Analysis on U.S. Policy on Globalization

Andrew Nguyen

The level of discord in international trade negotiations has risen in the past few decades due to a variety of reasons. These reasons include the pushback to globalization as a response to the “underdevelopment of development” of the core-periphery capitalist world system, the international security threats and instability from global terrorism, and the polarization and domestic pressures to protect declining job sectors in the face of the New Globalization. All these factors have led to the stalling of globalization in comparison to the rapid global integration of the 1990s. This has led to an international order that is viewed as increasingly ineffective as shown by major international institutions, such as the World Trade Organization (WTO), breaking down as rule-making international trade authorities. In the interim period, there has been no other international institution that has stepped up to take the place of effective international governance in order to promote the further liberalization of international trade. Furthermore, Western powers that may have previously held hegemonic economic interests in global trade liberalization and freer borders have seen domestic dissent and opposition to trade and migration, the major forces of globalization. Because of the economic and political power that the United States holds, U.S. domestic politics must reorient to promote globalization in order to maximize its comparative advantage benefits from international trade. More importantly, the United States must ensure that these workers are able to equitably share in these benefits in order to stimulate greater economic growth. To do so, U.S. domestic policymaking needs to better train workers to adapt to the realities of the New Globalization by teaching them the necessary communication, creative, and technical skills to establish an automatizing workforce. Internationally, the politics of development must change to be more effective and equitable to redistribute the gains of global trade so that rich and poor countries do not further polarize. Steps must be taken to allow for greater freedom of mobility and opportunity for people, especially via migration, which could help to restart globalization and international trade liberalization.

Comparative advantage refers to a type of gain from international trade due to the division and specialization of labor. Because specialization requires access to large markets and economic growth, the division of labor across national markets results in dynamic international trade. This means that both trading countries can benefit economically by specializing in particular products and services in which they have comparative advantages, and then trading for those products they do not specialize in. “The principle of comparative advantage leads to the conclusion that each country will be best off if it produces what it is best at producing and exchanges its products with other countries in return for imports of things it is not so good at producing” is the core of trade economics that focuses on efficient production in order to maximize gains (FLS, p. 298). One of the ways in which national comparative advantage is determined is by the Heckscher-Ohlin trade theory, which describes how “a country will export goods that make intensive use of the factors of production in which it is well endowed,” such as land, labor, financial, or human capital, and “import goods that make intensive use of the country’s scarce resources” in order to maximize its holistic economic growth potential (FLS, p. 299-300). Economic logic, therefore, makes the argument that free trade is beneficial as imports represent trade gains and exports represent trade losses. If there are open, liberal borders and the removal of trade barriers there will be decreases in the costs of goods to consumers and increases in the efficiency of domestic production so that all countries gain from international trade (FLS, p. 298).

On the other hand, the political economy of trade protectionism refers to the production of relationships and trade-policy interests that “explain who might be in favor of and against trade” (FLS, p. 308). In general, trade protection is harmful to the national economy as a whole. However, it is still a major domestic political issue because, while all countries benefit from international trade, not all groups within countries benefit equally. If losers of trade hold political power, then as producers, they may be concerned about competition from imports and “may complain that foreign barriers to their goods keep them out of markets abroad and also similarly say that imports cut into profits and cost jobs at home” (FLS, p. 307). One explanation for why states may not embrace free trade all the time comes from the Stolper-Samuelson theorem, which “predicts that trade protection benefits the scarce factor of production”— looking at the Heckscher-Ohlin theory, limiting competing imports will help that scarce factor so that in a labor-scarce country, “labor benefits from protection and loses from trade liberalization” (FLS, p. 309). This happens because trade liberalization tends to increase the exports and income of the relatively abundant factor while increasing import competition and decreasing the income of the relatively scarce factor. Under StolperSamuelson, policy preferences and conflict over trade policy are based on class or factor interests, with those factors of production being capital, labor, and skills.

