May 20, 2017 10:59 am
Look, I’m as
obsessed with the Trump disaster as anyone else. But I’m trying to
think about other things. And there does appear to be some big stuff
happening, or potentially happening, on the global trade front, via
China’s “belts and roads” transportation initiative. This is obviously
an attempt to expand China’s political influence, and help find markets
for Chinese exports. The magnitude of the effects is going to take some
work to estimate. But is there anything else that’s interesting on an
analytical level?
Well, I find myself thinking about some of my old work on economic geography, inspired in part by William Cronon’s wonderful Nature’s Metropolis, about the rise of Chicago.
What I took from
Cronon was the importance of being a transportation hub. Thanks to the
network of railroads spreading out from Chicago (partly dictated by the
Great Lakes), virtually any two places in the “Great West” were
effectively closer to Chicago than they were to each other.
Think of any economic
activity characterized by strong economies of scale. There is a clear
incentive to centralize this activity, and serve multiple markets from
one location. But which location? In Figure 1 I show three locations
with basically comparable transport links, shown by the dotted lines; in
this case no one location has an obvious advantage, unless there are
big differences in either costs or local market size.
But suppose that two
of those transport links are greatly improved, as shown by the solid
lines in Figure 2. Then location C gets a leg up: other things equal,
you will want to locate stuff in C to serve markets in A and B as well.
Right now, China looks
more like A or B than C: stuff goes mainly by ship, whether to Europe,
America, or various developing countries. Good highways across central
Asia and down to South Asia could change that, giving China a new
centrality in the world’s economic geography; you might almost call it
the Middle Kingdom.
How big a deal would
this be? I have no idea. But you can definitely see Belts and Roads as a
bit of a strategic trade policy as well as being a strategic, well,
strategic policy.
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