The end of Globalization, the rise of Economic Nationalism

[paxamericana]

It is interesting to see that globalization has created a backlash movement of populism. The wave of populism is dictated by economic nationalism not Isolationism. Here is a good explanation of what's to come. 

 

[turningrite]

There was bound to be a backlash against globalization. It's a system that was designed to transfer wealth from advanced Western economies to low-wage economies and in the process allow investors and corporations to skim profits from the savings achieved in lowered labor costs, looser regulations and less stringent environmental rules. We were sold on the notion that it would create a virtuous loop whereby enriched consumers in the developing world would be able to buy products and services from the Western economies but this never really happened. It's time to admit that the whole thing was a sham. But I don't think politicians will have as much control over the reaction and outcome as they'd likely believe. I think we're entering a new paradigm in which technology will eliminate the much of the advantage enjoyed by low-wage economies.

[paxamericana]

1 hour ago, turningrite said:

There was bound to be a backlash against globalization. It's a system that was designed to transfer wealth from advanced Western economies to low-wage economies and in the process allow investors and corporations to skim profits from the savings achieved in lowered labor costs, looser regulations and less stringent environmental rules. We were sold on the notion that it would create a virtuous loop whereby enriched consumers in the developing world would be able to buy products and services from the Western economies but this never really happened. It's time to admit that the whole thing was a sham. But I don't think politicians will have as much control over the reaction and outcome as they'd likely believe. I think we're entering a new paradigm in which technology will eliminate the much of the advantage enjoyed by low-wage economies.

yup and to top it off, the best thing those countries with low wages can do is cheat the trading system by erecting tariff and non tariff barriers along with subsidies. Their comparative advantage is coming at the cost of worker's rights and environmental degradation. Trump is cleaning up the mess of this trading system. The virtuous loop can only work in principle if everyone follows the rule. There's not much of an incentive to follow said rule without enforcement, something previous administration lacked a backbone to do. 

[Bonam]

2 hours ago, turningrite said:

We were sold on the notion that it would create a virtuous loop whereby enriched consumers in the developing world would be able to buy products and services from the Western economies but this never really happened. 

On the contrary, I think it did. Billions of people across the developing world have entered the global middle class over the last couple decades. These people have fueled the explosive growth of Western (mostly American) tech and finance companies. Facebook has over 2 billion users, and most of them are in developing countries, for example. More traditional industries have also enjoyed massive overseas sales, everything from military contractors (Lockheed, Northrop) to civilian aircraft (Boeing, Airbus) to computer hardware and software (Apple, Microsoft, Intel) to Western engineering and architecture firms designing new infrastructure and buildings in developing countries, among many others. 

That said, I think this thread is correct, there is an increasing rise of "economic nationalism", primarily in Western countries, where the benefits of globalization are not obvious to a large portion of the lower/working class. What will likely happen is that as Western economies erect new barriers to trade, they will cut themselves off from increasingly prosperous global trade relations among the rest of the world's countries, where the benefits of globalization have been more widespread throughout the entire population. Just as the greatest benefits of globalization will be ready to be harvested, Western countries will cut themselves off from it and not share in the rewards. 

[paxamericana]

1 minute ago, Bonam said:

On the contrary, I think it did. Billions of people across the developing world have entered the global middle class over the last couple decades. These people have fueled the explosive growth of Western (mostly American) tech and finance companies. Facebook has over 2 billion users, and most of them are in developing countries, for example. More traditional industries have also enjoyed massive overseas sales, everything from military contractors (Lockheed, Northrop) to civilian aircraft (Boeing, Airbus) to computer hardware and software (Apple, Microsoft, Intel) to Western engineering and architecture firms designing new infrastructure and buildings in developing countries, among many others. 

That said, I think this thread is correct, there is an increasing rise of "economic nationalism", primarily in Western countries, where the benefits of globalization are not obvious to a large portion of the lower/working class. What will likely happen is that as Western economies erect new barriers to trade, they will cut themselves off from increasingly prosperous global trade relations among the rest of the world's countries, where the benefits of globalization have been more widespread throughout the entire population. Just as the greatest benefits of globalization will be ready to be harvested, Western countries will cut themselves off from it and not share in the rewards. 

As I said that principle only work if they play by the rules and actually adopt free trade. The international trading system is not free trade. Joint Venture is not free trade. What trump has done is threaten globalism with economic nationalism if they don't conform to the free trading system. He's playing devil's advocate. 

