Teoría del sentido

Opening up the (European) economy for trade and investment generates many and sizeable economic benefits, but it also requires adjustment, in particular of firms losing out in terms of competitiveness for several reasons. The broad thrust is that the economic benefits tend to be far larger than the costs of adjustment; benefits are also permanent whereas adjustment costs are typically temporary. However, both need careful attention. The present contribution is not the place to go into the rigorous economics of trade and investment. Figure 22, based on Petersen (2016)] shows the so-called static effects of lowering barriers to trade, supplemented by the dynamic effects when productivity improves due to exposure to globalisation.

This diagram shows that the static effects work via two channels: reducing trade barriers lowers the price of imported goods and services while such reductions also increase cross-border trade. Trade barriers consist of tariffs (nowadays, after decades of reductions, often quite low or even zero) and usually much higher ‘trading costs’ due to disparities or non-recognition of regulation and certification between two or more trading partners. The lower import prices work their way through (higher) purchasing power and lower prices of inputs via increased domestic demand to higher production (and, with a time lag, to higher investment) and hence more jobs. Greater imports due to lower barriers and more demand for inputs similarly increase output and jobs.

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Figure 22. Trade Liberalisation and economic growth

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The dynamic effects refer to changes in production technology and/or better intra-firm solutions (e.g. learning from competitors or pushed by import competition) as well as innovation, for example prompted by a desire to be better capable of penetrating foreign markets via trade and/or investment. Dynamic effects can be cost reducing, too, but might also imply quality changes and new ways of doing things, all of them helping economic growth in various ways.

The literature on the economic effects of trade and foreign direct investment (FDI) is extensive. Below we provide a few critical highlights of the benefits in quantitative and qualitative form; we then discuss temporary adjustments for specific groups, in particular for those dubbed ‘losers’ from globalisation).88

First, trade is a very important source of job creation. EU trade with non-EEA countries generates some 31 million jobs, which is around 14% of EU employment; this is 12.5 million jobs more than in 1995.89 Each €1 billion of extra-EU exports adds 14,000 jobs. Though too often ignored, extra-EU imports also generate jobs, in two ways. One way is via logistics, wholesale and retail as well as supporting financial and professional services. The other way is a result of European and global value chains: one consequence of such value chains is that components and other intermediate goods (and services, where relevant) are imported for use in production, much of which is exported again: extra-EU imports as a share of EU exports in 1995 amounted to nearly 9%, and this share increased by half to reach 13% in 2015. Value chains have the effect of spreading the benefits of extra-EU exports all over the EU, because what e.g. Germany or Italy exports incorporates intermediate goods and services from many EU countries. It is therefore misleading to pay attention solely to final export data.

The long-run EU benefits from exposure to globalisation include dynamic effects. Among the many available estimates, a prudent one for the EU found that a 1% increase in economic openness yields a 0.6% increase in labour productivity, but other studies have found a much higher impact.90 Another benefit from imports is what is known as the ‘pro-poor bias’, generated especially by imports from emerging economies led by China. EU imports from China and other industrialising developing countries consisted of a high share of ‘mass consumer goods’ at lower retail

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prices than those prevailing in Europe. For China in 2014, this amounted to EU imports of no less than $124 billion of such goods implying an increase in the purchasing power of poorer consumers (as they rely heavily on such cheap consumer goods) of possibly up to €600 per year.91

A real powerhouse in EU trade policy is the increasing web of free trade agreements (FTAs) between the EU and its international trade partners. These agreements are not just about imports and exports, but contain a plethora of provisions, regulatory cooperation measures and conditionalities, which the EU increasingly uses to ensure that its principles and safeguards are also applied outside its borders. In 2006, when the EU resumed FTAs after a moratorium of seven years, the existing FTAs covered some 25% of extra-EU trade; in 2015, this had increased to some 36% (these additional FTAs were deeper and more comprehensive, too); if the 2015 FTA strategy of the EU is completed, FTAs in the future would cover as much as 66% of all extra-EU trade; however, the latter figure appears unlikely since it includes, among others, the suspended negotiations for a Transatlantic Trade and Investment Partnership, suspended for the time being.

