Many people know of the first wave of economic globalization that occurred in the last few decades of the 19th century and ended with the onset of World War I. After World War II, globalization got started again. But up to about the early 1990s, merchandise trade as a share of world GDP was still climbing back to where it had been circa 1913. The globalization of economic activity since then is truly unprededented. Arvind Subramanian and Martin Kessler discuss \”The Hyperglobalization of Trade and Its Future\” in a July 2013 working paper written for the Peterson Institute for International Economics.
Here\’s an overview figure showing the pattern of first globalization, deglobalization, reglobalization, and now hyperglobalization.
Subramanian and Kessler go into some detail on how they see the key characteristics of hyperglobalization. Here are some of my own takeaways from their essay:
1) One reason for the surge in trade can be traced to the rapid growth of emerging economies that are intertwined with world trade, especially China, but also India, Brazil, and others.
2) Earlier surges in world trade have been driven to some extent by cheaper transportation costs. However, this particular surge of world trade seems to have more to do with cheaper information and communications costs. One manifestation of cheaper costs of information transmission is the rise in services trade, shown by the green line in the figure. Indeed, the authors argue that if one count services that accompany the trade in goods, then trade in services would be about 50% larger. Another manifestation is the rise in trade of unfinished products like parts and components, which flow back and forth across national borders as global supply chains become longer. Just looking at trade in value-added terms, as shown by the red dashed line in the figure, there is still a sharp rise–but not as large as the overall rise in trade. Still another manifestation is the rise in foreign direct investment, which can be thought of as applying management services from one country to production in another country.
3) Overall, world trade is facing increasing barriers. One reason is that the volume of trade is shifting to emerging economists, which on average have greater trade barriers than the high-income countries. Another reason is that trade is shifting to services, and trade barriers in areas like finance, professional services, retailing, and transportation are higher than in manufacturing. Still another reason is the proliferation of regional trade agreements, which ease trade barriers within a region at the cost of making remaining trade barriers against the rest of the world loom larger.
4) As the U.S. economy struggles to return to an acceptable rate of growth, one obvious mechanism is to find ways to hook into the very rapid growth happening in emerging economies around the world. But this may well require both domestic policy changes to help U.S. workers adjust to the inevitable dislocations of international trade, and international changes so that world trade involving new trading partners, a rising level of services and foreign direct investment, and ever-longer production chains is conducted under a set of common rules that are at least clearly spelled out.