When Global Trade Is About More Than Money
“I asked students to read the first few chapters and guess when it was written,” he recalled. “Many guessed it was last year.”
Yang and Liu set about formalizing Hirschman’s vision about three years ago, long before the current suite of aggressive U.S. tariffs. “A lot of the anecdotal examples that motivated our work came from China,” Yang said.
Indeed, their model shows China’s trade power rising over the past two decades as it turned key industries into political instruments. Chemical products, medical instruments, and electrical equipment emerged as especially potent. The country’s trade power proved larger than expected given the size of its GDP, second to the world’s largest economy by many trillions of dollars.
“In the early 2000s, the U.S. was able to exert more absolute power over China through trade disruptions,” said Yang, noting that findings on the U.S. were relatively stable over the 20-year period they studied.
“But things have quickly flipped,” he continued. “China now has more trade power over the U.S. and, at the moment, can exert positive power over any other entity in the world.”
Yang and Liu also tested a pair of predictions concerning the consequences of unbalanced power. First, the economists tapped a database of millions of events involving the governments of two trading partners, confirming that negotiations and other forms of engagement increase with the asymmetries Hirschman described.
Another dataset, sourced from international opinion polls, was used to gauge bilateral geopolitical alignment over time and to verify a second predicted consequence. Yang and Liu found national leaders strategizing to build and bank trade power — by limiting imports, for example — when relations with a trading partner turned frosty due to political turnover.
“While many of the examples we give in the paper are from China, we hope to show this is a more general phenomenon,” Yang said. “Trade is a source of power any country can access.”
The paper is threaded with other insights.
“If the European Union acted as one country, it would actually be able to exercise positive power over China,” Yang said. “But individual EU members all have negative power over China. I don’t think it’s a coincidence that China typically engages with EU members bilaterally.”
What’s more, the U.S. and China are weaker against each another. The paper features a pair of maps illustrating their trade power over the rest of the world from 2001 to 2021. U.S. strength appears to peak in North America, while China’s is anchored in the Asia Pacific region.
“In terms of global power dynamics,” Yang observed, “medium-sized countries are very much the ones that get bullied.”
The results underscore a recent shift in the global trade order. For half a century following World War II, Yang said, the largest economies imported and exported with hopes of maximizing efficiency for the benefit of domestic businesses and consumers.
“What’s worrisome is that we’re starting to see the opposite,” he offered. “Trade is being restructured to take power into consideration. But in contrast with the positive-sum nature of efficiency-enhancing trade as countries produce according to their comparative advantage, power consideration in trade is negative-sum, hurting welfare on both sides.
“As we begin to painfully realize,” Yang added, “it may not be geopolitically feasible to implement efficient trade.”
Christy DeSmith is a Harvard Staff Writer.This article is published courtesy of the Harvard Gazette, Harvard University’s official newspaper.
