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Human Capital Flows Drive Global Trade: Superpower Rivalry Heats Up Global Race For Human Capital

From rural Australia to Silicon Valley, the rising dependence of knowledge-intensive global trade spurring a great-power competition for human capital. China is vying to draw global talent as part of Xi Jinping's strategic development blueprint. But whether the West can ultimately maintain its competitive edge will depend far more on domestic politics and policy in its economies, than what's happening in Beijing.

In February, Australia officially unveiled the Pacific Engagement Visa (PEV). The PEV will allow up to 3,000 skilled workers from Pacific island nations and Timor-Leste to settle permanently in Australia each year.

The move is a savvy geopolitical feint from Canberra in a growing contest with Chinese inroads to win influence in the region. It underscores Australia’s recognition of the connection between global trade and its dependence on skilled talent. The global competition for human capital has reached the Pacific, and Australia is banking on a traditional inclination among Western economies toward openness to immigration as a tool to remain economically competitive vis-à-vis China.

Human capital flows drive global trade Human capital is becoming increasingly vital for economic competitiveness and global trade. No major economy is producing enough skilled workers. In 2022, (88% of firms surveyed by the recruitment consultancy ManpowerGroup), China (83%) and India (83%) reported among the greatest difficulty worldwide in filling roles, faring worse than the US (74%, slightly below the global average of 75%).[1]

Skill shortages have multifaceted causes ranging from poor education systems to growing economic complexity and demographic changes. Left unabated, demographic changes such as a graying population will progressively impinge on the competitiveness and trade performance of major economies.

Moreover, globalization is increasingly being driven by human capital-intensive flows of knowledge rather than goods. Across 2010-19, flows of services, intellectual property, and international students grew 5-6% annually, double the pace of trade in goods. Services is now the fastest growing category of global trade, whilst commodities are the slowest.[2]


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