According to Irwin, this is the reason why rising protectionism under President Trump fails to create new manufacturing jobs or narrow the trade deficit. Instead, Trump’s trade policies have risked “a global trade war that would prove damaging to all countries,” as well as an undermining of international institutions in which the U.S. is deeply involved, such as the WTO, which are responsible for making “meaningful contributions to global peace and prosperity” (Irwin, p. 45).On the other hand, the Ricardo-Viner model deals with industry-specific factors or larger sectoral interests, which works under the claim that factors of production are actually very limited in their mobility. Under the Ricardo-Viner approach, “the interests of individuals flow from the sectors of the economy in which they are employed,” so that workers or managers “in an industry that faces stiff import competition will be protectionist … [while] a worker or manager in an exporting industry will want free trade” (FLS, p. 311). Because of this, Blinder argues that the “political calculus really is inherently biased against freer trade” due to reasons such as a lack of public understanding of trade principles and the producer perspective in which the interests of producers and the provision of well-paying jobs is just as important as, if not more so than, the provision of cheaper goods and services (p. 128). Under this perspective, Blinder contends that the argument of comparative advantage would have to be reframed as a principle for moving people into jobs where they earn more rather than moving goods and services around in an international trade flow that makes them cost less. Because of these competing interests and priorities, trade restrictions will continue to be at the forefront of the political agenda.

Current and future international trade represents the liberal ideology of bringing “order to contemporary international trade policy” by providing a setting that facilitates international cooperation and establishing rules and standards of behavior for governments that are part of the international institution through monitoring and enforcing members’compliance to the agreed- upon rules (FLS, p. 324). Because the Heckscher-Ohlin trade theory explains how comparative advantage benefits states due to the more efficient, mutually beneficial division of labor, trade institutions, such as the GeneralAgreement on Tariffs and Trade (GATT) and WTO that work to spread free trade, are important for creating the arenas of engagement for states to develop trade expectations. These types of institutions are successful because of the expectation of reciprocity and repeated interactions, which incentivizes members of the institutions to “play nicely” or resolve disputes diplomatically in accordance with the rule-making bodies since they are politically and economically linked to the negotiations and agreements of countries across multilateral trade relations. These linkages are important for mutually beneficial national development policies

because they “reduce the costs to governments of making joint decisions … and can help governments resolve disputes” in a much more efficient manner, which is critical in an increasingly fragmented, international, and complex trade realm in which comparative advantage principles make countries increasingly interconnected and reliant on each other (FLS, p. 325).Additionally, the WTO monitors regional free trade agreements to ensure that multilateral negotiations and agreements “constitute institutional structures that help mediate or avoid divisive trade-policy conflicts among countries,” which incentivize free trade among member countries because of a stronger commitment to reciprocity and shared economic and political gain (FLS, p. 330). However, the negative aspect to this is that some believe that these regional agreements put limits on trade with non-member countries and that international trade institutions unfairly skew the balance of trade.

According to Baldwin in “The World Trade Organization and the Future of Multilateralism,” while international trade institutions like the WTO and GATT were important for setting up an integrated world economy based on the fragmented international trading of parts, the WTO in particular has fallen into a “deep malaise” characterized by the “failures, flops, and false dawns” of the Doha round’s gridlock on international trade policymaking (p. 95). Having institutions like the GATT was important for pushing the international order into a new phase of international economics and propelling trade liberalization on a brand-new scale as the United States took over as the global hegemon. However, in this time, Baldwin argues that the founding principles of the GATT were still based on pre-World War I globalization theories and unilateral and bilateral world trade integration strategies. Under New Globalization, however, the second component of strategies has created an unsteady international trade environment. This results in goods crossing national borders several times during the production process, meaning that open trade with developing countries is increasingly important. For this reason, the future of trade is trending towards megaregional and multilateral trade agreements, which are more sensitive to offshoring and allow for greater complexity in negotiating global value chains.

