Globalization and International Trade
The impact of globalization
on the US middle class has been a mixed blessing. On the one hand it increased the market of
USA manufactured products and some services, particularly in the area of
finance. In the 1980’s the US was a
world power in the export of automobiles, home appliances and later
electronics. But, once its large
corporate manufactures went international, most of these industries were
outsourced; starting in Mexico, later China, and much later places like
Bangladesh became a leading clothing manufacturer.
One of the biggest
export industries in the US is aircraft manufacturing, but competition from
Europe, particularly Airbus which manufactures half or more of all commercial
and cargo jets. While imports have been cheap for middle class Americans to
buy, overall the export of jobs has not helped it.
However, starting
in the 1980’s, with a challenge to Japan, the emergence of the “Asian Four Tigers” of Hong Kong, Singapore, Taiwan and South
Korea,[1] began
to lead the rest of Asia as the manufacturing and exporters of the region. These nations and areas were notable for
maintaining exceptionally high growth rates in the 90’s and rapid industrialization
starting in the early 1960s through 1990s. When combined with the rapidly expanding
manufacturing capacity of China, Southeast Asia, India and Bangladesh US and European
manufacturing capacity were swamped by all types of inexpensive yet well made
goods. Consequently, the US became a huge importer, not only of manufactured
goods but also petroleum products on which much of its economy is based.
Then came the collapse
of centralized economies of the former USSR and its satellite countries in the
1990’s bringing to the world market more cheaper labor particularly in
the technical fields.
In 1993 the “Single
Market” of the European Union was completed followed by a single
currency, the Euro in 2002. Once those
in central and eastern Europe made the transition to a robust market economy,
they too added to the completion, joining the EU in 2004 and 2007 with more to
be added later.
By the 21st
century with outsourcing, off-shoring,[2]
world-wide supply chains (think WalMart and Amazon), what was left in the US
for the middle class worker were the hi-tech/high-skill jobs for engineers,
programmers, designers or highly skilled machinist for such companies as
caterpillar. While the US current
account was partially offset by services, these did little to balance its
imports.
And, then there was
9/11/01 when US security was attacked with devastating consequences causing the
government dump huge sums into security and defense, attacking both Afghanistan
and Iraq.
With the global
recession of 2007-2009 US job losses were in the millions causing a huge
increase in unemployment claims and diminished tax revenues. US budget deficit jumped accordingly and at
the same time put a strain on services that the poor and middle class depended.
Global Technology
Global technology
may have done more to accelerate competition and the rise of other industrial
nations and particularly two third world states, India and China, to provide a
manufacturing base for cheap digital produces such as computers, cameras, TVs and
other appliances. These products were the basis for of the sustainability of
the US middle class in the 80’s and 90’s. But once digital technology became
global and ubiquitous huge cost reductions were easily achieved overseas.
Thomas Friedman’s2005
book, the “World is Flat” documents this trend and places modern day technology
into a global perspective. Here he
identifies a number of new technologies that took the US middle class into the
21st Century and into a more completive world. Among these innovations
starting in the 80’s was:
·
The Worldwide Web: Once used as an informational retrieval
and communications systems by government laboratories to something that made
the Internet accessible to everyone. Digitization meant that everyday
occurrences such as words, files, films, music, and pictures could be accessed
and manipulated on a computer screen by all people across the world.
·
Workflow software: Machines now have the ability to talk to
other machines with no humans involved the first three forces have become a
"crude foundation of a whole new global platform for collaboration."
The net result "is that people can work with other people on more stuff
than ever before." This created a global platform for multiple forms of
collaboration.
·
Uploading: Communities uploading and collaborating on
online projects. Examples include open source software, blogs, etc. Friedman considers the phenomenon "the
most disruptive force of all."
·
Informing: Google and other search engines are the prime example. "Never
before in the history of the planet have so many people – on their own – had
the ability to find so much information about so many things and about so many
other people," writes Friedman.
·
Wireless, Voice over Internet, and file
sharing: Personal digital
devices like mobile smart phones, iPods, personal digital assistants, instant
messaging, and voice over Internet Protocol (VoIP). Digital, Mobile, Personal and Virtual –
all analog content and processes (from entertainment to photography to word
processing) can be digitized and therefore shaped, manipulated and transmitted;
virtual – these processes can be done at high speed with total ease; mobile –
can be done anywhere, anytime by anyone; and personal.
These were just a few
building blocks for new innovations that have come about during and after the
global recession of 2007-2009. Some of these are replacing our work force,
regardless of income categories, particularly robots and greater automation of
processes.
