Four Fallacies About Trade and Globalization by Ajai Gaur and Ram Mudambi (2016) analyzes fallacies of the arguments against globalization and trade. The authors emphasize that these arguments fail to consider the fundamental economic principles and empirical evidence. Although the authors’ views are robust and applicable to developed economies, rising negative sentiments against trade and globalization remain relevant in developing countries.
I found the counterargument on losing manufacturing jobs particularly convincing. The authors argue that manufacturing jobs decrease due to increased productivity, technological advancement, and shift to the service sector economy, but not due to globalization (Gaur & Mudambi, 2016). It is often palatable for politicians to fearmonger about job losses and present themselves as saviors from unemployment.
This strategy applies to other fallacies, including the negative sentiments against foreign firms. Rising populist and nationalistic politicians often propagate the “us and them” narrative to ordinary people who do not understand complex economic mechanisms. It is much easier to scare people by saying that we have a trade deficit because we buy more from others than we sell them. However, it is more challenging to explain that the balance of payments should be zero and that imports can be paid with capital (Gaur & Mudambi, 2016). Thus, the argument on lost manufacturing jobs is false because of economic explanation and a political incentive to disseminate this fear on false grounds.
Nevertheless, I have two significant concerns with the authors’ arguments. Although I am convinced with the first response to the second fallacy, the idea that imports and exports go hand in hand is not robust. It does not explain why a country’s exporting capacity is directly dependent on imports. The question remains why the US cannot produce Boeing’s internal materials themselves instead of importing them.
If these elements can only be effectively made in other countries, the authors could have explained. My second concern is that although the benefits of globalization that authors emphasize can apply to advanced economies, they are hardly applicable to emerging economies. For instance, the benefits that foreign firms bring, such as higher wages and R&D opportunities, are rarely relevant to countries with poor regulation of foreign firms. Thus, although the authors have provided substantial evidence to disprove some of the current concerns about globalization, their applicability to developing countries remains questionable.
Reference
Gaur, A., & Mudambi, R. (2016). Four fallacies about trade and globalization. Rutgers Business School-Newark and New Brunswick. Web.