A New Trade Order

A New Global Economic Order

IN THE EMERGING world economy the choice is no longer between free trade and protectionism. Governments are regulating in new ways, using measures that open markets to foreign competition and embrace national industrial policies simultaneously.

It is impossible today to sustain the traditional American arms-length relationship between business and government on which world trade rules rested after 1945. The redistribution of much economic power to Japan and Europe means that new styles of industrial organization-more intimate relations between governments and firms, as well as among firms- place increasing pressures on that longstanding American approach.

Corporations have long adapted to the new forms of government economic strategies by internationalizing their operations. The initial emergence of transnational corporations, and later of international corporate alliances, was often a political gesture to assuage local sensibilities about the national identity of businesses and to circumvent trade barriers. In many markets traditional free trade never really existed because of this corporate adaptation.

The cumulative impact of this kind of foreign investment is staggering. Foreign investment flows are only about 10 percent of the size of world trade flows each year, but intra-firm trade (for example, sales by Ford Europe to Ford U.S.A.) now accounts for up to an astonishing 40 percent of all U.S. trade. Investment now dictates much of the composition and direction of trade flows.

While the original political motivation for globalization remains, it has become secondary to broader economic imperatives. International corporate alliances represent grudging acknowledgment that few firms can independently bear the economic risks or command the spectrum of technological expertise necessary to win major world markets. Growing numbers of firms rely on diverse partnerships around the world for know-how, components and selected product offerings in order to compete at home and abroad. They are willing to invest heavily in new global infrastructures, such as the worldwide design networks of Ford and Boeing or the world trading networks of major stock exchanges, in order to support their businesses and alliances.

Rise of a "Market Access" Regime