【Text/Martin Wolfe Translation/Observer.com by Guanqun】
What are the prospects for the future of globalization? This is one of the most important questions of our time. In June, I argued, contrary to the growing popular view, that "globalization is not dying, it is not even dying." But globalization is indeed changing." One of the main reasons for the change in globalization is the development of remote services.
Richard Baldwin points out in his book The Great Convergence that since the Industrial Revolution, we have witnessed three waves of trade opportunities. The first wave was the industrialization and transportation revolutions that created opportunities for commodity trade. More recently, new information technologies have made "factory trade" a reality: moving entire factories to places where labor is cheap is profitable. Today, however, broadband internet technology has led to the emergence of "office trade": if a person can work for an employer from home, someone in India can also do the job.
World merchandise trade stagnates after the 2008 financial crisis Source: Financial Times
In addition, an important difference between the first and second wave trade opportunities requires the movement of objects and the third wave requires the movement of virtual information, is that it is much easier to put obstacles on physical trade than it is to put obstacles on virtual trade. As the U.S.-China trade issue demonstrates, blocking virtual trade is not impossible, but it can be laborious.
As Baldwin points out in his last four blogs, this analytical framework allows us to look at the future of trade in a different light than popular views. He also specifically mentioned that many "lazy" views on the history of globalization and trade are multifaceted and misleading. So what is this "lazy" view? That is, after about 20 years of high growth, global trade peaked in 2008 and began to shrink after suffering the fatal blow of the financial crisis.
Changes in the Foreign Trade Ratio of the World's Major Economies Source: Financial Times
The reason for this narrative of history and interpretation is misleading.
First, China, the world's second-largest commodity trader, measures the contribution of foreign trade to gross national product. It is the ratio of total exports X to total imports M to GNP) actually peaked before 2008 (2006). The foreign trade ratios of the United States and Japan, the third and fourth largest merchandise trading countries, peaked after 2008 (2011 and 2014). The foreign trade ratio of the European Union, the largest trading country, has only stagnated and not peaked.
Second, China has seen the largest decline in the foreign trade ratio. But this does not reflect the foreign trade protectionism or China's intention to reduce its dependence on foreign trade. China is just beginning to look at the contribution of foreign trade to the national economy with a normal mind.
China's foreign trade ratio has fallen sharply Source: Financial Times
Third, from a monetary point of view, the biggest reason for the decline in the foreign trade ratio is the decline in commodity prices, not the decrease in trade volumes. Between 2008 and 2020, the ratio of world merchandise trade to economic output fell by 9.1 percentage points, of which the decline in commodity prices contributed 5.7 percentage points.
Finally, there is indeed evidence of disintegration in cross-border supply chains, but the turning point appears to have come in 2013, after the financial crisis and before the election of Donald Trump. One widely accepted explanation is that supply chains have shifted within new suppliers, especially in China, which dominates global trade. China no longer imports accessories and assembles them for sale, but produces them itself.
Trade in Services continues to grow Source: Financial Times
All in all, we can give a reasonable explanation for the decline in the share of commodity trade in the output of the world economy. One explanation is that many supply chains have now moved to China.
The service sector is a different story. Although the ratio of trade in services to the output of the world economy is much lower than that of trade in goods, the proportion of services has been rising. Trade in services consists of a wide variety of human activities, some of which require the movement of people (e.g. tourism). But in the exceptionally active "other types of business services," most of the activities are carried out virtually, and these activities are varied. Trade in "other business services" also grew rapidly: between 1990 and 2020, trade in goods grew fivefold, while trade in "other business services" grew 11-fold.
Trade in "Other Business Services" Grows Faster Than Merchandise Trade Source: Financial Times
A key point is that the expansion of such trade in services is hardly bound by trade agreements. Regulation of service activities focuses on the final service rather than the intermediate service. For example, the United States has strict rules for sales accounting services, but the United States has few requirements for the qualifications of the clerical staff behind such services.
As a result, "a U.S. accountant can hire almost anyone to count a client's travel expenses and reconcile them with expense receipts." "Professionals who provide intermediate services (rather than end services) include bookkeepers, forensic accountants, resume screeners, administrative assistants, online customer service, graphic designers, assistant editors, personal assistants, X-ray interpreters, information security consultants, network administrators, programmers, contract review lawyers, and financial analysts who write reports. The list goes on and on.
As Baldwin points out in Global Upheaval, such technology-driven trade has great potential and is extremely disruptive: White-collar workers who provide these services in high-income countries are an important part of the middle class, but they will struggle to keep their jobs.
"Other types of business services" contain a variety of important forms of services Source: Financial Times
In conclusion, there is evidence that natural economic forces have dramatically altered the pattern of world trade. While we are not yet sure whether supply chains will "return to the homeland" or "move to friendly countries," the growing emphasis on supply chain security will accelerate changes in the world trade landscape. What is more likely to be is complex supply chain diversification. At the same time, technological advances will lead to the emergence of new types of services.
Of course, disasters of all kinds have the potential to change that: the COVID-19 pandemic and the current energy crisis will devastate economic development, and war or the threat of war will wreak havoc even more. Although there may be no causal link between world peace and the development of global trade, the hallmark of world peace is the healthy development of global trade. Sane people don't want other cruel options to come up.
(Observer.com translated from the Financial Times by Guanqun)
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