Libertarian Jackass

"Life is short, but truth works far and lives long; let us speak truth." -- Schopenhauer

Monday, November 24, 2003

Is The Global Trade Engine At Risk Of Being Derailed?

"Cross-border trade flows are the glue of globalization," writes Stephen Roach. "They are the means by which the world creates ever-virtuous circles of prosperity. The theory is simple: As poor countries enter the global supply chain, their increasingly prosperous workers eventually become consumers. Supply creates new demand, and the world is a net winner. While it’s hard to argue with this theory, today’s world is having an increasingly difficult time in putting this theory into practice. The global trade engine is at risk of being derailed." Why?

-Global trade is important to world economic growth: "By our estimates global trade in goods and services now amounts to 25% of world GDP, up dramatically from the 19% share just ten years ago and an 11% portion in 1970." More: "In other words, since the late 1980s there has been a virtual doubling of the role that trade has played in driving the global GDP growth dynamic. There can be no greater testament to the power of globalization."

-World trade is slumping: "After surging by a record 13% in 2000, global trade has entered one of its worst slumps in modern experience -- average gains of just 2% over the 2001-03 period. That’s the weakest performance since the early 1980s and only a third of what we estimate to be a 6.5% long-term trend in global trade growth . . . It suggests that there may be new forces coming into play that transcend the normal pressures of the business cycle."

Wondering about the future of the global economy? Current trends may provide a view: "The first is a new and powerful global labor arbitrage that has led to accelerating transfer of high-wage jobs from the developed world to lower-wage workforces in the developing world. Enabled by the Internet and the maturation of vast offshore outsourcing platforms in goods and services alike, labor has become more “fungible” than ever. In a world without pricing leverage, the unrelenting push for cost control gives a sudden urgency to this cross-border arbitrage. The outcome is a new and potentially lasting bias toward jobless recoveries in the high-wage developed world. That brings the second major force into play -- a political backlash against the trade liberalization that allows such cross-border job shifts to occur. It is the politics of this trend that disturb me the most as I peer into the future."

In other word, the trade globalization may be planting the seeds to its own political demise.

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