In a CEPR discussion paper, Cedric Tille argues that Switzerland’s international linkages have been transformed over the last decade. Abstract:
Over the last decade, the economic linkages between Switzerland and the rest of the world have been transformed. First, merchanting and the chemical industry account for an increasing share of international trade, with chemicals exports expanding robustly in recent years despite the European crisis and the strong Swiss franc. Second, the nature of international financial integration has changed. While private investors drove Switzerland’s financial flows and net foreign assets before the financial crisis, the foreign reserves accumulation by the Swiss National Bank has been playing a major role since. Third, asset prices and foreign exchange movements led to substantial capital losses in foreign assets which fully absorbed the surplus on the current account. Finally, the crisis has weakened the role of foreign trade as an engine of growth and narrowed it across sectors.
Paul Krugman argues that the bilateral trade position is irrelevant.
And he summarizes potential explanations:
… one theory of imbalances is macroeconomic: countries that save more than they invest will run surpluses, countries that invest more than they save will run deficits. …
But … [t]he bilateral imbalance is a lot bigger … The other story … is about “triangular trade.” Here’s my version: think of a world containing three countries, Spendthriftia, Austeria, and Petrostan. The first two mainly sell manufactured goods, which are differentiated products so there’s a lot of two-way trade. The third sells raw materials, which it trades for manufactures. However, Spendthriftia also produces a lot of raw materials, e.g. by fracking, which makes it relatively less reliant on imports. What we would expect to see here, even if each country’s overall trade was balanced, would be a pattern of bilateral imbalances: Austeria running a deficit with Petrostan, Spendthriftia a surplus with Petrostan, but Austeria running a surplus with Spendthriftia. …
… [Moreover] I suspect that part of the US-Germany bilateral imbalance is an optical illusion, brought on by transshipment. … we do an awful lot of trade with the Netherlands, and we run a huge surplus in that trade … Surely this represents US exports unloaded at Rotterdam or Antwerp and then shipped on to other EU destinations, including Germany. I’m not sure why German exports to the US don’t go the same route …
On his blog, Dani Rodrik comments on NAFTA’s implications for US manufacturing and jobs.
So here is the overall picture that these academic studies paint for the U.S.: NAFTA produced large changes in trade volumes, tiny efficiency gains overall, and some very significant impacts on adversely affected communities.
… Mexico has been one of Latin America’s underperformers.
So is Trump deluded on NAFTA’s overall impact on manufacturing jobs? Absolutely, yes.
Was he able to capitalize on the very real losses that this and other trade agreements produced in certain parts of the country in a way that Democrats were unable to? Again, yes.
trade played an appreciable role in increasing wage inequality, but that its cumulative effect has been modest, and that globalization does not explain the preponderance of the rise in wage inequality within countries.
In a Resolution Foundation report, Adam Corlett examines the “Elephant Curve.” The curve shows that between 1988 and 2008 income growth in the 70th to 95th percentile range of the world income distribution was much lower than for almost all other percentiles. Since the lower middle class of rich countries is situated around the 80th percentile of the distribution the Elephant curve has been interpreted as evidence for stagnating middle class incomes in the rich countries.
Corlett emphasizes that
the country composition in 1988 and 2008 is not the same. Holding it constant the Elephant curve is less pronounced.
“Population changes, rather than just income changes, have driven the income growth distribution in the elephant curve.” Holding the relative population size across countries constant the Elephant curve is less pronounced.
There is lots of variation across developed economies. “[T]he weak figures for the mature economies as a whole are driven by Japan (reflecting in part its two ‘lost decades’ of growth post-bubble, but primarily due to likely flawed data) and by Eastern European states (with large falls in incomes following the collapse of the Soviet Union after 1988). Looking only at the remaining mature economies, far from stagnation we find average real income growth of 52 per cent with strong growth across the distribution, though slightly higher at the top. [But] there are great differences between these nations. US growth of 41 per cent was notably unequally shared, with low (but not zero) growth for poorer deciles meaning that the US comes closest to matching the stagnation and inequality narrative – despite international trade being much less important on a national level there than elsewhere [my emphasis]. But most people in most other rich countries experienced stronger growth.”
A report by Open Europe argues that for the UK the cost of Brexit would be minor. The benefits might be minor as well. For interest groups could make it hard to reap the potential benefits of newly gained flexibility.
… the path to prosperity outside the EU lies through: free trade and opening up to low cost competition, maintaining relatively high immigration (albeit with a different mix of skills), and pushing through deregulation and economic reforms in areas where the UK has historically been sub-par compared to international partners. … whether there is appetite for such changes in the UK is unclear.
… implications for the type of relationship the UK should seek with the EU post-Brexit. Realising the potential economic gains we’ve identified – notably via immigration and deregulation – means a relatively high degree of flexibility from the EU. The confines of a Norwegian or Swiss-style arrangement would not deliver this. As such, the best option would be for the UK to pursue a comprehensive bilateral free trade agreement, aimed at maintaining as much of the current market access as possible while also adopting a broader liberalisation agenda over the longer term.
Update: The Economist reports about other cost/benefit estimates.