What If Trade Volume Is the Bubble?

Here’s two insights from Paul Krugman: 1) interstate trade is declining in the U.S., and 2) international trade may be going the same way.

Think about it. What we’ve done in America is homogenize our regions. With that homogenization comes a reduction in the need for trade. Why ship something when it’s made down the street?

The exception to this is agricultural products.

The exception to this also used to include manufactured products. But note how long the specialization in manufacturing has been in decline: it peaked 90 years ago.

Now think about the world. Do you think a chart like this for the whole world would show a big pink hilltop like this one? My guess is that for the world we are just approaching the peak.

This means the story of the next 100 years is going to be declining international trade in manufacturing. The reason is that there won’t be much point in getting something shipped from China when their wages are high enough to make that more costly.

And the growth of international trade in manufactured goods needs, perhaps, to be seen as something more special and less generic than often imagined. It’s not that there’s some inexorable force leading to stuff rattling around the globe; it’s that the combination of containerization and trade liberalization has made it possible to break up the value chain to take advantage of international wage differences.

What will a future of less trade look like?