The common presumption is that it will spread, but I find this question not so easy to answer. Let’s say this is over the next 20 years: will the technologies of easier cross-border trade really outrace the other progressing technologies in play?
Here are a few factors that suggest the share of trade in GDP will go up:
- More countries are attaining middle-income status and higher levels of productivity. In a “balls and bins” approach to trade, there will be fewer zeros.
- The internet makes it easier to trade across borders and also more people are learning the global language, English.
- Social and commercial networks are increasingly global rather than local or national. I think this is the most important positive force.
- Natural resources are taking up a higher share of GDP, and trade in those resources is especially imperative, given the materials-intensive nature of most emerging economies.
Here are a few forces suggesting the share of trade will go down:
- Services will take up a higher proportion of GDP and be harder to trade, for economic reasons as well as for legal, protectionist reasons.
- China’s economy will become less resource-intensive. More generally, the rise of China will not continue at its previous pace.
- There has been a lot of wage equalization across borders, and that limits future gains from additional cross-border trade. Even though average Chinese wages remain low, actually setting up an export-feasible enterprise in China cannot be done without paying a large wage bill.
- Robots and smart software lower the returns of investing in and trading with lower-wage nations. Put the plant in Texas.
- The next 20 years may not be as peaceful as the past 20 years.
When you add all of this up, globalization as a trend may well have peaked over the past 20 years.
Published in collaboration with Marginal Revolution.
Author: Tyler Cowen is Professor of Economics at George Mason University.
Image: The skyline of Singapore’s central business district is seen at dusk as operations continue at a PSA International port terminal in Singapore September 25, 2013. REUTERS/Edgar Su