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Summer series of policy lectures: Recent trends in international trade and policy implications

10 Jul, 2018 News Center 1,079

Current international production and trade are increasingly being shaped by global value chains (GVC) production fragmentations across borders, involving all developing, emerging, and developed countries. It challenges the conventional knowledge of economic globalization and policies formed around it. On 4th of July, 2018, KDI researcher Sunghoon Chung shed light on insights of how globalization is affecting International Trade and Employment, and Protectionist Policies involving Mexico, China, and the US.

Disappointment in trade liberalization: Mexico

Mexico’s initial steps into rapid trade liberalization took place in 1985 with GATT, then with NAFTA in 1994, accompanied with huge privatization, and execution of WTO, IMF’s regulations. Mexican maquiladora, a manufacturing operation in Mexico run by a foreign country, is a typical example of the production fragmentation whereby producers optimize production with cheaper labor and materials.

However, as evidence shows, even though Mexico got many job opportunities, the long run gains were not that wonderful. The assembly of goods which does not require any high set of skills has caught maquiladoras into the trap of low skilled labor, stagnant R&D, and innovation. As a result, globalization took away the jobs of advanced countries’ middle class, makes the stagnant long-term development of developing countries, and widened the wage inequality everywhere.

Temporary Trade Barriers (TTBs): US &China

Nowadays, it is extremely hard to protect domestic jobs under WTO except a few tools that countries can still use, such as antidumping, countervailing duty (preventing dumping or counter export subsidies), and safeguard (temporary restriction of imports).  Chung et al. (2016) investigated how the US safeguard against China’s passenger trucks and light cars in 2009 affected the job market in the US. The goal of the safeguard was the protection of domestic jobs which lasted 3 years at 35%, 30%, and 25% respectively. Contrary to the Obama administration’s claims, the average wages and employment in the tire industry did not show any changes caused by the safeguard. The reason was that China’s imported tires were substituted by other exporting countries’ products due to the existence and operation of multinational corporations in the tire production market. In conclusion, TTBs have a negligible impact on protecting domestic jobs where the multinational corporations (MNCs) play a huge role, and future trade policies must take into consideration the presence and effects of the MNCs.

By Ranat RYSBEK (2017 MPP, Kyrgyzstan)