker pulled out of Russia and scaled back in Southeast Asia and Australia. Executives have said the scale of operations in India, Korea and Brazil are under review due to labor-cost pressures, political volatility or shaky economies.

“Clearly there’s a little more work we’re doing in the international markets that we’ve talked about at a high level,” GM Chief Executive Mary Barra said in a conference call Monday. “Our overall philosophy is every country, every market segment has to earn its cost of capital, has to be contributing. We’re going to keep working to achieve that, either by fixing or by taking a move like we did today.”

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For some Manufacturers, Mexico still the best move

Updated Feb. 8, 2017 3:19 p.m. ET

INDIANAPOLIS—President Donald Trump boosted the hopes of employees at Rexnord Corp.’s RXN -0.04% factory here in December when he castigated the company for “viciously firing” workers and planning to move their jobs to Mexico.

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Two months later, Rexnord is still planning to close the industrial-bearings factory, which employs about 350 people, despite Mr. Trump’s shaming and his earlier intervention to stop a nearby Carrier Corp. furnace factory from closing.

Rexnord says moving the plant to Mexico is part of a plan to save $30 million annually. Workers say they have been packing up machines while their replacements, visiting from Mexico, learn how to do their jobs.

“That’s a real kick in the ass to be asked to train your replacement,” said machinist Tim Mathis, who has worked at Rexnord for 12 years. “To train the man that’s going to eat your bread.”

Milwaukee-based Rexnord is one of many companies plowing ahead with plans to invest in Mexico despite Mr. Trump’s vows to cajole companies into keeping their assembly lines in the U.S. Some, including heavy-equipment makerCaterpillar Inc. and steelmaker Nucor Corp. , are overseen by officials who belong to a panel advising Mr. Trump on manufacturing policy.

BN-RY658_REXNOR_M_20170203183224Outside the Rexnord factory in Indianapolis.PHOTO: ANDREW TANGEL/THE WALL STREET JOURNAL

Executives at Peoria, Ill.-based Caterpillar are moving ahead with a restructuring that includes shifting jobs from a Joliet, Ill., factory to Monterrey, Mexico. “We’re just going to have to wait and see how this plays,” Caterpillar Chief Financial Officer Brad Halverson said in a January interview, referring to potential Trump-era shifts in trade policy.

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Kenyans Get Taste for Homemade Teas

Gold Crown’s locally produced premium brand makes inroads against foreign rivals 

MOMBASA, Kenya—This nation exports more tea than any other in the world, but for years Kenyans weren’t able to enjoy a cup of premium tea cultivated in their own country. One company is leading a movement to change that.

Kenya annually exports roughly 400,000 tons of tea, ahead of other leading producers such as China and India. But high-quality tea was widely viewed as a luxury here, and for decades few Kenyans drank it. About 5% of Kenya’s tea crop stays in the country, much of it dust and residue from higher-quality leaves sold and processed abroad, and many Kenyans use it to make the hot, milky brew known as chai.

In recent years, however, a locally produced premium brand has appeared, shelved in supermarkets next to the 400 shilling ($4) packs of Unilever PLC’s Lipton and Associated British Foods PLC’s Twinings, which are both made with Kenyan tea abroad and re-imported.

bn-si608_kenyat_p_20170303145317An employee shows off a tea leaf at the Maramba tea plantation in Limuru, Kenya, about 20 miles northwest of Nairobi. The leaf will be dried, cut and packed before it is auctioned in Mombasa.

Gold Crown Beverages Ltd., a family-held business incorporated in the U.K. but with a base here in Kenya’s biggest port city, is selling premium black and herbal teas, made by Kenyans for Kenyans, at roughly half the price of foreign competitors. The company’s Kenyan sales, $9 million in 2016, have almost tripled since 2012.

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Gold Crown has managed to establish a product that doesn’t rely on exporting raw materials and importing processed goods, a feat that has long eluded most African companies. Cocoa producers in Ivory Coast and Ghana have for decades failed to produce a competitive brand of African-made chocolate. Oil producers in Nigeria and Angola have struggled to refine and process their own petroleum products.

The Food and Agriculture Organization of the United Nations has urged Kenya to go further than just exporting tea and add more value to the commodity at home.

“There exists an enormous blue-sky opportunity to roll out higher-quality tea like purple tea too,” said Aly-Khan Satchu, a Kenyan financier and investor, who referred to rare tea grown here that turns the water purple when brewed.

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Trump Poised to Push Nafta Changes

While an abrupt withdrawal from Nafta trade deal is unlikely, the president-elect and his advisers are gunning for big changes.

Rather than kill Nafta, Donald Trump and his advisers appear set to push for substantial changes to the treaty governing U.S. trade with Mexico and Canada, an effort that could prove difficult to negotiate and perilous to the regional economy.

The president-elect vilified the North American Free Trade Agreement during the campaign and threatened to pull the U.S. out of the trade deal—but only if Mexico doesn’t agree to substantial modifications.

The U.S. trade deficit with Mexico rose 9.5% in 2015 to $60.7 billion, while the deficit with Canada fell 57% to $15.5 billion.

