The Korea Herald


Why global trade will endure

By James Ro

Published : Oct. 21, 2016 - 16:32

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They say you can’t put the genie back in the bottle, but if you could, here’s how we imagine it: An American company invents the process and then outsources physical genie-stuffing to a factory in Mexico. The empty bottles are shipped in from Taiwan.

No, we’re not really thinking about genies — we’re contemplating the global economy. Once a country becomes part of the international order of things, it’s not easy or cheap to retreat to the previous way of life. Free trade and free genies are similar: Each will go its own way and pursue its best path.

The example of the moment is the United Kingdom, where British voters in June voted to leave the European Union. The decision, called Brexit, is an exercise in genie-stuffing: The process of reversing decades of economic integration is expensive and counterproductive. Warning signs are everywhere: European leaders say they’ll take a tough negotiating stance on the divorce, which has caused the British pound to plummet. Financial services firms may leave London for the continent. A leaked British government report warns that Brexit could cause a sharp decline in GDP over 15 years.

Being part of the EU is good for Britain, but as with all trade relations there are positive and negative aspects — trade-offs, as it were, for being part of a large, single marketplace. British voters didn’t like the fact that citizens from the continent could live and work in the UK, potentially taking jobs from locals. They also resented the role EU bureaucrats in Brussels played in their everyday lives. The Brexit referendum passed because voters believed the argument that Britain could disentangle from Europe but keep the trade benefits of EU membership.

The problem is there are 27 member countries in the EU besides Britain, and they will not make it easy for the UK to leave in order to dissuade other members from breaking away. European leaders appear determined to require that the UK keep its borders open for all EU citizens in exchange for unrestricted access to the continent’s market. France’s president, Francois Hollande, set off the pound’s recent plummet by saying Britain won’t be allowed to retreat to its bottle without pain. Once on its way out of the EU, Britain will be a diminished player.

The United States faces the same existential debate about global trade and integration. Donald Trump is campaigning on the promise of abrogating or renegotiating trade deals that he says are killing American factory jobs. Hillary Clinton, who once promoted the Trans-Pacific Partnership a new trade deal between the US and 11 other countries, is now against it.

Yet international trade and investment already are the reality. In the global economy, companies and countries specialize in making the most valuable products they can and buying the rest. American companies manufacture sophisticated goods and American farms grow crops sold all over the world. Our genie company would be most efficient and profitable with its headquarters and research and development in the US and the assembly line in Mexico.

There is no need to reverse these economic trends, and they shouldn’t be reversed. TPP will be good because the best way to improve the American standard of living is to support the competitiveness of American businesses. Conversely, American consumers enjoy the benefits of less expensive goods from overseas. Part of the equation is using trade deals to secure and protect new markets for American products. That’s what TPP will do.

The folly of putting this genie back in the bottle is exemplified by Trump’s campaign promise to get Apple to bring production of the iPhone home in order to create more American jobs. Setting aside the fact that presidents don’t control business decisions, assembling iPhones in the United States isn’t going to happen. Making the phones here would add $50 to $100 to the cost of each one, which would drive consumers to Apple’s competitors. That likely underestimates the cost by multiples because reshoring Apple production would be nearly impossible: China’s factories with their low-cost workforce are so vast and flexible that no American plant could compete.

The late Steve Jobs once was asked by President Barack Obama what it would take for Apple to make iPhones in the United States. Jobs’ reply, according to the New York Times, had a touch of the genie to it. “Those jobs aren’t coming back,” he said.

The best path for the American economy is to seek productivity gains and competitive advantages wherever they are. No magic is required.

Chicago Tribune

(Tribune Content Agency)