Ultimately, Baldwin argues that “world trade governance is heading towards a two-pillar system” of two unbundling (p. 114). The system is balanced out by one pillar, the WTO, that represents traditional trade structures. The second pillar deals with everything else that results from fragmentation or the movement of the stages of production across international borders, such as: “trade in intermediate goods and services, investment and intellectual property protection, capital flows, and the movement of key personnel” (p. 114). Through this twopillar system, poor nations, in particular, hold the potential to take greater part in multilateral trade decision-making processes because they can more effectively leverage their roles in global value chains and international trade. Therefore, these nations are able to fight for more equitable redistributions of the gains from global trade, which could help to restart international trade liberalization and open more countries to free trade again.

Before globalization, the cost of moving goods, ideas, and people was very high, which forced production and consumption to gather in close proximity of each other in order to benefit from economies of scale. Baldwin argues that the “three-cascading constraints” perspective shows how globalization has evolved to unbind these constraints and further open and integrate the global economy, allowing for much greater mobility across these things. Old Globalization refers to the industrial model of national economic development, which focused on domestic growth and manufacturing, and largely revolved around advancements in steam technology. Before this period, Baldwin explains that “goods, ideas, and people all moved by the same means” and traveled very slowly (p. 113). This held back globalization because the costs of transportation became a binding constraint on how fast, and therefore how far, goods, ideas, and people could travel. With the first unbundling, the steam revolution and diesel-

powered ships significantly reduced the cost of water- based transportation, or the cost of moving goods, meaning that one of the three items no longer acted as a binding constraint and goods could effectively move around the globe much faster and more safely. However, the movement of ideas and people were still slow, risky, and expensive as it was difficult for people to find abundant opportunities elsewhere. Furthermore, telecommunication technology had not quite yet mastered long-distance communication, as signal degradation and expensive wiring still kept the cost of knowledge sharing fairly high.

New Globalization is very different because “revolutionary advances in the transmission, storage, and processing of information … drastically lowered communication costs” and made the telecommunication network denser, more reliable, and cheaper (Baldwin, p. 130). This made it so that ideas were no longer a binding constraint, which in turn made the trade of goods even faster and more coordinated, resulting in people moving around at lower total costs, thus making opportunities much more communicable and accessible. In comparison to the Old Globalization, which was more limited by national borders and domestic economies and focused on the flow of goods and manufacturing, the New Globalization can be explained in terms of how the second unbundling reduced the costs of mobility in goods and ideas, and how this has revolutionized fragmented offshoring and technology flows. The evolution of offshoring itself has reimagined global trade relationships and the directions in which information and power flows through international production networks. “Traditionally, manufacturers in the Group of Seven (G7) nations sourced inputs domestically to produce what might be called made-here-sold-theregoods,” whereas the second unbundling shows how goods came to be made everywhere as competitive elements like management and marketing intermingle across international lines (Baldwin, p. 143).As factories cross borders because of the new international organization of production, international competition becomes broken up into factor competition rather than sector competition, which denationalizes comparative advantage “by redrawing the international boundaries of competitiveness” (Baldwin, p. 175). Under Old Globalization, nations may have specialized in particular sectors and developed their national trade policy based on comparative advantage. This allows for new fragmented international production networks that nations now get to specialize differently in each factor of production. Because of this reorganization in which factors hold the comparative advantage, rather than which sectors hold the comparative advantage, Baldwin argues that the second unbundling creates new winners and losers of trade.

With the international relationships built under the New Globalization, the developing world has increasingly turned to or been forced into global markets and the capitalistic system, so that the politics of development play an important role in the evolution of the new international order. Development is difficult to attain because steps that a nation can take to develop can sometimes create conflict with interest groups both domestically and internationally. FLS defines three major approaches to why development is hard to achieve and why some countries are rich and others remain poor: “geography, domestic factors such as a nation’s political economy, and domestic institutions” (p. 427). In terms of geography, certain common characteristics can put nations at a developmental disadvantage. Being landlocked restricts a nation’s access to the global economy via waterways or being located far away from major markets – both make global trade and communication much more expensive and historically difficult.Additionally, regions that are prone to diseases that are hard to control or cure are disadvantaged by high-risk or unstable human resources. Although another reason for this may be that the particular diseases found in these areas are difficult to control because these nations are not seen as developmental priorities, or they lack the infrastructure. The weather, disease, and potential natural resource dependency are all geographic factors that play into national development and prosperity.

