Regionalization – a theme

Those worrying about protectionist responses to the crisis most often invoke the example of rising tariffs in the early 1930s. A better parallel would be the end the tariff barriers that went up around the world in the 1870s and 1880s. Those new barriers ended what had been a sort of golden age of free trade, especially within Europe. And yet, the states that built new fences after 1870 were far different from those that had torn them down ca. 1850. National markets had become better integrated, not least due to the development of railway networks; Germany and Italy had become the states we think of today, rather than collections of much smaller units; the major states of western Europe, along with the US, Russia, and Japan, had extended their territorial empires, each enclosing more of the world within the market it governed.

The past thirty years have seen big reductions in trade barriers, and big increases in international trade. Although the trade is often described as “global”, intra-regional trade (within, say, Europe or East Asia or North America) has increased more rapidly than inter-regional trade. Much of that intra-regional trade is not in finished goods but in components: production processes for everything from shoes to automobiles have been spread out across borders, but have remained largely within regions.

Regional trade blocs have developed together with the regionalization of production. If trade barriers rise now, the borders they protect may not be the same as the borders of 1980. Within the European Union this is a settled matter. Within ASEAN, NAFTA, Mercosur, and other blocs, there will be arguments about whether one protectionist measure or another should fall at the national border or the regional one. The investment made in regional production networks in recent decades will provide a powerful argument for the latter.

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