The countries that once led the world toward economic openness are retreating into protectionism. Over the past two and a half years, the United States has abandoned the Trans-Pacific Partnership and imposed tariffs on steel, aluminum, and a wide range of Chinese goods. The United Kingdom is in the process of leaving the world’s largest free-trade area. And rising nationalist sentiment is threatening to repeat these self-destructive acts elsewhere. The rich world is turning inward.
Its timing couldn’t be worse. Even as critics of free trade gain the upper hand, globalization, wholly of its own accord, is transforming in rich countries’ favor. Economic growth in the developing world is boosting demand for products made in the developed world. Trade in services is up. Companies are moving production closer to their customers so they can respond faster to changes in demand. Automation has slowed the relentless search for people willing to work for ever-lower wages. And the greater complexity of modern goods means that research, design, and maintenance are coming to matter more than production.
All these trends play to the strengths of developed countries, where skilled work forces, large quantities of capital, huge customer bases, and dense clusters of high-tech companies combine to power modern economies. Middle-income countries, such as China and Mexico, may also benefit from the next era of globalization (although changing trade and investment patterns may well leave sections of their work forces behind, just as they did in rich countries over the past two decades). The poorest countries, meanwhile, will see their chief advantage—cheap labor—grow less important.
Rich countries have chosen a spectacularly poor time to begin closing themselves off from trade, investment, and immigration. Rather than pulling up the drawbridge just as the benefits of globalization have begun to flow back toward the developed world, they should figure out how to take advantage of these changing patterns of globalization.
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