“Wwe are suffering has just been severely attacked by economic pessimism,” John Maynard Keynes wrote in 1930, when the global economy was disintegrating. He went on to describe how the world could look forward to a better future if it came together The picture is not so bleak today, but it is still hard to be optimistic about the prospects for globalization. The relationship between the United States and China, which together account for nearly a quarter of world trade, is even more icy. The rules that enabled the era of rapid globalization are being flouted and changed Perhaps most poignant is the sense that the film once played. The 19th century saw its own period of rapid globalization. Ultimately, however, economic nationalism and great power conflict destroyed the global trading system and other In many ways, the vortex of disaster sometimes seems only a few stray balloons away.
The world has experienced cold wars, but not between countries with such intertwined economies as the US and China. In a suspicious atmosphere, an accident happened. The habit of protecting and subsidizing domestic firms — which both countries are now doing on a massive scale — may be hard to break. All of this means that the immediate prospects for globalization look bleak. But, as Keynes did, on the bright side, it serves as a reminder that things often end better than expected. In the case of globalization, demography, technological advances, and historical paradigms themselves can push the world toward more, not less, integration. The prospects for globalization are brighter than most people now believe.
Start with demographic changes. History shows that trade policy responds to relative scarcity or abundance of factors of production such as labor. In the 19th century, sparsely populated countries such as the United States and Australia provided subsidies to immigrants. But as economic integration has narrowed price and wage gaps between countries, workers in once-labour-scarce economies have resented slow wage growth, and governments have begun imposing barriers on goods and people. Recent experience tells a similar story. Exposure to imports from labor-rich economies such as China has fueled anti-trade sentiment. After years of a weak labor market, Americans have elected successive protectionist presidents in which too many workers competed for too few jobs.
Recently, however, things have started to change. Unemployment is low in most developed countries, and investment programs aimed at reshoring production are likely to further increase demand for workers, even as workforce growth slows or shrinks. While robots may eventually help fill labor gaps, rich countries seeking to expand production will need to welcome foreign workers or source goods and components through supply chains that tap abundant labor supplies in other economies. Both would deepen cross-border ties.
Technological change is another reason for optimism. In the 19th century, railroads and the telegraph brought about a drastic drop in the cost of transportation and communication, and were at least as responsible for economic integration as the reduction of tariff barriers. Over the past half century, information technology and container shipping have enabled the explosion of global supply chains. Today, privacy and national security concerns have led to a somewhat fragmented flow of digital information.One might think that the government would be more protective of the powerful new AI.
But technology will facilitate trade in other ways. The transition to renewable energy will create new patterns of resource scarcity and abundance. Remote working technology has already reduced the cost of delivering services across borders. In the face of labor shortages, this trade is likely to increase, regardless of whether home working arrangements return to pre-covid-19 patterns. Additionally, continued improvements in machine translation and speech recognition will reduce the cost of trade in goods and services between countries that speak different languages.Despite the macroeconomic impact of progress AI hard to predict, a AI– Driven economic prosperity may be associated with substantial global investment and capital goods flows.If productivity surges in the following economies AI With a leader like the United States, these places may become more export-hungry and more open to trade liberalization measures.
Above all, optimism is justified because we have learned from the past. The macroeconomic shocks of 2007-09 and 2020 could have easily triggered a depression, but they didn’t because policymakers understood how to avoid the worst mistakes of the 1930s. Covid took a horrific toll, but advances in public health and medicine helped ensure that the epidemic was less deadly than the Spanish flu, in a world far more populous and connected than it was in 1918. Whereas leaders a century ago could not have foreseen the dire cost of the August 1914 detour, people today know it well. History will be different because of this.
Those who are still feeling down should take courage from recent experiences.Despite all the difficulties of the past decade or so, global trade has gross domestic product It is only down slightly from the peak reached in 2008. Moreover, recent history has shown that nothing in geopolitics is permanent—trends that seem unstoppable will eventually come to an end. The Cold War divided the world, and then, suddenly, it didn’t. The supreme confidence in the inevitable spread of democracy has been replaced by fears that an authoritarian China will dominate the world, which is simply not worth worrying about now. The standoff between the US and China will be old news someday, perhaps sooner than most currently think.
It is true that mistakes have brought the world into its current state of uncertainty. And more mistakes are bound to be made. But the past only shows what went wrong, not what will happen in the future. Only by keeping this in mind can we find the wisdom to do better. ■
Read more from our economics column Free Exchange:
Google, Microsoft, and the Threat from Powerful Antitrust Authorities (February 9)
AI boom: Lessons from history (February 2)
Are Economists Misunderstanding Inflation? (January 26)
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