Slow trade growth has led to worries that the world economy has run into a ‘peak trade’ constraint, i.e. the ratio of global trade to GDP has reached a limit (Economist 2014). Global trade increased 27-fold between 1950 and 2008, three times more than the growth in global GDP. As a result, according to the World Bank’s World Development Indicators database, the trade-to-GDP ratio for the world as a whole rose from roughly 25% in the 1960s to 60% today. The slow (absence of) growth in trade since 2009 has meant no change in this ratio since 2008. If the recent decline in trade is sustained, this 60% may turn out to be a peak for the world as a whole.
Pointer from Tyler Cowen.
To be clear, “trade” is not slowing down. All economic activity is trade. The ratio of “trade to GDP” is the ratio of trade across borders to total trade, which includes trade that takes place inside national borders. Some thoughts:
1. As the share of GDP devoted to the New Commanding Heights (education and health care) increases, we might see a slowdown in cross-border trade. Note, however, that cross-border trade could pick up if distance learning and distance health care catch on.
2. As incomes rise in China and India, the “Samuelson effect” starts to kick in. That is, the comparative advantage of cross-border trade is reduced. That is, you do more production in China when American wages are 10 times Chinese wages than when they are only 4 times Chinese wages (using made-up numbers here).
3. As the cost of robots comes down, they displace workers in all countries, and this also reduces the comparative advantage of cross-border trade.
Part of the reason (probably a fairly small part) is that there are many more countries today than there were in 1950 (or even 1990 for that matter). So, what once was “internal trade”, today is “international trade”.
As far as I can see there were about 75 countries right after WW II, and there are about 200 today.
If GE sends a wind turbine design across a border to GE manufacturing plant, is that “trade?” I guess I could look up the nominal part. What about the philosophical part?
Electronic arbitrage is more efficient today, reducing the need for the actual physical movement of product.
Information traveling much more easily might mean ideas are transmitted instead of goods. The American microbrew revolution has triggered similar activities in the UK and elsewhere as much as it has lead to exports of American microbrews. If 3D printing ever starts displacing manufacturing, the effect will be even stronger.
This is, in fact, what I suspect the buzz around 3D printing is really about- the distributed efforts and residual energies of designers. But that can be applied to things other than 3D printing. I’m more excited about things like crowd-sourcing CNC routers or circuit boards. On the other hand, I suspect a lot of this stuff will be called 3D printing.