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Four Fallacies About Trade and Globalization

Posted by hkarner - 29. Oktober 2016

Date: 28-10-2016
Source: YaleGlobal

Trade – along with the accompanying fears over foreign competition, job loss and reduced wages – is a hot issue for the US presidential campaign and elections elsewhere. Ajai Gaur and Ram Mudambi, professors of international business strategy at Rutgers University and Temple University, analyze four fallacies associated with trade, globalization and manufacturing in advanced economies. Manufacturing jobs are no longer the basis of US prosperity. “Most advanced economies have become primarily service economies,” they explain. “Rich countries are service economies, focused on finance, engineering, design and health care, and this is dictated by their comparative advantage.” Also, imports do not make a country poor, and the most competitive companies both import and export to attract foreign investment and capital. Foreign firms can provide immense benefits for the economies of other nations, and the global supply chain allows domestic firms to become exporters by proxy without the risks of international activity. Gaur and Mudambi urge politicians to reject the fallacies and citizens to make informed decisions before voting. – YaleGlobal

Fear of trade overlooks that most value creation in advanced economies is based on services, not manufacturing

mfg-emplomentNEWARK, PHILADELPHIA: Trade typically figures prominently in US presidential election, and 2016 is no exception. While campaigning, politicians tend to adopt anti-international business positions that are theoretically unsound and lack empirical evidence.

Four fallacies underline these common political arguments.

Fallacy 1: Manufacturing jobs are the basis of American prosperity.

Fallacy 2: Imports make us poorer.

Fallacy 3: Success of foreign firms always helps foreign countries, success of US firms always helps the US economy.

Fallacy 4: To export, firms must sell to buyers in foreign countries.
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