Domestically, governments can create stable and reliable conditions for economic growth by “investing in education and public health, [creating] an efficient economic infrastructure, and [ensuring] a stable monetary and financial system,” which can facilitate economic growth and help to secure private property rights to promote individual economic prosperity (FLS, p. 430). Essentially, some development policies work and some fail because of “how politicians, social groups, and the public bargain, fight, cooperate, and negotiate their way toward an outcome,” and each interest group may benefit or experience harm differently from developmental policies. Additionally, “because many LDCs [Least Developed Countries] have boundaries that were determined by colonial powers without regard to preexisting ethnic, religious, and racial features of the population, they can be very diverse, and competition among groups can complicate” domestic economic policy making, as the different interests of different groups may have more or less political power or leverage (FLS, p. 431). But while domestic factors and national government policies are important to understanding national developmental success or failure, the international political environment also constrains or provides opportunities. While poverty rates have fallen worldwide in the past several years, many LDCs also argue “that the current poverty of much of the world is due to the structure of the international system” because of the way global trade is fragmented (FLS, p. 438). TheArgentine economist Raúl Prebisch argues that because rich countries produce most manufactured goods while LDCs produce the raw materials and agricultural products (primary products), global trade works in favor of developed countries while forcing the prices of LDCs’ primary products to lower over time; therefore, LDCs “got less for what they sold, and they paid more for what they bought,” demonstrating that international economics and trade purposefully keep poor countries poor and underdeveloped (FLS, p. 442). Finally, development can be hard to achieve because the relationship between resource wealth and underdevelopment has a strong legacy of colonialism, resulting in what some theories call the “resource curse.” This occurs when “the government of a country with a natural resource that can be easily and lucratively exploited may have few reasons to encourage productive activities other than those associated with that resource” due to an incentive to engage in corrupt practices such as bribing governments or private companies, such as with oil wealth, which can keep LDCs from enacting effective national developmental policy (FLS, p. 435).

Trends in development strategies have also impacted different nations’ paths to development. From the 1930s to the 1980s, theorists like Raúl Prebisch argued that import- substituting industrialization (ISI) and enforced self-sufficiency would be a successful response to the dependency theory, which explains that peripheral states were trapped in a cycle of underdevelopment and would never catch up to the core states. This occurred because multinational corporations are fragmented across different states that are primarily extracting cheap, unskilled goods and services from peripheral economies in order to accumulate value and produce profits for core economies. The goods and services would be produced and sold at such low costs that they would crowd out local businesses and destroy local entrepreneurship in less- developed nations that could not compete, creating a permanent divide in labor between the highly skilled core and the extractive periphery similar to the colonial model (Lecture, Nov. 18th). Import- substituting industrialization, which would “reduce imports and encourage domestic manufacturing, often through trade barriers, subsidies to manufacturing, and state ownership of basic industries,” seemingly allowed developing nations to move away from dependency on primary and extractive production to industrialization and broader domestic development instead (FLS, p. 446). Larger developing countries that adopted this model, such as India, Brazil, Mexico, andArgentina, seemed successful at first; however, failures to sustain development under ISI due to issues such as smaller domestic markets and lack of global market expansion left these countries vulnerable to debt and global crises. In its place, the “Asian Tigers” demonstrated how export- oriented industrialization (EOI)

aimed to “spur manufacturing for export, often through subsidies and incentives for export production,” and could push exports for foreign consumers, particularly Americans, in order to fuel longer-term development through integration into a much larger and more stable global market while using the state to protect its domestic markets (FLS, p. 448).

