Opinion

The Restructuring of the World

By A. Michael Spence

A. Michael Spence

Whatever advantage Trump thinks he will gain by positioning the US in opposition to its natural allies will be dwarfed by the losses.

The global economy is undergoing a far-reaching transformation. Change is being driven by shifts in countries’ populations, productivity, wealth, power, and ambitions, and accelerated by US President Donald Trump’s moves to reshape supply-chain structures, alter cross-border investment incentives, and limit the movement of people and technology across borders.

The tensions that these changes are producing are most apparent in escalating disputes over trade. Notwithstanding some dislocations in emerging economies, markets’ reaction to the tit-for-tat tariffs so far has been only muted. Investors probably assume that it is all just part of a renegotiation process that will ultimately produce new rules of engagement for global business – rules that are even more favorable to the powerful.

But such assumptions may underestimate the complexity of the issues at play, beginning with the politically salient matter of where investment and employment are created. On their own, tariff and trade barriers, if viewed as transitory negotiating tactics, will not significantly change global investment patterns or the structure of global supply chains and employment.

Read the full Project Syndicate article.

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A. Michael Spence is a William R. Berkley Professor in Economics & Business.