A brilliant podcast with Martin Wolf and Richard Baldwin. "
Martin Wolf talks to Richard Baldwin: What’s the future of
global trade?
Is technology making tariffs redundant?
Richard makes some brilliant points.
1.
There are three phases of globalisation: All of
which are essentially the separation of the production of commodities from the
consumption of commodities. Food is an
obvious example. 200 years ago a large fraction of the British population
worked on the land. Now, hardly anybody works on the land yet we managed
perfectly well to feed ourselves.
2.
The first phase was trade in goods.
3.
The second phase was trade in production.
a.
In the second more subtle phase what happened
was there was a massive outsourcing of production mostly manufacturing to low
wage countries Who were much more competitive at labour intensive tasks. We we are now in a position as a consequence
of this the China manufacturers around 30% of world manufacturing. Unscrambling
this of course will be quite painful, and notice that much of this
manufacturing is in turn intermediate goods which go to other countries.
b.
The fact that so much of this is intermediate
goods is an important consequence for Mr trump's tariffs. In the early days of
the USA The US manufactured hardly anything and imported vast quantities of
goods. Tariffs on goods therefore raised an awful lot of money, at some cost of
course to the living standards of American consumers. Now with so much trade in intermediate goods
putting a tariff on an import is simply punishing yourself. Baldwins view is that ultimately this
economic logic will mean that the worst of tariffs will be watered down. He also pointed out interestingly that Biden
was much more selective in his use of tariffs, for example on semiconductors,
perhaps to build up US manufacturing capability for national security style
reasons. Noah Smith has also put forward this interpretation.
4.
The third phase is yet to come, and that is
trade in services. Or as Martin wolf puts it dramatically, we started with
trade in goods, then we had trade in factories, now we have trade in offices.
a.
One point about service sector trade is that
it's very difficult to put a tariff on it. If somebody in India helps me with
my PowerPoint slides it's almost impossible to put a tariff on that. Likewise
as they point out, since Richard Baldwin is sitting in Zurich, the podcast they
were making is in fact (nonmonetary) trading services. Impossible to know how
one could put a tariff on that.
b.
They then make the point that such trading
services is potentially competition for a lot of middle class jobs. Martin wolf
made the point that radiographers elsewhere in the world can probably look at
X-rays perhaps better then native radiographers.
c.
It further follows that once machines get even
better at doing all of this then trade is possibly only a secondary force.
d.
On a slightly more technical issue, Richard
Baldwin made a very nice point about the OECD services trade restrictiveness
index. The interesting point about this index is it shows a lot of variation
across countries, when it seems very hard to actually Put tariffs on services.
Richard Baldwin made the very nice point that this restrictiveness index is
essentially an index of the difficulty of business to consumer trade. Much of
services trade however might be business to business trade, which is not
captured by the index.
