Globalization? Trade War? A Counterbalance Perspective

TL;DR

This paper presents a new perspective on international trade dynamics, emphasizing competitiveness over traditional advantages, and offers a quantitative measure to guide policymakers in managing trade conflicts and globalization.

Contribution

It introduces a novel competitiveness measure based on the balance of power concept, complementing trade balance analysis for better trade policy insights.

Findings

Historical trade data supports the new competitiveness theory.

Trade conflicts relate more to strategic competitiveness than traditional advantages.

Policy recommendations for balancing globalization and protectionism.

Abstract

This paper investigates the evolving dynamics of international trade, emphasizing the strategic interplay between competition and cooperation within the global trade network. It argues that competitive advantages - rather than traditional comparative advantages - are the primary drivers of trade conflicts and deglobalization. Drawing on the concept of the balance of power, the paper introduces a quantitative measure of competitiveness, which complements the trade balance as a long-term policy objective. It further explores how countries can enhance competitiveness and trade balance through globalization, protectionism, collaboration, or trade frictions. Using real-world trade data from 2000 to 2019, our empirical study finds parallels between historical developments and quantitative evidence based on this new theory, offering actionable insights to policymakers for managing trade relations, mitigating conflicts, and calibrating the optimal level of globalization.