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

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During the past few decades, a trulyglobal division of labor has emerged, presentingopportunities for specialization, collaboration,and exchange on scales once unimaginable.The confluence of falling tradeand investment barriers, revolutions in communicationsand transportation, the openingof China to the West, the collapse ofcommunism, and the disintegration of ColdWar political barriers has spawned a highlyintegrated global economy with vast potentialto produce greater wealth and higher livingstandards.

The factory floor is no longer containedwithin four walls and one roof. Instead, itspans the globe through a continuum ofproduction and supply chains, allowing leadfirms to optimize investment and outputdecisions by matching production, assembly,and other functions to the locations bestsuited for those activities. Because of foreigndirect investment, joint ventures, and otherequity‐​sharing arrangements, quite often“we” are “they” and “they” are “we.” And becauseof the proliferation of disaggregated,transnational production and supply chains,“we” and “they” often collaborate in thesame endeavor. In the 21st century, competitionis more likely to occur between entitiesthat defy national identification becausethey are truly international in their operations,creating products and services fromvalue‐​added activities in multiple countries.There is competition between supply chains,but only after there is cooperation and collaborationwithin supply chains.

But trade and investment policy has notkept pace with these remarkable changes incommercial reality. Our globally integratedeconomy requires policies that are welcomingof imports and foreign investment and thatminimize regulations or administrative frictionsbased on misconceptions about somevague or ill‐​defined “national interest.” Tonurture the promise of our highly integratedglobal economy, governments should committo policies that reduce frictions throughoutthe supply chain – from product conceptionto consumption – as well as in the flow of services,investment, and human capital.