NEW HAVEN – While seemingly elegant in theory, globalization suffers in practice. That is the lesson of Brexit and of the rise of Donald Trump in the United States. And it also underpins the increasingly virulent anti-China backlash now sweeping the world. Those who worship at the altar of free trade – including me – must come to grips with this glaring disconnect.
Truth be known, there is no rigorous theory of globalization. The best that economists can offer is David Ricardo’s early nineteenth-century framework: if a country simply produces in accordance with its comparative advantage (in terms of resource endowments and workers’ skills), presto, it will gain through increased cross-border trade. Trade liberalization – the elixir of globalization – promises benefits for all.
That promise arguably holds in the long run, but a far tougher reality check invariably occurs in the short run. Brexit – the United Kingdom’s withdrawal from the European Union – is just the latest case in point.
Voters in the UK objected to several of the key premises of regional integration: free labor mobility and seemingly open-ended immigration, regulation by supranational authorities in Brussels, and currency union (which has serious flaws, such as the lack of a fiscal transfer mechanism among member states). Economic integration and globalization are not exactly the same thing, but they rest on the same Ricardian principles of trade liberalization – principles that are falling on deaf ears in the political arena.