[Bonam]

 

2 hours ago, turningrite said:

 I think we're entering a new paradigm in which technology will eliminate the much of the advantage enjoyed by low-wage economies.

That paradigm is already here and has been for a while. The primary advantage of manufacturing in China nowadays isn't that they have lowest cost workers but that they have entire cities which are optimized for the manufacturing supply chain that a certain product or process needs. There is nothing comparable in America. Many consumers still have the impression that stuff that is "made in China" is of lower quality or shoddy worksmanship, but the reality is that China now has some of the most advanced manufacturing capabilities in the world and is the primary choice not only for reasonable costs but for the best quality, lead time, and reliability. 

There are still other countries where their primary competitive "advantage" is low wages (i.e. Bangladesh) but now that the world's largest developing countries (by population) are out of that role, it won't take long for the smaller ones to be saturated and either catch up in wages or simply be out-grown by automation capabilities. 

[Bonam]

3 minutes ago, paxrom said:

As I said that principle only work if they play by the rules and actually adopt free trade. The international trading system is not free trade. Joint Venture is not free trade. What trump has done is threaten globalism with economic nationalism if they don't conform to the free trading system. He's playing devil's advocate. 

Actually the benefits of globalization are so great that even when trade is not free but instead faces various levels of market distortion, it still generates vast wealth for all parties involved. But you are right, the benefits would be even greater if it was closer to a free trade situation. Trump can try to up the ante to attempt to harness these additional benefits by forcing other parties to move towards freer trade, but if instead economic nationalism becomes a prevailing movement and causes Western economies to turn inwards on a long term basis, it will cause massive economic harm. 

[paxamericana]

25 minutes ago, Bonam said:

but if instead economic nationalism becomes a prevailing movement and causes Western economies to turn inwards on a long term basis, it will cause massive economic harm. 

Not sure I can agree, I've contacted my university professor about this issue as well and he doesn't have a clear answer. The problem is that America's economy is heavily service based and are non-trade-able so doesn't benefit much from globalization, we also don't export much. As you also mentioned with the advent of automation what is the point of a globalized manufacturing supply chain? Manufactured products could be easily be automated back in the US. we have the technology and expertise to do it. Something the Chinese have been trying to steal. Our AI tech. So for us to adopt economic nationalism it wouldn't do much harm to us. There's a reason we are selling weapons to the world and asking people to arm up. Economic nationalism can lead to war if there is a huge power disparity. The US will then become to sole guarantor of peace, underwriting security arrangement thus keeping its position as the permanent hegemonic power. 

Also keep in mind that international trade(import export) is only roughly 25 percent of our gdp. 5 trillion vs 20 trillion. There is compelling numerical evidence that we are already a economic nationalist country.

https://www.thebalance.com/u-s-imports-and-exports-components-and-statistics-3306270

Edited July 19, 2018 by paxrom

[Bonam]

17 minutes ago, paxrom said:

Not sure I can agree, I've contacted my university professor about this issue as well and he doesn't have a clear answer. The problem is that America's economy is heavily service based and are non-trade-able so doesn't benefit much from globalization, we also don't export much. As you also mentioned with the advent of automation what is the point of a globalized manufacturing supply chain? Manufactured products could be easily be automated back in the US. we have the technology and expertise to do it. Something the Chinese have been trying to steal. Our AI tech. So for us to adopt economic nationalism it wouldn't do much harm to us. There's a reason we are selling weapons to the world and asking people to arm up. Economic nationalism can lead to war if there is a huge power disparity. The US will then become to sole guarantor of peace, underwriting security arrangement thus keeping its position as the permanent hegemonic power. 

Actually services are among the most tradeable things. When people think of the "service" sector they think retail cashiers, healthcare, restaurants, etc. But the far larger part of the service sector (by economic output, not necessarily number of employees) are financial, legal, professional (engineering, architecture, consulting, etc) and software services. Western companies excel at providing these services and provide them all around the world. 

As for advanced automated manufacturing in America... yes, it could in theory be done (and is done on a small scale in many cases). But while labor costs may become (and already are in many cases) a non-issue, the real problem is regulations, particularly environmental ones, legal liability, nimbyism, etc. Building a factory in America is not easy, especially if it handles any kinds of unusual materials, which are all necessary for manufacturing in rapidly growing fields including batteries, solar energy, semiconductors, etc. Moreover, the needed scale of manufacturing requires the construction of entire industrial cities with interlinked infrastructure providing for an entire supply chain to exist in place, everything from the refining and production of raw materials to the production of tooling and equipment to the construction and testing of final products. China and some other countries can do this, America simply can't, it is too mired in gridlock, regulation, and partisanship. Think of how much hype surrounded the Tesla gigafactory, and then realize that a thousand such factories are built in other countries every year. 

