Another online Q&A with Jagdish Bhagwati: “Is wage stagnation for middle-class and working-class Americans caused by technological change or globalisation?” Questions are due by Tuesday.

Barry Lynn’s controversial view of the global supply chain:

“The hyperspecialized and hyper-rigid production system that is emerging is, if we are honest, the natural outcome of what happens when globalization and outsourcing are combined with an entire lack of regulation by governments,” writes Lynn. “When the borders of the nation and the borders of the firm are both simultaneously ripped open, the result, in industry after industry, is a chain reaction that results very quickly in a single highly networked and highly specialized system of production.”

In Lynn’s view, being highly networked and specialized creates dangerous new vulnerabilities. As an example of what can go wrong, Lynn cites an earthquake that occurred in Taiwan in September 1999. Taiwan is the world’s No. 1 source of made-to-order advanced semiconductors — the microchips that are the brains of iPods, DVD players, computer graphics cards, cellphones and countless other electronic devices. Although the handful of factories that manufacture such chips were not seriously damaged by the quake, power and transportation systems in Taiwan were severely disrupted for a week. The ripple effect of that turned out to be an economic tsunami of sorts for the global high-tech economy.

Shortly after the Taiwan earthquake, some observers feared a global economic crash was beginning. That didn’t happen. But a key lesson should have been learned. There was no backup plan. There were no other factories that could produce those chips, in the short term. A bigger earthquake, one that might reduce to rubble the science park where Taiwan’s top chip plants are located, could have had devastating consequences.

Tuesday’s test of his theory:

An earthquake in southern Taiwan on Tuesday night damaged an undersea optic cable, causing serious disruptions to international phone lines and Internet connections in Korea, Taiwan, China, Japan and Southeast Asia…

Taiwan was the worst affected. Chunghwa Telecom said 60 percent of the phone lines to the U.S. were cut off and 98 percent of communication linking Taiwan with Malaysia and Singapore suffered disruptions. The company forecast it will take two to three weeks for the nation to completely repair the damaged cables. The earthquake also disrupted 1,400 phone lines and 84 international phone lines of Japanese telecom firm NTT, making it impossible to call Southeast Asia from Japan.

The outcome in India:

India’s software and BPO industries recovered some of their connectivity to the US and Europe after undersea fibre optic providers offered an alternative to the Pacific route, which was disrupted due to a quake on Tuesday… Several IT and BPO companies faced a disruption in operations. However, they did not experience a breakdown since they have roped in multiple bandwidth providers and built up a redundancy in operations for such an eventuality. TCS could not confirm that it faced any downtime for any of its operations.

China:

Telecommunications disruptions caused by Tuesday’s earthquake in south Taiwan have stopped foreign trade companies along coastal areas in the Chinese mainland in their tracks. Though the Ministry of Information Industry have taken measures and tried to repair the broken-down, the international access on the internet are still jammed.

Elsewhere:

Companies in the region for the most part said they found ways to work around Tuesday’s earthquake. Among the best off were companies that buy service from telecom carriers with redundant cables or backup satellite systems for these types of disasters. Stock markets were unfazed: In Tokyo, the Nikkei 225 Stock Average closed up 0.31% at 17,223.15 points, while Hong Kong’s Hang Seng Index rose 2.1% to 19,725.73, a record high…

[S]ome businesses found themselves out of touch with critical operations and customers. For example, Hong Kong-based Kingstar Shipping, which manages 10 ships around the region, was unable to reach clients in Japan or Korea and some in Singapore, according to KL Tam, managing director. “We have been trying other ways to communicate — but nothing much works,” he said. Most of Kingstar’s ships today have cargo now, but “if this continued for several days, our operations overseas would essentially stop,” he said…

Executives at some telecom companies say yesterday’s problems indicated they may need to beef up their backup systems even more. “Our plan had been in place for a long time,” said Maki Sato, a KDDI spokeswoman. “But we are now studying whether it should be strengthened.”

The global economy has the ability to absorb mild-sized hiccups to such a degree that the costly creation of global redundancy may not be necessary [a position analogous to this book’s case against overreaction in the security arena]. That’s Chunghwa Telecom Co’s position. But a truly devastating scenario may be reasonably imagined. I expect to see more cost-benefit analysis on this topic soon.

Update: Two weeks later, how is the recovery?

FT:

US manufacturers are stepping up lobbying efforts in Washington over imperilled trade deals they see as vital to growth next year… Industry lobbyists have been drawing on contingency funds and the time of top management to try to win votes once the trade deals are sent to Congress by President George W. Bush… So far lobbyists see no movement on the sticking point between Democrats in Congress and the Bush administration over the trade pacts.