At Amazon.com,
robotic machines are programmed to pick up online orders and transport them to
their departure points. According to a Bloomberg News interview with a Kiva Systems
official, Amazon has enough
robots at distribution centers where Amazon does not have to hire full time or temp
workers for normal or the busy holiday season. McDonalds are working towards
automation of their food service and in Europe testing touch-screen cashiers to order one’s food. Trucking and farming will soon be in the
forefront of driverless trucks and farm machinery increasing productivity at
the expense of labor. Even the nation’s medical laboratories are being automated. Laboratory analysis are partly repetitive
functions such as sample sorting usually performed by technicians have some
characteristics that lend themselves to replacement by technology.
The Dots…Selected Trade Indicators and other External
Contributors: 1980-2010
1.
Increased
international competition – shifts in the world market
·
Growth of the cheap Asian labor markets, India
and Southeast Asia starting 1980’s evolved into highly skilled and low-wage
earners as a source for cheap labor US international companies
·
Outsourcing of US jobs to Mexico and overseas,
products made overseas for the US market has evolved into ‘Source
everywhere, manufacture everywhere, sell everywhere.”[3]
·
Fall of the “Iron Curtin” leading to the collapse
of USSR and centralized economies of those in Central and Eastern Europe starting
in 1990 emerging into free market economies
·
Newly Independent States along with the newly independent
Central and Eastern States of Europe[4]
brought to the world market cheaper labor and cheaper made goods
·
The emergence of the European Union single
market has become one of several new US competitors in the global market.
2.
Increase
in dependence on oil imports by the US
·
Increased dependence on foreign oil until 2005
·
Gasoline prices continue to be at or near
all-time high
·
High gas prices affect US middle class ability
to commute to well-paying jobs
3.
Low
exchange rate of US dollar and at the same time
·
Higher ratio of imports to exports
·
Increasing trade deficits as US consumers
continue to buy cheap goods and electronics from overseas manufactures
4.
Cost of Increase
security requirements since 9/11/2001
·
An entirely new cabinet post “Homeland Security”
a consolidation of 22 US agencies and departments costing about $50 billion
annually
5.
Cost of Waging
two wars – their impact on the US Middle Class
·
One in Afghanistan lasting over 10 years and one
in Iraq almost as long
o The
US pulled out of Iraq in August 2010 and as of this writing the Obama
Administration intends to finish in Afghanistan in 2014
·
The impact of these two wars lead to:
o Added
burden on US budget, but no increase in taxes to cover these wars
o Instead,
major cuts were made to upper income tax rates
6.
Decreasing dependence
on foreign oil but increase costs (see graphics 1 & 2 below)
o
Increased demand translated into raising crude
oil prices during the last decade (view chart)[i]
o
As demand for oil has become a global, shocks in
oil shortages are also global
o
Increasing oil prices for one and all at the
same time, subject to continuous speculation
7.
Global
economy is increasingly tied together
·
Mortgage implosion in the US banking economy,
directly affected the European Economy
·
Economic and financial declines in the Eurozone
in Europe is weighing heavily on the US
·
Rise in China’s economy particularly due to
cheap labor has become the manufacturing center for the rest of the world
o
Leading to cheap exports particularly to the US
o
Leading to a very large trade and therefore
current account imbalance with China
o
China now owns a substantial portion of US debt
backed by US securities
8.
Potential adverse economic impact of global
warming
·
While specific economic impact of global warming
is yet to be determined it can be fully assumed that the working poor and poor
will be the most affected.
·
The rich and super rich will always have a way
to protect themselves, i.e. mobility, the have not’s will feel the direct
economic impact be it from droughts or floods, etc.
9.
Net result outsourcing and off shoring of US
jobs
·
A growing subset of the poor and near poor of
the US middle class unable to compete with competitive overseas labor force
10.
Net result from trade and globalization
·
Near record oil prices cause a negative impact
on the US Economy in both on commerce and consumers (see graphic 2)
·
Enormous current accounts deficits, currently
standing at -$500 billion annually, most of which is accruing to China (see graphic
3 below)
o
China and oil producing states able to finance
the US deficit and
o Controlling much of US assets
Graphic 2: Trends in Crude Oil Prices
(1970-2010) in 2010 USD
[1] See also The Four Asian Tigers: Economic Development & the Global Political Economy Eun Mee Kim (Editor) January 15, 1999, Emerald Group Publishing Ltd
[2]
Where a company moves its entire operation or factory off-shore taking
advantage of cheaper labor and land.
[3] “Made in the World,” Thomas
Friedman, NY Times, January 29, 2012
[4]
Poland, Czech Republic, Slovakia, Romania, Bulgaria and those of former Yugoslavia to name a few
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