The last 20 years have brought the world more trade, more globalization and more economic growth than in any previous such period in history. Few commentators had believed that such a rise in trade and living standards was possible so quickly.
More than 400 million Chinese climbed out of poverty between 1990 and 2004, according to the World Bank. India has become a rapidly growing economy, the middle class in Brazil and Mexico is flourishing, and recent successes of Ghana and Tanzania show that parts of Africa may be turning the corner as well.
Despite these enormous advances, however, there is a backlash against globalization and a widespread belief that it requires moderation. Ordinary people often question the benefits of international trade, and now many intellectuals are turning more skeptical, too. Yet the facts on the ground show that the current climate of economic doom and gloom simply isn’t warranted. The classic economic recipes of trade, investment and good incentives have never been more successful in generating huge gains in human welfare.
For all the talk of a needed “timeout” from globalization, world trade is actually accelerating, and that is for the better.
The globalization process has had its bumps, of course, as reflected recently by rising commodity prices, but that is largely a consequence of how much and how rapidly prosperity has grown. Countries like China have become richer so fast that global production of energy and food have been unable to match the pace. But rapid economic growth is the right direction, even if some of the remaining poor are suffering from high food prices.
For all the talk of a needed “timeout” from globalization, world trade is actually accelerating, and that is for the better. Big changes often come bunched together, so that when good things are happening it is important to maintain the trend. It’s true that the tariff-reducing talks at the World Trade Organization have stalled and that the Democratic Party, at least in its rhetoric, has moved away from the free-trade legacy of President Bill Clinton.
But the volume of trade is nonetheless likely to keep rising, if only because the world economy is expanding. Furthermore, a vast majority of Americans have never been better poised to benefit from global exchange and from the prosperity of the rest of the world.
Trade advocates focus on the benefits of goods arriving from abroad, like luxury shoes from Italy or computer chips from Taiwan. But new ideas are the real prize. By 2010, China will have more Ph.D. scientists and engineers than the United States. These professionals are not fundamentally a threat. To the contrary, they are creators, whose ideas are likely to improve the lives of ordinary Americans, not just the business elites. The more access the Chinese have to American and other markets, the more they can afford higher education and the greater their incentive to innovate.
Conservative and liberal economists agree that new ideas are the fundamental source of higher living standards. We urgently need new biotechnologies, a cure for AIDS and a cleaner energy infrastructure, to name just a few. Trade is part of the path toward achieving those ends. A wealthier China and India also mean higher potential rewards for Americans and others who invest in innovation. A product or idea that might have been marketed just to the United States and to Europe 20 years ago could be sold to billions more in the future.
Those benefits will take time to arrive, but trade with China has already eased hardships for poorer Americans. A new research paper by Christian Broda and John Romalis, both professors at the Graduate School of Business at the University of Chicago, has shown that cheap imports from China have benefited the American poor disproportionately. In fact, for the poor, discounting in stores such as Wal-Mart has offset much of the rise in measured income inequality from 1994 to 2005.
Despite all these gains, the prevailing intellectual tendency these days is to apologize for free trade. A common claim is that trade liberalization should proceed only if it is accompanied by new policies to retrain displaced workers or otherwise ameliorate the consequences of economic volatility.
Yes, the benefits of a good safety net are well established, but globalization is not the primary source of trouble for most American workers. Health care problems, bad schools for our children or, in recent times, bad banking practices have all produced greater disruptions — and these have been fundamentally domestic failings.
What’s really happening is that many people, whether in the United States or abroad, are unduly suspicious about economic relations with foreigners. These complaints stem from basic human nature — namely, our tendency to divide people into “in groups” and “out groups” and to elevate one and to demonize the other. Americans fear that foreigners will rise at their expense or “control” some aspects of the economy.
One approach is to appease these sentiments by backing away from trade just a bit, or by managing it, so as to limit the backlash. Giving up momentum, however, isn’t necessarily the right way forward. If we are too apologetic about globalization, we can feed core irrationalities, instead of taming them. The risk is that we will frame trade as a fundamental source of suffering and losses, which would make voters more nervous, not less.
It is wrong to play down the costs of globalization, but the reality is that we’ve been playing down its benefits for a long time. Politicians already pander to Americans’ suspicion of foreigners. There is no need for the rest of us to jump on this bandwagon. Instead, we need more awareness of the cosmopolitan benefits of trade and the often hidden — but no less real — gains for ordinary Americans.
If we look at trends of the last 20 years, we have every reason to believe that the modern era of free trade is just getting started.