Mr. Trump hasn’t released a blueprint for his new vision of Nafta, but his comments and those of his advisers suggest they want big changes. Among the likeliest would be special tariffs or other barriers to reduce the U.S. trade deficit with Mexico and new taxes that would hit U.S. firms that moved production there, according to Trump advisers. His team says it may also seek to remove a Nafta provision that allows Mexican and Canadian companies to challenge U.S. regulations outside the court system.

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Amazon Shoots for Top Spot in India

Amazon founder is telling executives to ‘do what it takes to succeed’ in India

NEW DELHI– Amazon.com Inc. founder Jeff Bezos, perturbed by his company’s failure to capture much of the massive Chinese market, had a pointed message for executives in India during a visit in 2014: Don’t let that happen here.

Do what it takes to succeed and don’t worry about the cost, Mr. Bezos said, according to a person who was present.

Amazon, which dominates online selling in the U.S. but so far has gained little traction in developing countries, has since invested billions of dollars to build a logistics network spanning India to reel in shoppers.

The result: the company rapidly became India’s No. 2 e-commerce player and moved within striking distance of local rival Flipkart Internet Pvt., according to some estimates. Indeed, Mr. Bezos last month declared Amazon was on top in a market it largely had ignored until recent years, though he didn’t say by which measure.

“We are winning in India,” Mr. Bezos said at a conference in San Francisco, arguing that Amazon has pulled past Flipkart to become “the leader in India now.”

Amazon’s attempts to push into developing markets—marked by difficult logistics and significant cultural differences in shoppers’ expectations—reflect the e-commerce giant’s search for new routes to growth as it saturates the U.S. market. Countries such as China and India promise rapidly growing populations with steep rates of online shopping adoption as technology becomes more accessible.

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Trump Victory Shakes Businesses

President-elect’s stance on trade, infrastructure and taxes reshapes firms’ prospects.

By Ted Mann, Bradley Olson and Andrew Tangel

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Executives world-wide encountered a political and economic landscape radically changed by Donald Trump’s surprise election, which reverberated through the energy, health-care and manufacturing sectors.

U.S. businesses braced for revamped trade pacts and a potential crackdown on overseas operations, coupled with the promise of lower taxes, lighter regulation and higher infrastructure spending at home. Executives in Asia and Europe said they were hopeful their close ties with the U.S. economy would endure the political upheaval and heated campaign rhetoric.

For the energy industry, Mr. Trump’s victory fanned expectations that he would clear the path for new pipelines, end U.S. participation in global climate change pacts and undo environmental regulations to boost American coal mining.

Scott Sheffield, CEO of Pioneer Natural Resources Co., said Mr. Trump would perk up the country’s stagnant drilling boom by making it easier to build pipelines that unlock areas rich in oil and gas. “His message about creating jobs is why he broke the blue wall” and attracted votes from Democrats in some states, Mr. Sheffield said.

Continental Resources Inc. chief Harold Hamm, Mr. Trump’s chief adviser on energy issues, said subsidies for renewable energy like solar and wind, and credits for electric cars, should be eliminated. “None of it should be subsidized, none of it,” Mr. Hamm said Wednesday. “If it makes it in the market, fine.”

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Americans Embrace a Made-in-China Buick SUV

GM’s Buick Envision is meeting its low-volume goal, and U.S. dealers want more of the $40,000 car.

Greg Shafer ended a lifelong streak of buying U.S.-made cars when in August the 53-year-old drove out of a Columbus, Ohio, dealership behind the wheel of a Buick Envision.

His $40,000 sport-utility vehicle is one of the first cars to be sold in America that was built in China. Mr. Shafer decided its provenance wasn’t an issue because “once you drive it and experience all the features, it feels far from a made-in-China car.”

As the U.S. auto industry’s rising reliance on Mexican car factories becomes a hot topic in the 2016 presidential election, customers like Mr. Shafer are delivering a boost to General Motors Co.’s made-in-China strategy.

The No.1 U.S. auto maker in terms of sales started selling the Chinese-built Buick Envision in North American dealerships in late spring, importing relatively small numbers of the vehicles to give a boost to the Buick brand. A few months into the experiment, dealers are clamoring for more because they say most of their customers don’t care where the vehicle is made.

“There has been very little pushback,” said Chris Haydocy, co-owner of the Haydocy Buick GMC in Columbus, where Mr. Shafer bought his SUV. “Most people realize the world is flat now.

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Buick Envision SUVs are lined up at Yantai Port in China last December before being loaded on a freighter for the journey to the U.S. PHOTO: VCG VIA GETTY IMAGES

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Globalization on the Skids

Global finance ministers and central bankers are descending on Washington this week with a central concern in mind: fear that the modern age of globalization is hitting a wall.

Last year’s $646 billion in foreign direct investment in rich economies represents a 40% drop from the peak before the financial crisis. International lending, as measured by cross-border banking claims at the Bank for International Settlements, is down nearly $2.6 trillion, or 9%, over the past two years.

International trade this year will grow at the slowest pace since 2007, according to the World Trade Organization, which has slashed its forecast for growth in global trade volumes to 1.7% in 2016 from a previous estimate in April of 2.8%. Imports among the world’s 20 largest economies have fallen as a share of their gross domestic product for four consecutive years, and growth in demand for shipping containers fell to 4% this year after four decades of double-digit expansion.

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Containers at the Yangshan Deep Water Port in Shanghai, China, last month. PHOTO:ALY SONG/REUTERS

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