As policymakers respond to the global recession,
they should remember that the unprecedented
global economic growth experienced in
recent decades owes much to the removal of
political and economic barriers to trade and
investment. During that time, a division of labor
on a truly global scale has emerged, presenting
opportunities for specialization, collaboration,
and exchange that affirm—and might even
astonish—the great Adam Smith. Falling trade
and investment barriers, revolutions in communications
and transportation, the opening of
China to the West, the collapse of communism,
and the disintegration of Cold War political barriers
have spawned a highly integrated global
economy with vast potential to produce greater
wealth and higher living standards.
The dramatic reduction in transportation
and communication costs combined with widespread
liberalization of trade, finance, and political
barriers are all accomplices in what has been
called “the death of distance.”1 Under the new
paradigm, the factory floor is no longer contained
within four walls and one roof. Instead,
the factory floor spans the globe through a continuum
of production and supply chains, allowing
lead firms to optimize investment and output
decisions by matching production, assembly,
and other functions to the locations best suited
for those activities.
These changes warrant a fresh approach to
trade policy. In the 21st century, it is inaccurate
to characterize international trade as a competition
between “us” and “them.” Because of foreign
direct investment, joint ventures, and other
equity-sharing arrangements, quite often “we”
are “they” and “they” are “we.” And as a result of
the proliferation of disaggregated, transnational
production and supply chains, “we” and “they”
often collaborate in the same endeavor. Under
the new paradigm, workers in developed and
emerging countries are more likely to be
coworkers than competitors.
Today’s global economic competition is less
likely to feature “our” producers against “their”
producers and more likely to feature entities