EdwardAlden and Laura Taylor-Kale argue thatAmericans have failed to adequately adjust to the circumstances and conditions of the global and automated economy because government policies have failed to reflect the demands of an increasingly competitive economy, allowing the links between work, opportunity, and economic security to break down. They answer that the U.S. should begin to rebuild these links for all Americans by creating better jobs, maintaining technological leadership, and making postsecondary education universally accessible. Additionally, the task force recommends a better system of unemployment insurance as well as government policies that encourage labor mobility, including an employment benefit structure that is tied to individual employees rather than the jobs themselves (Alden and Taylor-Kale, p. 5).Alden and Taylor-Kale point to “the rapid pace of technological change, heightened global competition, and growing barriers to opportunity” as the major causes of why these links have broken down (p. 8). Unrest and instability have resulted from a generation of the workforce that is unable to adjust to a rapidly changing economy. The United States has failed to react to steadily rising competition from other countries, and our trade policies have reflected that complacency as the U.S rides on its years of unmatched global prowess. Over the past half century, the United States has had a “history of economic leadership,” having been the creator of the modern global rules of economic competition and creating benefits such as increased trade flows and lower cost of goods (Alden and Taylor-Kale, p. 3).Additionally, U.S. economic and political leadership has historically, particularly within the past century, discouraged protectionist measures in developing countries and opened more countries to trade liberalization through a mix of force and international goodwill, such as engaging in foreign aid and development programs to help raise the standards of living in developing countries. However, Alden and Taylor-Kale also recognize that technology sees no borders and “in the absence of a workforce with the right skills and opportunities, without a regulatory regime that favors innovation, without access to global markets, and without state and local policies that favor the development of successful clusters,” the United States will begin to lose its global economic power and potential as the 21st century progresses through innovation and automation (p. 19-20). This loss in technological leadership could have disastrous consequences on the U.S.’s national security as well as further decreasing economic opportunities for allAmerican workers.

Already, “the fastest growth in the country has taken place in the big cities, often those with strong technology economies, such as Boston, Denver, New York, San Francisco, and Seattle, and in energy-strong regions including the Dakotas and Texas,” widening the gap between big and small cities— cities that already have abundant high-skilled job concentrations are further creating new high-skilled jobs, while small cities are still struggling to recover from declining manufacturing industries (Alden and Taylor-Kale, p. 44). The failure to create an economy in which the American workforce can more fully share the overall success will result in an “economically weaker, less confident, more divided, and more vulnerable United States, one that will retreat from global leadership” (p. 7).

Building America’s capacity to invest in and include more people in the workforce and implementing policies to ease the adjustment period for those who will certainly lose jobs in the transition is critical for keeping up with the work ahead. In a rapidly changing, high-tech global environment, education programs that target the skillsets necessary in the new competitive economy will help to strengthen the link between education and

employment outcomes (Alden and Taylor-Kale, p. 76).Also, through worker retraining programs to reintegrate workers into skilled jobs, the United States can make sure that fewer people are suffering from the shocks of a transitioning economy and create more opportunities for prosperity. To implement these changes, the U.S. will also need to invest in domestic support structures such as universal access to high- quality experiential skills training and public infrastructure reform. Without the job mobility and adaptable skills to thrive in a highly integrated global system, the U.S. cannot hope to maintain the levels of security and prosperity that it has historically enjoyed. As the “first country to offer public high school education to all its citizens and the first to open the door widely to postsecondary education,” Alden and Taylor-Kale argue that one of the answers to rebuilding the links among work, opportunity, and economic opportunity must lie in education policies implemented in all sectors, from private to all levels of the government (p. 3). By pushing private employers to develop better talent pipelines and focusing on increasing work-study initiatives that give students real, applied workforce experience, American students can be more confident in the value of their education and more secure in their economic prospects after graduation.

