Ideas and power in contemporary trade development

Abstract

As economic powers from the developing world, particularly China, have emerged in the past few decades, their weight has altered the balance in the global trading system. This has presented challenges in the World Trade Organisation (WTO), where the Doha Round of multilateral negotiations has dragged on for more than a dozen years. Frustrated by this stalemate, many countries have sought alternatives. Among these are ‘mega-regional’ trade agreements such as the proposed Transatlantic Trade and Investment Partnership (TTIP) between the US and EU, and a 16-member Trans-Pacific Partnership (TPP).

In this volume, leading commentators – including two former heads of the WTO – examine the possible consequences of this shifting trade landscape. Is globalisation in reverse, and have countries been retreating from liberalisation since the world financial crisis of 2008– 09? Are the ‘mega-regional’ deals an existential threat to the WTO regime, or can they be used as building blocks towards wider multilateral agreement on a broad range of issues, from industrial standards to intellectual property rights. And what does it all mean for the balance of geopolitical power between the developed and developing world?

Notes

1 Arvind Subramanian and Martin Kessler, ‘The Hyper-globalisation of Trade and Its Future’, in Shahrokh Fardoust (ed.), Towards a Better Global Economy (Oxford: Oxford University Press, 2014).

2 The other four characteristics highlighted in our article were: the dematerialisation of globalisation (the importance of services); democratic globalisation (the widespread embrace of openness); criss-crossing globalisation (the similarity of north–south and south–north trade and investment flows); and the decline of barriers to trade in goods but the continued existence of high barriers to trade in services.

3 David Hummels, Jun Ishii and Kei-Mu Yi, ‘The Nature and Growth of Vertical Specialisation in World Trade’, Journal of International Economics, vol. 54, no. 1, 2001, pp. 75–96.

4 Richard Baldwin, 'Trade and Industrialisation after Globalisation's 2nd Unbundling: How Building and Joining a Supply Chain Are Different and Why It Matters', Working Paper 17716, National Bureau of Economic Research (Cambridge, MA: National Bureau of Economic Research, 2011).

5 John Maynard Keynes, The Economics Consequences of the Peace (New York: Harcourt, Brace and Howe, 1920), p.11.

6 Kevin H. O'Rourke and Jeffrey G. Williamson, Globalisation and History: The Evolution of a Nineteenth-Century Atlantic Economy (Cambridge, MA: The MIT Press, 1999); Jeffry A. Frieden, Global Capitalism: Its Fall and Rise in the Twentieth Century (New York: W.W. Norton, 2006); Douglas Irwin, Trade Policy Disaster: Lessons from the 1930s, (Cambridge, MA: The MIT Press, 2011).

7 Subramanian and Kessler, ‘The Hyper-globalisation of Trade and Its Future’.

8 Ibid.

9 Ibid.

10 Robert Lawrence, Regionalism, Multilateralism and Deeper Integration (Washington DC: Brookings Institution, 1996).

11 Pew Research Center, ‘Americans Are of Two Minds on Trade – More Trade, Mostly Good; Free Trade Pacts, Not So’, 9 November 2010.

12 See the discussion in Subramanian and Kessler (2014) for the views of economists Paul Samuelson, Paul Krugman and Larry Summers. For a response to Samuelson, see Jagdish Bhagwati, Arvind Panagariya and T. N. Srinivasan, ‘The Muddles over Outsourcing’, Journal of Economic Perspectives, vol. 18, no. 4, Fall 2004, pp. 93–114.

13 Thomas Piketty and Emmanuel Saez, ‘Income Inequality in the United States, 1913–1998’, Quarterly Journal of Economics, vol. 118, no. 1, February 2003, pp. 1–41.

14 Ron Haskins, Julia Isaacs, and Isabel Sawhill, ‘Getting Ahead or Losing Ground: Economic Mobility in America’, Brookings Institution, Economic Mobility Project Report, February 2008.

15 See ‘World Economic Outlook: Legacies, Clouds, Uncertainties’, (Washington DC: IMF, 2014), http://www.imf.org/external/pubs/ft/weo/2014/02.

16 Dani Rodrik, ‘Why Do More Open Economies Have Bigger Governments?’, Journal of Political Economy, vol. 106, no. 5, 1998, pp. 997–1,032.

17 David Autor, David Dorn and Gordon Hanson, ‘The China Syndrome: Local Labor Market Effects of Import Competition in the United States’, American Economic Review, vol. 103, no. 6, 2013, pp. 2,121–68.

18 Larry Summers, ‘America needs to make a new case for trade’, Financial Times, 27 April 2008.

19 Thomas Piketty, Capital in the Twenty-First Century (Cambridge, MA: Harvard University Press, 2014).

20 Paul Krugman, ‘Trade and Wages, Reconsidered’, Brookings Papers on Economic Activity, Economic Studies Programme, Brookings Institution, vol. 39, no. 1, Spring 2008, pp. 103–54.

21 John Gerard Ruggie, Constructing the World Polity (London: Routledge, 1998).

22 Barry Eichengreen and Douglas Irwin, ‘The Protectionist Temptation: Lessons from the Great Depression for Today’, Vox (the Centre for Economic Policy Research's policy portal), 17 March 2009.

23 Autor, Dorn and Hanson, ‘The China Syndrome’.

24 Richard Baldwin and Simon Evenett, The Collapse of Global Trade, Murky Protectionism and the Crisis: Recommendations for the G20 (London: Centre for Economic Policy Research, 2009).

25 The Reagan era witnessed the greatest upsurge in trade barriers in the postwar period; see I.M. Destler, American Trade Politics, (New York: New York University Press, 1992).

26 In Subramanian and Kessler (2014), we plot the same data but for a shorter period for which valueadded trade data can be computed. Gross exports overstate valueadded exports for China, but they overstate them even more for Mexico.

27 Calibrated by per capita GDP, it was even greater, and one reason to do this is that trade with low-income countries is of the Heckscher– Ohlin variety (which theorises that countries will export products that use cheap resources and production methods they have in abundance and import products using resources and factors of production scarce in their territory). It therefore imposes greater domestic political costs than, say, trade in similar goods between countries at similar levels of development, especially because these costs are disproportionately borne by unskilled labour, which competes more directly with foreign imports. Paul Krugman has elaborated on the reasons for intra-industry trade posing fewer political problems than Heckscher– Ohlin trade; see Paul Krugman, ‘Growing World Trade: Causes and Consequences’, Brookings Papers on Economic Activity, vol. 1995, no. 1, 25th Anniversary Issue (1995), pp. 327–77.

28 See Subramanian and Kessler, ‘The Hyper-globalisation of Trade and Its Future’, Appendix, Table A.1. In this table, the figures for China are recomputed based on value-added trade data (we cannot do the same for the Mexican and Japanese shocks, which would bias the comparison in favour of understating the China shock). The size of the Chinese shock declines, but it remains orders of magnitude larger than the earlier shocks from Japan and Mexico.

29 Peter A. Petri and Michael G. Plummer, ‘The Trans-Pacific Partnership and Asia-Pacific Integration: Policy Implications’, Policy Brief, nos. 12–16, Peterson Institute for International Economics, June 2012.