FDI, both inward and outward, is also crucial for EU trade. Depending on the type of goods or services, outward FDI can substitute for exports or complement trade by altering exports of final goods to exports of components and imports of final goods. Due to the spread of global value chains, the difference between the two is no longer clear-cut – even if final goods are exported from the EU, much of the value added may in fact originate elsewhere inside or outside the EU, and – when outside – often from foreign affiliates of EU companies.

FDI is a key component of business and competitiveness strategies of European enterprises. At the same time, inward FDI is huge as well because the EU is a magnet, precisely because of its big single market. The investment regime of the EU is amongst the most liberal of the world. The EU is the largest FDI source and recipient in the world for decades, measured by FDI stocks. Without counting intra-EU FDI, the EU accounts for 36% of all FDI in the world, dwarfing any other economy (even the US, the largest FDI investor in the EU by far). Although it is good to observe that dynamic emerging economies have themselves become international

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investors, in particular in South-South relations, the public debate on FDI in Europe or in the US can be disproportionate to the realities in markets. Thus, Chinese FDI into the EU has become a major issue due to some spectacular takeovers (like robotics firm Kuka and pharma giant Syngenta – Swiss but with a strong presence in the EU) and in a dubious fashion (with investment funds dominated by state-owned enterprises). But 2016 Chinese FDI stock in the EU amounted to just €44 billion, compared to a stunning €2,350 billion from the US. Chinese FDI stock in the US is barely higher than in the EU, compared to EU FDI in the US of no less than €2,720 billion.

The EU is therefore a major and active ‘globaliser’. For the most part, this is beneficial for companies, workers and consumers, and has generated extra economic growth and jobs while improving productivity, innovation and product variety. Nevertheless, one has to be conscious of the mechanisms generating such multiple gains. The more open an economy, the more the EU’s comparative disadvantages are going to be exposed as well, which will sooner or later lead to shrinking market shares in such sectors and eventually job losses, closures or re-localisation of plants abroad. In some cases (and dependent on the business cycle), workers will find new jobs easily and adjustment costs are small or negligible, indeed, not necessarily different from jobs lost for many other reasons (including bankruptcies due to lost market shares or technological progress or demand shifts, etc.).

Of course, such a ‘re-allocation of resources’ – as economists call this – yields a gross benefit for the economy at large as relatively inefficient firms exit the market and more efficient ones take over. But the net benefit depends on how many jobs are lost and not immediately replaced by new jobs for the displaced workers; wages might well be lower in the new jobs due to less experience in the other sector or lack of sectoral skills. The period of adjustment (e.g. in a crisis) as well as the uncertainty can be a rather painful experience which should be cushioned by welfare state social spending (paid by the much larger gains from trade). In addition, ‘active labour market policies’ (or ALMP) can greatly facilitate finding another job without losing too much wage premium from previous sectoral skills. However, regional differences in the prospect of finding other meaningful or skill-relevant jobs can add to the misery of the unemployed. In the extreme it might even cause

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hysteresis – a structural form of unemployment which may have the effect of eventually eroding individuals’ competencies, thereby reducing further the prospect of finding a job in the near future.

The contrast between the EU and the US in this respect is quite sharp. Recent work by David Autor and co-authors,92 and the debate triggered by Donald Trump blaming China for their job losses and indeed their prospects for new jobs, has revealed that the US offers little cushioning with its minimal welfare state, and only minor and selective trade adjustment programmes (rather than ALMP).93 In the EU, welfare states do cushion and for quite a long time, thereby reducing income uncertainty for workers and buying time for re-skilling and thorough job searches. However, this does not mean that all is fine in the EU because there are considerable discrepancies in social support and ALMP between member states. The EU has a European Globalisation Adjustment Fund:94 however, this Fund suffers from minimal funding and considerable eligibility questions. Eligibility is very hard to decide because usually there are several reasons why workers suffer a massive lay-off: moreover, why would globalisation be a more exceptional reason than far more crucial reasons for job losses, namely, technology and digitalisation? It remains critical for the EU to pursue ‘responsible globalisation’, both at home (via ALMP and the welfare state) and abroad (in terms of corporate governance and ‘decent work’). The latter is supported by the EU’s manifest preference to pursue ‘sustainable development’ in FTAs and, where possible, in the WTO via plurilateral agreements or other means.95

9.2

How EU trade policy and the single market hang