As I see it, we had some big technological advances in transportation — containerization, probably better communication making it easier to break up the value chain; plus the great move of developing countries away from import substitution toward export orientation. (That’s a decline in tau and t in my toy model.) But this was a one-time event. Now that it’s behind us, no presumption that trade will grow faster than GDP.That sounds, at some level, right, but it is backwards looking only and seems to ignore the phenomenon that is the internet. Yes, if I order a good chef's knife from Amazon then that has to be transported to me. But if I order a book for Kindle/Nook or a digital video game off Amazon or Steam, then I'm still getting something, and that is a something that would have required transportation even 10 years ago (in most cases) because the digital online sales of those items just didn't really exist yet.
The transportation cost of digital items is approaching zero--there is a bandwidth cost, so it's not = 0 but it's pretty damn close. Krugman doesn't seem to be able to envision a future where technological improvements could do something similar for physical items--odd for a sci-fi fan. There are people who thought that 3D printers might make the same thing happen for actual physical objects...and they still could, but only if they get a lot better--don't think 3D printers, think Star Trek replicators.
There a whole lot of economic questions/problems with this happening, but it isn't something that can't happen. We're already partway there with information related things (games, books, music).
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