Made on Earth: How Global Economic Integration Renders Trade Policy Obsolete (Trade Policy Analysis)

Studies from the Cato Institute | Contributor

During the past few decades, a truly

global division of labor has emerged, presenting

opportunities for specialization, collaboration,

and exchange on scales once unimaginable.

The confluence of falling trade

and investment barriers, revolutions in communications

and transportation, the opening

of China to the West, the collapse of

communism, and the disintegration of Cold

War political barriers has spawned a highly

integrated global economy with vast potential

to produce greater wealth and higher living

standards.

The factory floor is no longer contained

within four walls and one roof. Instead, it

spans the globe through a continuum of

production and supply chains, allowing lead

firms to optimize investment and output

decisions by matching production, assembly,

and other functions to the locations best

suited for those activities. Because of foreign

direct investment, joint ventures, and other

equity-sharing arrangements, quite often

“we” are “they” and “they” are “we.” And because

of the proliferation of disaggregated,

transnational production and supply chains,

“we” and “they” often collaborate in the

same endeavor. In the 21st century, competition

is more likely to occur between entities

that defy national identification because

they are truly international in their operations,

creating products and services from

value-added activities in multiple countries.

There is competition between supply chains,

but only after there is cooperation and collaboration

within supply chains.

But trade and investment policy has not

kept pace with these remarkable changes in

commercial reality. Our globally integrated

economy requires policies that are welcoming

of imports and foreign investment and that

minimize regulations or administrative frictions

based on misconceptions about some

vague or ill-defined “national interest.” To

nurture the promise of our highly integrated

global economy, governments should commit

to policies that reduce frictions throughout

the supply chain–from product conception

to consumption–as well as in the flow of services,

investment, and human capital.

During the past few decades, a truly

global division of labor has emerged, presenting

opportunities for specialization, collaboration,

and exchange on scales once unimaginable.

The confluence of falling trade

and investment barriers, revolutions in communications

and transportation, the opening

of China to the West, the collapse of

communism, and the disintegration of Cold

War political barriers has spawned a highly

integrated global economy with vast potential

to produce greater wealth and higher living

standards.

The factory floor is no longer contained

within four walls and one roof. Instead, it

spans the globe through a continuum of

production and supply chains, allowing lead

firms to optimize investment and output

decisions by matching production, assembly,

and other functions to the locations best

suited for those activities. Because of foreign

direct investment, joint ventures, and other

equity-sharing arrangements, quite often

“we” are “they” and “they” are “we.” And because

of the proliferation of disaggregated,

transnational production and supply chains,

“we” and “they” often collaborate in the

same endeavor. In the 21st century, competition

is more likely to occur between entities

that defy national identification because

they are truly international in their operations,

creating products and services from

value-added activities in multiple countries.

There is competition between supply chains,

but only after there is cooperation and collaboration

within supply chains.

But trade and investment policy has not

kept pace with these remarkable changes in

commercial reality. Our globally integrated

economy requires policies that are welcoming

of imports and foreign investment and that

minimize regulations or administrative frictions

based on misconceptions about some

vague or ill-defined “national interest.” To

nurture the promise of our highly integrated

global economy, governments should commit

to policies that reduce frictions throughout

the supply chain–from product conception

to consumption–as well as in the flow of services,

investment, and human capital.

Daniel Ikenson is associate director of the Center for Trade Policy Studies at the Cato Institute and coauthor of Antidumping Exposed: The Devilish Details of Unfair Trade Law (2003).

Loading comments...
© Copyright 2010 - 2018 | The Daily Caller