Meanwhile, back on the trade front ...

is my Trade Tripper article in this Friday-Saturday issue of BusinessWorld:

Nothing much is happening. One can see this in the fact that significant players in international trade have been trying to drum up interest on the subject and trying to convince people how significant trade is in the lives of the global population. No debate there really, but one can only do so much and right now the times seem to be pointing toward a need for greater reflection within countries as to their commitment and view with regard to trade.

While Doha sleeps, trade itself, nevertheless, is on the upswing. After reaching record lows, 2010 expects global trade growth at 9.5%. Developed country exports should increase in volume by 7.5%, while developing country exports should grow by 11%. There seems to be reason for optimism on the local front, as well. BusinessWorld did report that Philippine manufactured goods exports rose by a healthy 42.3% (year-on-year) last February (with a slight .4% contraction month-on-month, though). This marked a fourth consecutive month of growth. Translated in cash terms, the exported goods amounted to $3.57 billion. Japan, US, and Singapore are our top export destinations.

Interestingly enough, nevertheless, WTO Director-General Pascal Lamy felt the need to proclaim that the theory of "comparative advantage" is still alive and well. One would think that the experience of the past 24 months actually proclaim vindication of that theory and the continuing importance of trade to global stability. Speaking before the Paris School of Economics last April 12, 2010, Mr. Lamy stated: "There are those who now call into question Ricardo’s theory that differences in relative productivity between countries lead to their specialization in production and to trade. Doubt has arisen that this specialization based on comparative advantage results in higher total output, with all countries benefiting from the increased production. x x x [Nevertheless, recent] analysis by Jagdish Bhagwati, Arvind Panagariya, and T. N. Srinivasan contradicted this view. In that paper, starting from autarky, China and the United States open up to trade and experience the usual gains based on comparative advantage. In the following part of the paper, Samuelson considers how technological improvements in China will affect the United States. In the case where China experiences a productivity gain in its export sector, both countries benefit. China gains from the higher standard of living brought about by the increase in productivity while the United States gains from an improvement in its terms of trade. In the case where China experiences a productivity gain in its import sector, there is a narrowing of the productivity differences between the countries which reduces trade; and as trade declines, so too do the gains from trade."

In fine, Mr. Lamy concludes that "[what Paul] Samuelson has showed is not that trade along lines of comparative advantage no longer produces gains for countries. Instead, what he has shown is that sometimes, a productivity gain abroad can benefit both trading countries; but at other times, a productivity gain in one country only benefits that country, while permanently reducing the gains from trade that are possible between the two countries. The reduction in benefit does not come from too much trade, but from diminishing trade. x x x [Hence,] the analysis by Bhagwati, Panagariya and Srinivasan should convince us that the principle of comparative advantage, and more generally, the principle that trade is mutually beneficial, remains valid in the 21st century."

Trade indeed remains a potent force for the mitigation of poverty. As the book Naked Economics put it: "trade paves the way for poor countries to get richer. x x x Is there an example in modern history of a single country successfully developing without trading and integrating with the global economy? No, there is not. Which is why Tom Friedman has suggested that the antiglobalization coalition ought to be known as ’The Coalition to Keep the World’s Poor People Poor." That was stated half a decade ago and the point remains valid up to now, surviving even the onslaught of a global recession.

Mr. Lamy talked about other areas, including trade finance, job generation, social effects of trade, and the necessity of regulation within a liberalized market environment. All of this would be familiar to followers of this column, having been discussed at various times through the years. However, one area that Mr. Lamy briefly touched upon is quite relevant particularly for Filipinos now caught in the middle of an election year: "if the economics of trade policy are clear, the politics of trade are highly complex. Trade policy, like so many other areas of policy, has ramifications on how resources are distributed, and this inevitably creates competing interest groups within society. Pressures exerted by such groups mean governments must balance these interests in ways that do not necessarily conform to what economic analysis might prescribe."

Just another reason for Filipinos to select an experienced, capable (and psychologically stable) president in the coming elections.