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Protectionism irrelevant in era of global value chains

Editor: zhenglimin 丨Xinhua

03-24-2017 20:09 BJT

Full coverage: 2017 Boao Forum

BOAO, China, March 24 (Xinhua) -- The 18th century English economist David Ricardo once held Portuguese wine being traded for English cloth as an example of global trade.

The British did not have to grow grapes to enjoy wine, and vice versa for the Portuguese to receive the luxurious British textile.

What Ricardo brought us is the most primitive form of trade beyond national boundaries. As time goes by, a profound development of globalization has changed the patterns of trade to a degree that is hard to fathom.

As production becomes increasingly complex, specialization on core activities and outsoucing has become inevitable.

Thanks to international organizations led by the WTO, trade barriers have been constantly eliminated, which encourages firms to engage internationally with confidence.

A reliable and conducive world trading environment ensures an unhindered and efficient flow of investment, goods and services among nations.

Firms thus can divide their operations across the world, from designing to component manufacturing and marketing, creating international production chains dominated by trade in tasks and intermediate goods.

A production process grows to involve a wide array of manufacturers and service providers, which formed each and every link in an intertwined network.

The global value chain is exerting a profound influence on international production, and trade and investment, with ever deepening interdependence across businesses in the world.

The label Globally Made is replacing Made in the U.S., Made in Germany or Made in China.

In the era of global value chains, no business could possibly flourish without interaction, and the overall industrial structure of one country could hardly be optimized if isolated from the rest of the world.

According to WTO figures, trade in intermediate goods, a barometer of globalization in production activities, represented more than 50 percent of non-fuel world merchandise trade back in 2009.

Trade in intermediate goods in East Asia, one of the world's most important manufacturing houses, has dramatically decreased in recent years, reflecting sluggish world trade, according to the annual report of a key economic forum going on in Boao in China's southern province of Hainan.

Gloomy growth prospects and downside risks have tempted certain countries to retreat to protectionist measures. They hope to keep all production process within their borders to prevent others from "stealing" their wealth.

The original global industrial and supply chains are broken, while the new ones are yet to be formed. Economies gamble on international market redistribution, but weaknesses are evident in global markets.

Meanwhile, grand plans to take back plants and assembly lines does not necessary guarantee growth. Firms will pay handsomely for those extra jobs, at the expenses of their competitive edges.

Protectionism will only lessen living standards, especially those of lower incomes, forcing them to pay more for daily necessities.

In the end, unemployment will rise along with dwindling investment and business activity, coupled with rising social injustice and inequality.

Countries standing up for free trade are encouraged to adopt counter measures in the framework of international norms and laws in a bid to protect their own rights.

Meanwhile, cooperation is always cherished to iron out differences and strike a cordial tone among potential competitors.

Never forget that the wealth present in vast global value chains stands to grow and benefit everyone -- if given enough room. The old zero-sum game is one of irrelevance in today's world, where the Chinese-advocated notion of "creating a community of shared future for mankind" is relevent and written recently into a UN Security Council resolution.

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