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 success first
demands cooperation and collaboration within
supply chains (i.e., cooperation and collaboration
between some of “us” and some of “them”).
This new commercial reality demands policies
that are welcoming of imports and foreign
investment, and that minimize regulations or
administrative frictions that are based on misconceptions
about some vague or ill-defined
“national interest.”
The driving force behind innovation and
opportunity in this new era is the reduction and
elimination of artificial barriers, both political
and economic. As those barriers have diminished,
opportunities for new combinations of
labor, investment, and human capital have
emerged in defiance of what were once formidable
obstacles to wealth creation.
There have been signs in recent years that
policymakers are beginning to grasp the new
reality. “Autonomous” or “unilateral” liberalization
of trade barriers has accounted for most of
the trade liberalization in developing countries
over the past two decades and, on average,
applied tariff rates globally are well below their
maximum allowable rates or “bound” rates
under World Trade Organization agreements.
However, the financial crisis and subsequent
global recession have tested the depth of that
understanding and brought out the worst political
instincts of some policymakers who think
only about short-term political benefits and disregard
longer-term costs.
In some cases, governments have raised trade
barriers, subsidized domestic champions, or
imposed local lending or hiring requirements, all
in the name of creating or protecting local jobs
and supporting the local economy. Perhaps the
most notorious protectionism during the current
global recession has taken the form of restrictions
on competition in government procurement
markets. Apparently, policymakers around
the world still accept the pre-enlightened belief
that proper stewardship of taxpayer resources
and the optimal path to stimulating economies
require limiting fiscal spending to products and
services produced locally. It started with Buy
American provisions in the United States, and
like swine flu has jumped borders to Canada,
China, the Philippines, and Australia. Requirements
to lend and hire locally have also been
imposed in some places. By indulging these
reflexive, populist, once-considered-vanquished
ideas, politicians have made matters worse,
while reinforcing antiquated assumptions about
how the global economy actually works.
Global economic integration has enabled
enterprises to flourish on scales unimaginable
just a generation ago. Not only should the
reimposition of barriers under current economic
conditions be eschewed, but a firm commitment
to bring trade and investment policy up
to speed with 21st century commercial reality
would be a wise investment in the future.
To nurture the promise of our highly integrated
global economy, governments should
stop conflating the interests of certain producers
with the national interest and 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.