The Trade Delusion

This implies that further progress in trade liberalization will be slow. But slow progress is a far less important challenge to growth prospects than the debt overhang in developed economies, or infrastructure and educational deficiencies in many developing economies. That reality often goes unacknowledged. The importance of past trade liberalization has left the global policy establishment with a bias toward assuming that further liberalization would bring similar benefits.

But while the potential global benefits of trade liberalization have declined, reduced trade intensity might still impede economic development in some countries. Only a handful of economies over the last 60 years have fully caught up to advanced-economy living standards, and all relied on export-led growth to drive productivity and job creation in manufacturing. Relying solely on that model will be more difficult in the future. China is so big that it must develop domestic drivers of growth at an earlier stage of development than did Japan, Taiwan, or South Korea; as a result, its exports will inevitably decline (relative to GDP).

Meanwhile, for some low-income countries, increased manufacturing and service-sector automation of the sort described by Brynjolfsson and McAfee, whether within advanced economies or within China’s established industrial clusters, will make the path to middle- and high-income status more difficult to achieve. That poses important challenges for development policy, which further trade liberalization can alleviate only marginally.

Adair Turner, former Chairman of the United Kingdom’s Financial Services Authority, is a member of the UK’s Financial Policy Committee and the House of Lords.

Copyright: Project Syndicate, 2014.