A must read piece from The Economist: Truth and myth about the effects of openness
to trade
“America has run a
trade deficit every year since 1976. On the other side of the global ledger are
countries that consistently run big trade surpluses. These days the record is
held not by China but by Germany, which last year had a current-account surplus
of 8% of GDP. But this does not mean that America is “losing” at trade, as Mr.
Trump suggests, and China and Germany are winning. The purpose of exports is to
pay for imports, either now or later. A trade surplus is not a virility symbol.
In some cases, it is a sign of a strong national preference for saving (though
other countries might describe it as a symptom of weak domestic demand).
Countries rarely have balanced trade, where the value of exports and imports is
exactly the same. It might seem plausible that restricting trade to eliminate
deficits will create jobs, channelling existing demand towards goods made at
home. But the reality is more complicated. In most rich countries, particularly
America, the trade deficit widens when GDP growth is strong, and shrinks during
recessions. The factors that drive demand for imports are the same as those
that drive overall demand, and thus jobs. To balance trade, Americans would
have to invest less or save more. Neither would create jobs.”
Related:
The Economist succinctly
summarizes the intellectual and economic case for globalization:
Robert Samuelson wisely notes –
“Just because globalization is flawed doesn’t mean
that its nationalist substitute is superior. Creeping protectionism reduces the
efficiencies created by large international markets. This would limit the
possibility of lowering prices of traded goods and services. It would also
foster more trade conflicts as countries aided local firms with more subsidies
and protectionism.
For all its shortcomings, globalization has contributed to a huge reduction
in worldwide poverty over the past quarter-century. We ought to be more
realistic about its limits and should police its vulnerabilities — particularly
the danger of financial breakdowns. But as an organizing principle for U.S.
foreign policy, we shouldn’t abandon it until we have something better. We
don’t.”