We’ve Reached the End of Global Trade

Source: Time

Rana Foroohar is TIME’s assistant managing editor in charge of economics and business.

Globalization is usually defined as the free movement of people, goods and capital. It’s been the most important economic force of modernity. Until the financial crisis of 2008, global trade grew twice as fast as the global economy itself. Yet, thanks to both economics and politics, globalization as we have known it is changing fast.

Statistics tell the story: According to the World Trade Organization, average global trade flows grew around 10% a year from 1949 to 2008. But those numbers slumped to 1.3% from 2009 to 2015 and show no signs of picking up, even as the global economy has partially recovered from recession. Meanwhile, flows of financial capital have become ­balkanized—which is to say that after decades of coming closer together, global markets and banking systems are pulling apart. While cross-­border goods, services and financial flows represented 53% of the world economy in 2007, they are a mere 39% now. And there is a drastic political pushback against the free flow of people across national ­borders—­globalization at its most human.

The question is: Have we reached peak trade? “If you think about globalization in traditional terms, in terms of old-line trade in goods, for example, then yes,” says McKinsey Global Institute research director Susan Lund. “But if you think of it in terms of the flow of digital data and ideas, then no—it’s actually increasing.” Indeed, the cross-border flow of digital data—e-commerce, web searches, online video, machine-to-­machine ­interactions—has grown 45 times larger since 2005 and is projected to grow much faster than the global economy over the next few years. The real questions are whether that activity will buoy the global economy as much as trade in physical goods once did, and whether a more inclusive kind of globalization could help counter protectionism, nationalism and xenophobia.

There’s no doubt globalization has increased wealth at both global and national levels. According to the U.S. Council of Economic Advisers, the reduction of trade barriers alone raised U.S. GDP by 7.3% from the end of World War II through 2014. But free trade can also widen the wealth divide within countries, in part by creating concentrated groups of economic losers. Free trade has made goods and services cheaper for ­Americans—think of all the inexpensive Chinese-­made goods at ­Walmart—but it hasn’t always helped their job prospects. From 1990 to 2008, the areas most exposed to foreign competition saw almost no net new jobs created. That’s one reason the new generation of Americans is on track to be poorer than their parents.

Conventional economic wisdom argues that these forces should simply push Western workers into more productive areas of the economy like white-­collar work and services. But many ­studies—­including an influential one by economists David Autor, David Dorn and Gordon ­Hanson—have shown that’s not always the case. The gains of free trade do not always outweigh the losses. Their study shows that sagging wages in U.S. labor markets exposed to Chinese competition reduced adult earnings by $213 per year.

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