Protecting Globalisation

The world economy, we are told incessantly, is becoming increasingly integrated into a fully globalised, single system. When this process is completed, sooner or later, prices of all goods and services and factors will necessarily converge towards uniform levels ( give or take small margins to account for transport costs and other minor factors).

International trade theory states forcefully the tendency towards the equalisation of factor prices – a uniform wage rate, a uniform rate of profit (the so-called Ohlin-Eckscher theorem) via three simultaneous processes:

the export of labour intensive products by labour-rich countries like China to the West, driving Chinese wages up and Western wages down

the de-localisation of production to lower wage countries through foreign direct investment

the migration of workers from lower to higher wage countries

with these movements acting in parallel on the equalisation of the rate of profit.

From this viewpoint, at present we are in a world of temporary mis-allocation of resources which will have to be changed, at considerable cost, when factor prices eventually and necessarily converge.

So why not speed up this search for a new equilibrium, and allocate, today, resources on the basis of the uniform factor prices that must prevail globally tomorrow? Levy, for instance, a countervailing tariff on imports from China equivalent to the difference between wage costs in China and wage costs in the importing country? This would simply speed up the reaching of the new global equilibrium, eliminating the costs of structural adjustment otherwise necessary to bring about full-fledged globalisation.

This would not be protectionism, as supporters of globalisation (the usual suspects) would have it, but simply a pre-emptive move towards a necessary market adjustment that otherwise would take too long to establish itself at the jurassic speed of market processes

Let's give global markets a helping hand.