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Second, how changes in trade can create challenges
for industries that become less competitive. We have
not adequately considered and remedied the very
large costs this can impose on certain communities
and households.
Third, the answer to those challenges is not greater
protectionism. Instead, we need to provide greater
support to displaced workers so they can obtain the
skills needed to find new well-paying jobs. We need
to do better in preparing workers to deal with the
challenges of globalization and technological change.
These issues are important to me as a central banker,
as they affect the long-term health and productivity
of the economy, and the economic opportunities
available to our people.
The debate around globalization, particularly in
advanced economies, reflects a range of factors.
Undoubtedly, the global financial crisis and
subsequent slow recovery have been significant. But,
just as important have been longer-term trends, such
as growing income inequality, the loss of middle-
income jobs, and the rise of large emerging market
economies such as China and India.
Although the debate about globalization is not new, I
believe we are at a particularly important juncture. If
support for liberalized trade and an integrated global
economy were to suffer a significant setback, the
consequence could be slower economic growth and
lower living standards around the world.
While considerable effort has gone into liberalizing
trade and developing the existing set of trade
agreements, that does not mean they cannot
be improved upon. I have no doubt some trade
agreements could be enhanced or updated. Some
may not adequately address recent changes in the
global economy—such as the rise of digital trade—
and may need to be refreshed. And, important trade
barriers still remain and should be addressed. In
particular, from a U.S. perspective, the access of U.S.
firms to some foreign markets and the protection of
intellectual property rights are issues that deserve
close attention. But, in addressing these issues, we
should take care to preserve the vital benefits of
trade to higher standards of living in both advanced
and emerging market economies. Our focus should
be on further strengthening an open trade regime,
and, as appropriate, amending and improving these
agreements.
The Pace of Globalization
To begin, let me briefly describe the pace of
globalization as a reminder of what is at stake. Global
economic integration has increased dramatically
in recent decades. Trade, for example, has grown
from nearly 40 percent of global GDP in 1990 to 57
percent in 2015. Over the same period, the stock of
foreign direct investment has increased from roughly
10 percent of global GDP to 34 percent. Ultimately,
economies have become more integrated and
interdependent.
2
This rapid growth in trade reflects falling trade
barriers, declining transport costs, and improved
information and communication technology. These
trends have enabled the development of complex
global supply chains that allow companies to manage
their production more efficiently.
Emerging market economies now make up a much
larger share of global trade, the global economy and
global growth. As an illustration, emerging market
economies have accounted for 70 percent of global
output growth since the crisis—double their share
from two decades ago.
3
This growth has provided much-needed support
to world economic activity, as advanced economies
have recovered slowly from the crisis.
Rising economic integration is also very evident
when we examine the trade relationship between
India and the United States. Bilateral trade flows
have risen tenfold, from $11 billion in 1995 to almost
$110 billion in 2015. In particular, half of U.S. imports
of computer services are now sourced from India. In
2015, the stock of bilateral foreign direct investment
in both countries was $37 billion, up from $4 billion
in 2002.
4
The potential for further increases has
been reinforced by the liberalization measures India
announced last year to encourage greater foreign
direct investment.
2 Figures from UN World Investment Report, IMF World
Economic Outlook Database, World Bank World Development
Indicators
3 IMF World Economic Outlook, April 2017, in market exchan-
ge rate terms
4 Figures from Office of the U.S. Trade Representative, UN
World Investment Report