NCPA - National Center for Policy Analysis

A NEW VOCABULARY FOR TRADE

August 10, 2005

Observers of the ever-increasing globalization of the economy argue that countries such as China and India are advancing to the point where the world is becoming "flat," says New York Times columnist Thomas Friedman. In other words, the United States will no longer have any comparative advantages over other countries.

However, international trade expert Jagdish Bhagwati disagrees, noting that globalization has resulted in a "kaleidoscope" of comparative advantage. Despite outsourcing, integration of financial markets and converging interest rates of global assets, stark differences still remain among countries' economies:

  • In India, for example, only 6 percent of individuals make it to college, two-thirds graduate and only a small fraction can read English.
  • China lags behind in information technologies (IT) due to the lack of democratic institutions and the control of its Communist party.
  • Furthermore, while relocating manufacturing to China and India may seem attractive due to lower wages, the United States has far better infrastructure, stronger venture capital markets, and the ability to attract talent from around the world.

Years ago, says Bhagwati, similar concerns sprang up about Japan dominating the U.S. economy, but that never happened. In fact, even today, Japan struggles in managing its financial sector. Ultimately, Friedman's metaphor of a "flat earth," says Bhagwati, is simply false and misleading.

Source: Jagdish Bhagwati, "A New Vocabulary for Trade," Wall Street Journal, August 4, 2005.

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