At the government level, Alden and Taylor-Kale explain that state and local governments need to be involved in the process of developing skills-pipeline initiatives in the private sector for them to be successful. This is particularly important in regard to helping small- and medium-sized companies stay competitive in attracting skilled workers and starting skilled worker training and workplace readiness as early as public middle and high school.At the federal level, governments also need to finance mid-career retraining and plan for more flexible forms of financing to allow for greater economic mobility, making use of labor market data to more effectively and transparently plan for the technological future (Alden and Taylor-Kale, p. 87). Finally,Alden and Taylor-Kale focus on the importance of bringing workforce issues into the forefront of forward- thinking public policymaking. The WorkAhead makes a concluding argument that “the president and the nation’s governors should create a National Commission on the U.S. Workforce to carry out research, share best practices, and conduct public outreach on workforce challenges” as part of creating national floors for workforce regulation standards and forcing private and governmental organizations to collaborate on a combined workforce effort to rebuild the links among work, opportunity, and economic security (Alden and Taylor-Kale, p. 99).

Though Baldwin agrees withAlden and Taylor-Kale that investments in knowledge capital (supporting government-sponsored research, private-sector R&D subsidies, and research-oriented universities) and human capital (education, training, and retraining) are necessary for increasing a nation’s global competitiveness, Baldwin also sees a need for rethinking policies addressing national competitiveness in the more complex, fragmented, and footloose world of the second unbundling. Baldwin looks beyond the domestic sphere to how processes of globalization impact the links among work, opportunity, and economic security, since skills training and education is not only necessary for Americans to keep up with a rapidly changing American economy, but also a rapidly changing global economy. When governments focus on developing human capital training that is flexible, “skills that produce excellence are often transferable across sectors and stages, which allows workers to adapt to changing demands,” especially since high-skilled labor is so central to the input-output structure that Baldwin describes in the global economy (p. 231). Because skill-intensive services are an input in many different stages of production and many types of products and services, there is a much more stable demand for high-skilled labor. Additionally, as the manufacturing value chain fractionalizes internationally and is increasingly offshored, G7 governments will need to rethink their manufacturing-centered policies that are remnants of the industrial first unbundling, where productivity growth was largely driven by factory jobs in 1960 like General Motors and U.S. Steel. Instead, the shift in value to a highly flexible, rapidly technologizing service economy means that G7 governments must “protect workers, not

jobs,” ensuring labor flexibility and economic security by helping workers to adapt to change and providing the necessary time and resources to support labor mobility (Baldwin, p. 237). WhileAlden and Taylor-Kale make the same argument that workers themselves need to be prioritized in “the work ahead,” focusing on employee benefits that stick to employees rather than jobs and encouraging education and retraining, Baldwin adds an international aspect. Where he further argues that cities “should be crafted with an eye on international competitiveness” and that social policies should focus on helping workers to adjust to globalization rather than resist the complex changes (p. 241). In order to keepAmerica’s edge in the international order, the private sector and all levels of the government need to nurture leadership in innovation as a competitive advantage for the United States. This can be done through economic development policy as well as the prioritization of productivity growth policies such as flexible unemployment insurance, job training, and healthcare that allow workers to more securely share in the benefits of corporate success (Alden and Taylor-Kale, p 59).All these policy recommendations together can help to rebuild the links between work and economic opportunity, creating a more economically and socially mobile workforce that is able to maximizeAmerica’s growth potential in the future of smart machines, artificial intelligence, new technologies, and global competition.

As the world moves more firmly into New Globalization and increasingly fragmented, international, and interconnected global relationships, the U.S. must use its hegemonic power to push for greater international, multilateral trade liberalization that ensures that workers in both rich and poor nations can more equitably take part in the processes of globalization. Even as globalization seems to stall, due to the breakdowns in global trade institutions such as the World Trade Organization and the domestic opposition to globalization in Western countries such as the U.S., multinational corporations continue to hold the power to increasingly globalize businesses. The problem lies in different governments’ responses to making sure that their citizens are prepared for adapting into the global and automated economy, and governments’ abilities to secure freedom of mobility and job opportunities for their people, which will not be solved with protectionism.