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Economy

Trade war fears largely exaggerated, says expert

Academic sees future US administration rejoining trans-Pacific pact

Professor Richard Baldwin of the Graduate Institute in Geneva has argued that some parts of Asia face a greater challenge than other regions as the world enters its third phase of globalization. (Photo by Akikazu Ishii)

TOKYO -- Escalating tensions between the U.S. and China have raised fears that the world is on the brink of an all-out trade war. But one top economist and trade policy expert dismissed the risks in a recent interview with the Nikkei Asian Review.

“Anti-globalization sentiment is largely exaggerated,” said Richard Baldwin, a professor at the Graduate Institute in Geneva. “People conflate, or confuse, anti-immigration with anti-globalization.”

Baldwin questioned the level of expertise on trade issues within the administration of U.S. President Donald Trump. “I don’t think they are thinking correctly how the global value chain works here,” he criticized.

Having studied global trade for over 30 years, Baldwin believes it is not Trump himself calling the shots on trade policy, but people with vested interests such as farmers and large industries. “Trump threatens China. China threatens farming exports. Farmers tell Trump to back off, and he backs off.”

“If you focus on the fundamental determinants of U.S. trade policy, I am confident that it won’t go radical.”

He also expressed the belief that a future American administration would rejoin the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, as it sets out a global standard for multilateral trade agreements in which vested interests are willing to participate.

The next wave of globalization will be so strong that the current trend toward protectionism will have little effect, he claimed. “The very worst that could come out of this whole anti-globalization movement is some trading of goods is reduced. But people have forgotten that there is way more to it than trading goods,” Baldwin said. “The leaders of the U.S. and U.K. are the ones making this biggest mistake.”

In the eyes of the trade policy specialist, the world is on the cusp of a new surge in cross-border commerce, this time focusing on services rather than goods. “The third wave of globalization is about arbitraging labor services,” said Baldwin. “It’s telecommuting, but gone international.”

“Foreign freelancers are globalizing the service sector” through platforms such as upwork.com, he said.

“What’s truly revolutionary is that a doctor in Kenya can provide medical advice to people in England on weekends.”

According to Baldwin, jobs across various professions, from engineering to media, are set to be affected by the coming changes. Naturally, he explained, services will tend to be offered within the same time zones.

In his worldwide best-seller, “The Great Convergence: Information Technology and the New Globalization,” Baldwin argues that the first wave of globalization concerned the cross-border transfer of goods, while the second involved expertise and know-how, and paved the way for the rapid development of certain economies.

“If you look at the countries which did industrialize, they are in the supply chain of Japan, Germany or the U.S.” said Baldwin. “The rapid industrializers were in Central Europe, Eastern Asia and around North America.”

In his view, the third wave will spread further than the second and first, leading to a greater convergence of rich and poor, and opening the door to economies beyond traditional supply lines.

The development of machine translation, Baldwin argued, would be pivotal in overcoming the linguistic barriers to providing services overseas.

In Asia, however, that may not happen immediately, as the “language geography of Asia is far more confused than it is in Europe or the Americas.” For lesser-spoken Asian languages, which have smaller data sets that can be used to train the technology, progress could happen at a much slower rate than elsewhere, he said.

There will also inevitably be a backlash in developed economies. “Once the third globalization catches on, workers in Japan, the U.S. and Europe will find it incredibly unfair that these guys don’t have the same rules, taxes, et cetera.”

“Eventually we will have trade requiring minimum labor standards and minimum wages,” he said.

 

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