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Report| McKinsey Global Institute

Trading myths: Addressing misconceptions about trade, jobs, and competitiveness

May 2012 | byCharles Roxburgh, James Manyika, Richard Dobbs and Jan Mischke

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To revive anemic growth in the aftermath of the global financial crisis, policy makers in many mature economies are working to increase investment and net exports, hoping to sustain growth and employment at a time when domestic consumption looks to remain weak. They are focusing on manufacturing in particular, amid a perception that these countries are losing ground to emerging markets. But efforts to stimulate manufacturing and exports may raise the risk of protectionism.

It’s important for the debate on trade and its impact to be rooted in facts. With this point in mind, a report from the McKinsey Global Institute (MGI)—Trading myths: Addressing misconceptions about trade, jobs, and competitiveness—analyzes the performance of the mature economies’ tradable sectors. We found that reality is often at odds with conventional wisdom. For example:

Myth: Mature economies are losing out to emerging markets in trade and thus face increasing trade deficits.

Reality: The trade balance of mature economies has remained largely stable in the aggregate and even begun to improve. There are wide variations between individual countries, but no evidence supports claims of a wholesale deterioration of the trade balance between the mature and emerging economies over the past decade.

Exhibit 1

Average net exports of mature economies remained relatively stable over the past decade, though individual countries showed significant variations.

Myth: Manufactured goods drive deteriorating trade deficits.

Reality: Imports of primary resources, whose prices have been rising sharply, are the largest negative contributor to the trade balance of mature economies. In 2008, mature economies ran a 3.3 percent of GDP trade deficit in primary resources but a 0.5 percent of GDP surplus in manufactured goods and specifically a 1.6 percent surplus in knowledge-intensive manufacturing. Some individual mature countries run trade deficits in knowledge-intensive manufacturing.

Myth: Trade is at the heart of the loss of manufacturing jobs.

Reality: Changes in the composition of demand and ongoing productivity increases are the main reasons for the decline in the number of such jobs in mature economies. The share of manufacturing in these countries’ total employment is bound to decline further, from 12 percent today to less than 10 percent in 2030, according to our analysis. MGI finds that trade or offshoring are responsible for the loss of around 20 percent of the 5.8 million US manufacturing jobs eliminated between 2000 and 2010.

Exhibit 2

Over the last 15 years, many mature economies have experienced trade deficits in primary resources that have canceled out trade surpluses from knowledge-intensive goods and services.

The MGI report aims to debunk these and other widespread misconceptions about how manufacturing and service jobs are created. Our work has important implications for policy makers and companies as they contemplate opportunities for growth in emerging markets and the risks of protectionism. Recommendations include:

  • Pushing vigorously for the fuller liberalization of trade in services, where restrictions remain high.
  • Gearing trade-related policy toward supporting—and benefiting from—comparative advantage in attractive stages of global value chains, and avoiding any emphasis on sustaining or creating direct employment through manufacturing exports.
  • Supporting continued investment in education, infrastructure, and innovation to sustain comparative advantage and to continue creating high-value jobs.

McKinsey Global Institute

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