The Slogan ‘Globalization equals growth’ is Wrong

Via Naked Capitalism comes Daniel Gros, Director of the Centre for European Policy Studies, Brussels. Originally published at VoxEU. Here is the introductory summary:

Trade and international financial transactions have grown massively in recent decades. This phenomenon, also called globalization, is often described as a ‘mega-trend’. Business and political leaders never tire of repeating that ‘globalization’ is the future, that it delivers more jobs and higher incomes. However, more recently globalization seems to be in retreat—in 2015 trade actually fell, both in absolute terms and relative to GDP. Does this mean globalization has gone into reverse (OECD 2016, IMF 2015, 2016)?

In this column, I argue that the slogan ‘globalization equals growth’ is wrong. There is no general economic theorem that links more trade to growth and other economic benefits. Economic theory implies only that, under most circumstances, lower trade barriers will lead to more trade and more jobs. The simplification, that more trade is thus always beneficial, is not warranted. If trade increases for reasons other than the lowering of trade barriers, it is far from clear that this will benefit everybody.

The distinction between globalization driven by lower trade barriers and increases in trade driven by other factors is not just an academic point. It is the key to understanding why globalization has become so unpopular in most advanced countries, and why the recent slowdown in trade is not something to worry about.