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WTO chief Pascal Lamy: World must change the way it measures trade flows

It is economic nonsense to continue to calculate bilateral trade balances – like those between the US and China – the way we do today. What we need to monitor is the effective added value in each country, not the overall value of goods and services imported and exported.

By Pascal Lamy / February 29, 2012

Vice President Biden and Chinese Vice President Xi Jinping shake hands after receiving gifts and answering students' questions in a Mandarin language class at International Studies Learning Center Feb. 17 in South Gate, Calif. Mr. Xi began the day by urging closer ties with the US and arguing that Americans benefit from their trade relationship with China.

Jay L. Clendenin/Los Angeles Times/AP Photo



Editor's note: This is the first of two articles based on Pascal Lamy's recent talk to the Paris-based Notre Europe think tank, of which Mr. Lamy is the honorary president. Tomorrow: Which policies must Europe follow to prosper in a new global economic landscape? 

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The global economy has undergone two major changes in the past 20 years. Those changes are going to continue and, in all likelihood, speed up over the coming decade.

The first change involves a radical upheaval linked to the growing power of the emerging countries with very large populations, or “economic masses.” There is no other instance in the entire history of mankind of such massive economic development, which some describe as the “big swing,” concentrated in so short a space of time.

China’s output today accounts for over 8 percent of the world’s economy (in current dollars) compared with less than 2 percent only 30 years ago. This increase is already having considerable economic, political, and media repercussions, but 20 years from now China is likely going to be worth 20 percent of the global economy.

The place that China occupies in this picture is of necessity unique because it is the largest and most important of the rapidly developing economic masses. India accounts for 3 percent of the global economy today and should account for only 5 percent 20 years from now. Africa accounts for 2 percent of the global economy today, while Latin America accounts for 4 percent to 5 percent. In 20 years’ time, Africa should account for 3 percent of the global economy and Latin America’s share should remain stable. Thus, while these other economic masses are also shifting, they are not doing so to as great an extent as China will.

The downswing in the West’s economic power is the logical offset to the increasing economic weight carried by the emerging countries. If the trend observed over the past two decades continues, the weight Europe carries in the global economy is going to drop from 35 percent to 25 percent by 2030, and the weight carried by North America (the United States and Canada) is going to drop from 30 percent to 28 percent.

The fact that North America is likely to hold out better is due mainly to a more favorable demographic situation than in Europe. This swing in relative weights is destined to continue, or even to speed up in China’s case, while heightening the kind of turbulence we are already experiencing today in the advanced economies.

The second major transformation that the world’s economy has experienced in the past two decades is a deep change in the nature of the international division of labor, particularly in terms of stronger specialization in the manufacturing apparatus of the various countries. This specialization movement is rooted in the technological changes that have made the world a smaller place.

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