Friday, June 24, 2016

The world would be 7% poorer if it reverted to the trade rules of the 1930s

See Brexit’s Real Impact Would Be Gradual and Global: If Britain leaves the EU it will set back the economic benefits from decadeslong push for global integration by Gregg Ip of the WSJ. Excerpts:
"the economic rationale for integration. It increases the size of the market, exposes local firms to more competition and accelerates the dissemination of new ideas via foreign investment and immigration. In 2004, academic economists Scott Bradford and Robert Lawrence estimated the world would be 7% poorer if it reverted to the trade rules of the 1930s.

The British economy was declining relative to France’s and Germany’s until it joined the EU in 1973. Margaret Thatcher became prime minister in 1979 and began loosening the state’s grip on the economy. Since then, Britain’s per capita income has grown as fast, or faster, than France’s and Germany’s."

"Critics say global integration enriches elites at the expense of the average worker. This, too, is off base. More skilled workers have gained disproportionately, but every worker is also a consumer and thus benefits when international competition makes products better and cheaper. Doug Irwin, a trade historian at Dartmouth College, says if two million American workers lose $15,000 in annual income forever—an extreme estimate of the impact of trade with China—while 320 million American consumers gain just $100 from trade, the benefits to all of society still exceed the costs.

Even immigration is, on balance, probably a plus. The Center for Economic Performance at the London School of Economics finds that EU immigrants to Britain are better educated and more likely to work than UK-born nationals, and to pay more in taxes than they collect in benefits."

"Spreading production among more plants may protect a company from protectionist impulses, but it also reduces productivity and raises costs for its customers. Multiplied across many countries and companies, the effects add up. Gary Hufbauer, an economist at the Peterson Institute for International Economics, thinks the slowdown in global trade growth since 2010, which he blames in part on protectionism, has left world GDP 2.7% smaller than otherwise."

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