Nice:

This morning, pursuant to a five-year “Sunset Review,” the U.S. International Trade Commission voted to revoke longstanding antidumping and countervailing duty restrictions against imported carbon steel plate and corrosion-resistant steel from 15 different countries. The ITC also voted to continue the measures against corrosion-resistant steel from Korea and Germany for at least another five years.

While not perfect, today’s outcome is something to rejoice. Revocation of trade remedy restrictions is rare, indeed, and rarer still where steel is concerned.

To follow up on the previous discussion of football protectionism, the Economist has a piece on the infusion of foreign cash into the English Premiership. It concludes:

The truth is that the Premiership is thriving because it is open to global markets. Since its formation in 1992 it has proved a magnet for foreign talent and capital. Around half the registered players now hail from overseas. Foreign players may crowd out English talent at the top of the game and some are accused of lacking commitment to the clubs the temporarily serve. But no one disputes the improved level of skill and professionalism now displayed on English pitches. Foreign managers have also brought new expertise to the game (no English-born manager has yet led a side to the Premiership title). No wonder the high-intensity action of the Premiership draws millions of fans from all over the world each week. The soul of English football, whatever Mr Wenger says, seems to be full of life.

In his latest Slate piece, Daniel Gross concurs with my election week reflection upon the state of trade politics:

Since the elections, concerned internationalists have fretted that the newly Democratic Congress will curtail the nation’s free-trade policies… these arguments overlook or misunderstand the new politics of trade. It’s not a left-right split. Since 2000, Bush Republicans have done as much as Democrats to throw up trade barriers and tariffs. President Bush has generally spoken a good game about free trade, and his administration has concluded bilateral free-trade agreements with Morocco, Australia, Colombia, and several other countries. But just as free trade was a bipartisan project in the 1990s, the backlash to free trade has been bipartisan in this decade. Sens. Charles Schumer, D-N.Y., and Lindsey Graham, R-S.C., share little in common except their desire to slap huge protective tariffs on Chinese goods. And, all by themselves, the Republicans have done a great deal to damage the cause of free trade in the last several years.

[HT: CGD]

WaPo editorial:

It shouldn’t matter whether you’re conservative or liberal, for globalization or against: Some trade bills are so obviously beneficial and unobjectionable that there’s no excuse for letting them languish. This is the case with a raft of measures that would extend trade preferences for poor countries — preferences due to expire at the end of the year. Failing to renew them would not save American jobs or advance any other national interest; rather, it would disrupt the economies of U.S. trading partners and create another excuse for foreigners to resent the United States…

These trade measures might founder partly because anti-globalization sentiment is growing in Congress, causing a minority of members to oppose all trade deals, no matter how routine…

But the biggest reason these trade measures may fail is the most scandalous: Most members of Congress know that they ought to be extended, but institutional inertia is stopping them from doing the right thing. For the past several months, Congress has put off dealing with the trade preferences, even though their expiration at the end of the year was no secret. Now the deadline is approaching, and members of Congress complain that they lack time to craft the legislation. What Congress is saying is that leaving town for the holidays is more important than jobs in developing countries. No wonder the United States is seen as arrogant.

It’s not true that trade preferences for poor countries are obviously beneficial and unobjectionable, but I agree that congressional procrastination is inexcusable. Moreover, the unwillingness to renew previously granted tariff cuts (even if ill-advised) may be a first sign of protectionist backsliding, which I worried about after the election.

Jagdish Bhagwati is taking questions at IHT’s Managing Globalization blog. Submit your query by Friday.

[HT: Trade & Me]

If you enjoy learning about the history of trade theory and the history of trade policy, then you’ll likely enjoy reading “A Tale of Two Tariff Commissions and One Dubious ‘Globalization Backlash'” (PDF) by Stephen Meardon.

The article presents a history of the American tariff controversies after the Civil War. Meardon focuses on the roles of two important free traders: Arthur Latham Perry and David Wells, who are largely unknown to modern students of international economics. He argues that those who believe that “that the previous globalization sowed the seeds of its own destruction” by its impact on income distribution have the history backwards, and that “[t]he arguments relating to income class, distribution and power belonged to free traders,” not protectionists. These ideas matter: “What we include or omit in history signals the ideas that capture our attention and will likely shape the policies to come.”

Excerpts below the fold (and hat tip to Richard Baldwin for the link).

Continue reading →

I’m not familiar with export promotion agencices, but a recent World Bank note (pdf) says they have an impact:

For each $1 of export promotion, we estimate a $300 increase in exports for the median EPA. However, there is heterogeneity across regions, levels of development and types of instruments. Furthermore, there are strong diminishing returns, suggesting that as far as EPAs are concerned small is
beautiful.