Myths About World Trade

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The McKinsey Global Institute has just published a memo on the changing character of global trade. Trading myths: Addressing misconceptions about trade, jobs and competitiveness. The misconceptions aren't straw men. The report dispels a lot of confusion about "offshoring" and is well worth reading.

Myth 1: Mature economies are losing out to emerging markets in trade and thus facing increasing trade deficits. In fact the balance of trade between advanced and emerging economies isn't worsening.

Myth 2: Manufactured goods drive trade deficits. No, advanced economies have lately been in surplus in manufactures, even more so in knowledge-intensive manufactures. Imports of primary resources have been driving trade deficits.

Myth 3: Trade is the main cause of lower employment in advanced-economy manufacturing. The main causes are lagging demand and increasing productivity.

Myth 4: Advanced economies can create jobs only in low-end services. Actually trade in services creates high-wage knowledge-intensive jobs--more so than manufacturing.

Myth 5: Trade in services is small, and low-wage economies will capture any increase. Services exports already account for a quarter of rich-economy exports, and the share could be a third by 2030. Trade surpluses in services, properly measured, are growing.

Myth 6: Service economies like the US are the world leaders in services trade. You'd think so, but the US lags Europe in services exports (even discounting intra-EU trade).

The report concludes that rich-economy governments

should push vigorously for fuller liberalization of trade in services, where restrictions remain high. Trade-related policy should be geared to supporting, and benefiting from, comparative advantage in attractive stages of global value chains and avoiding an emphasis on sustaining or creating direct employment through manufacturing exports. Any improvement in net trade will offset the headwinds caused by deleveraging and, therefore, domestic job creation.

Good advice.

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