Looking to the Future: International Trade Theory
If present trends continue, factor endowment (land, labor, and capital) relationships will continue to evolve. The population growth rate is much higher in LDCs, especially sub-Saharan Africa, than in developed countries. Two possible consequences include a continued shift of labor-intensive production activities to LDCs and agricultural production away from densely populated areas. At the same time, the finite supply of natural resources may lead to price increases for these resources (except for short respites). This may work to the advantage of LDCs because supplies in industrial countries have been more fully exploited.
Some trade theories and current policymakers hold that a laissez-faire trade policy (one with minimum government influence) should prevail. Yet governments are seldom neutral in their effects on trade competitiveness. Many countries have recently tried to better their trade advantages by altering the quality and quantity of their resource inputs and by targeting sectors in which to develop acquired advantages. These approaches are exemplified by the economic and trade successes of Japan, Taiwan, and South Korea. South Korea, for example, has been transformed in a fairly short time from a poor agricultural country to a net exporter of key manufactured products. To achieve this transformation, the South Korean government took an active role in targeting key sectors (especially steel, automobiles, and consumer electronics) to ensure that they obtained needed capital. In the case of steel, the government created a state-owned company. The government gave incentives for firms to acquire foreign technology, to improve on it, and to train workers in quality control procedures. In addition, the government invested heavily in education in order to improve the input quality of employees. Not
only did South Korea increase the educational attendance rate, it also increased the proportion of scientists and engineers in higher education.29
Given the success of some Asian countries, the future will likely bring greater global governmental efforts to improve trade advantages. In turn, there will likely be controversy regarding the fairness of competition between government-supported and laissez-faire industries. There will be further discussions on the appropriateness of transferring successful trade policies from one country to another. For example, the collective approach that works so well in Japan, Taiwan, and South Korea may not be appropriate for individ-ualistically oriented societies such as the United Kingdom and the United States.30
Four factors are worth monitoring because they could cause product trade to become a less significant portion of total and international business in the future. First, the protectionist sentiment is growing, and this could prevent competitively produced goods from entering foreign countries. Second, as economies grow, efficiencies of multiple production locations also grow; thus country-by-country production may replace trade in many cases. Third, flexible small-scale production methods using robotics may enable even small countries to produce many goods efficiently for their own consumption, thus eliminating the need to import them. Fourth, services are growing more rapidly than products as a portion of production and consumption within industrial countries; consequently, product trade may become a less important part of countries' total expenditures. Furthermore, many of the rapid-growth service areas, such as home building and dining out, are not easily tradeable, thus trade in goods plus services could become a smaller part of total output and consumption.
The move to multiple production facilities in different countries has already led to a more rapid growth of international business through direct investment than through trade. For example, U.S.-based firms have held their global market share much better in recent years than has U.S. output. This is because they have served foreign markets increasingly from their overseas production units. At the same time, such non—U.S.-based firms as Honda are serving the U.S. market increasingly from their U.S.-located production units.31 This growing mobility of companies is likely to create further distinctions between the competitiveness of countries and the competitiveness of companies headquartered therein.
Some trade theories and current policymakers hold that a laissez-faire trade policy (one with minimum government influence) should prevail. Yet governments are seldom neutral in their effects on trade competitiveness. Many countries have recently tried to better their trade advantages by altering the quality and quantity of their resource inputs and by targeting sectors in which to develop acquired advantages. These approaches are exemplified by the economic and trade successes of Japan, Taiwan, and South Korea. South Korea, for example, has been transformed in a fairly short time from a poor agricultural country to a net exporter of key manufactured products. To achieve this transformation, the South Korean government took an active role in targeting key sectors (especially steel, automobiles, and consumer electronics) to ensure that they obtained needed capital. In the case of steel, the government created a state-owned company. The government gave incentives for firms to acquire foreign technology, to improve on it, and to train workers in quality control procedures. In addition, the government invested heavily in education in order to improve the input quality of employees. Not
only did South Korea increase the educational attendance rate, it also increased the proportion of scientists and engineers in higher education.29
Given the success of some Asian countries, the future will likely bring greater global governmental efforts to improve trade advantages. In turn, there will likely be controversy regarding the fairness of competition between government-supported and laissez-faire industries. There will be further discussions on the appropriateness of transferring successful trade policies from one country to another. For example, the collective approach that works so well in Japan, Taiwan, and South Korea may not be appropriate for individ-ualistically oriented societies such as the United Kingdom and the United States.30
Four factors are worth monitoring because they could cause product trade to become a less significant portion of total and international business in the future. First, the protectionist sentiment is growing, and this could prevent competitively produced goods from entering foreign countries. Second, as economies grow, efficiencies of multiple production locations also grow; thus country-by-country production may replace trade in many cases. Third, flexible small-scale production methods using robotics may enable even small countries to produce many goods efficiently for their own consumption, thus eliminating the need to import them. Fourth, services are growing more rapidly than products as a portion of production and consumption within industrial countries; consequently, product trade may become a less important part of countries' total expenditures. Furthermore, many of the rapid-growth service areas, such as home building and dining out, are not easily tradeable, thus trade in goods plus services could become a smaller part of total output and consumption.
The move to multiple production facilities in different countries has already led to a more rapid growth of international business through direct investment than through trade. For example, U.S.-based firms have held their global market share much better in recent years than has U.S. output. This is because they have served foreign markets increasingly from their overseas production units. At the same time, such non—U.S.-based firms as Honda are serving the U.S. market increasingly from their U.S.-located production units.31 This growing mobility of companies is likely to create further distinctions between the competitiveness of countries and the competitiveness of companies headquartered therein.
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