Academic journal article Journal of Global Business and Technology

Reciprocity or Trading Partner Exploitation: The Intent versus the Reality of Globalization, a Quantitative Analysis

Academic journal article Journal of Global Business and Technology

Reciprocity or Trading Partner Exploitation: The Intent versus the Reality of Globalization, a Quantitative Analysis

Article excerpt

(ProQuest: ... denotes formulae omitted.)

INTRODUCTION

Practitioners and analysts of international business give much attention to U.S. balance of trade statistics such as those involving Japan and China as well as to statistics about the total international trade performance of the US, because all three are perpetually in significant deficit.

The United States has been and continues to be referred to commonly as the richest country in the world. Yet, how rich is the country is open to a variety of interpretations. Though the US has the biggest economy measured in terms of the dollar value of its GDP, it is far from and has not had for many years top ranking by the criterion of per capita income.

How rich is America? It seems that when measuring America s wealth, there is a tendency to use single entry book-keeping": the dollar values of the nation's assets are summed up but then there is a reluctance or failure to subtract from that sum the dollar value of the nation's debts and liabilities.

One relevant indicator of America's changing wealth position in the world looks at the net investment position of the country over time. Namely, what is the dollar value of the assets US interests owned outside of the country minus the dollar value of the assets owned inside the United States by foreign entities?

This study uses large data sets involving the international trade of the United States with 12 of its leading trading partners over a 10-year period. Then the study and the associated analyses are repeated for a subsequent 10year period. The mathematical formula used is called "coefficient of trading partner exploitation". Attempt is made to quantify whether persistent trade imbalances are the results of deliberate and selfish if not mal-intentioned trade policies.

The above diagram depicts the changing net international investment position of the United States. It presents cause for serious concern as it shows that the net asset position of the Unites States in the world declined from a positive $1.0 trillion in 1980 to a negative $7.5 trillion by 2015 and continues to worsen through 2018.

The resulting evidence obtained in this study indicate that in a globalized trading environment in which countries are supposed to have opened up to foreign suppliers, in practice, what is observed is much one way rather than reciprocal globalization.

FROM MERCANTILISM TO GLOBALIZATION

It could be proposed that movement away from the severe protectionism of mercantilism was initiated by Adam Smith's theory of absolute advantage that proposed that greater total wealth can be created if instead of relying on protectionist measures, nations become open to free trade and base competition on production efficiency. According to Mayer and Vambery (2008) nations would specialize in the production for themselves and for exportation those goods that they can create using the fewest units of the factors of production. Yet Adam Smith's model left the world with the well-known challenge: What will be the fate of the many countries that are not the most efficient producers of any product? They could then still be successful importers but at the same time also be failures as exporters. They would become impoverished rather than be enriched through international trade.

David Ricardo's theory of comparative advantage reaffirmed the desirability of what much later came to be called the movement toward globalization. Free trade could generate greater total wealth for the world than mercantilist protectionism. International competition would still be based on production efficiency:

Countries that are most efficient in producing certain products (i.e. have absolute advantage) would continue to specialize in making those products. However, countries with no absolute advantage would examine their production efficiencies comparatively or relative to the efficiencies of other country producers. They would then specialize in the production and exportation of those goods in which their production efficiency disadvantages were the smallest. …

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