[paxamericana]

2 minutes ago, Bonam said:

China and some other countries can do this, America simply can't, it is too mired in gridlock, regulation, and partisanship. Think of how much hype surrounded the Tesla gigafactory, and then realize that a thousand such factories are built in other countries every year. 

But you are right, there are comparative advantage to be had in other areas besides closer production and wages. But these issue are quickly being overcome by technology and better regulatory practices. Take Organic food production as an example, consumer are willing to pay more for higher quality produce grown locally, there's an increasing demand in the world for this. Technology is also bringing cost down as well with advances in hydroponics.

Keep in mind that international trade(import export) is only roughly 25 percent of our gdp. 5 trillion vs 20 trillion. There is compelling numerical evidence that we are already a economic nationalist country. 

https://www.thebalance.com/u-s-imports-and-exports-components-and-statistics-3306270

 

[turningrite]

21 hours ago, Bonam said:

 

That paradigm is already here and has been for a while. The primary advantage of manufacturing in China nowadays isn't that they have lowest cost workers but that they have entire cities which are optimized for the manufacturing supply chain that a certain product or process needs. There is nothing comparable in America. Many consumers still have the impression that stuff that is "made in China" is of lower quality or shoddy worksmanship, but the reality is that China now has some of the most advanced manufacturing capabilities in the world and is the primary choice not only for reasonable costs but for the best quality, lead time, and reliability. 

 

Perhaps true, but surely then Trump is correct in his argument that China's favorable treatment as a "developing" economy should be abolished? I believe that under current WTO rules, China gets relatively open access to markets in developed/wealthy countries while it gets to protect its domestic markets for its own manufacturers. If China is really as or more advanced than the rest of the developed world, it should have to play by the same rules, right? The current WTO model surely doesn't seem to amount to either free trade or fair trade.

Edited July 20, 2018 by turningrite

[paxamericana]

22 hours ago, Bonam said:

That paradigm is already here and has been for a while. The primary advantage of manufacturing in China nowadays isn't that they have lowest cost workers but that they have entire cities which are optimized for the manufacturing supply chain that a certain product or process needs. There is nothing comparable in America. Many consumers still have the impression that stuff that is "made in China" is of lower quality or shoddy worksmanship, but the reality is that China now has some of the most advanced manufacturing capabilities in the world and is the primary choice not only for reasonable costs but for the best quality, lead time, and reliability. 

There are still other countries where their primary competitive "advantage" is low wages (i.e. Bangladesh) but now that the world's largest developing countries (by population) are out of that role, it won't take long for the smaller ones to be saturated and either catch up in wages or simply be out-grown by automation capabilities. 

Once again, America's economy is not a manufacturing economy. It's a service based economy, something every developed country is trying to achieve.

[Michael Hardner]

To add to Bonam's point, America has a great advantage in consulting and business services which would be threatened at some point in a trade war.

It's unclear to me if the US government is underplaying that as part of negotiations, or if they undervalue it.

[paxamericana]

2 hours ago, Michael Hardner said:

To add to Bonam's point, America has a great advantage in consulting and business services which would be threatened at some point in a trade war.

It's unclear to me if the US government is underplaying that as part of negotiations, or if they undervalue it.

Trade war isn't hurting us and people are panicking across the the borders because they can't stop trump. So they are now wanting to cut a deal.

[turningrite]

12 minutes ago, paxrom said:

Trade war isn't hurting us and people are panicking across the the borders because they can't stop trump. So they are now wanting to cut a deal.

Which countries, exactly, are caving in to Trump? Maybe the UK, which is trying to manage its Brexit mess, but most other countries (well, Western countries at least) seem to be taking a hard line with Trump and challenging his tariffs, bluster and threats, to an extent that he's lashing out about it. Even the U.S. Senate, with many lapdog Republicans in the mix, recently passed a motion overwhelmingly (88 to 11) opposing his tariff and trade strategy.

https://www.independent.co.uk/news/world/americas/us-politics/trump-tariffs-trade-senate-resolution-steel-aluminium-democrats-republicans-jeff-flake-a8443061.html

[paxamericana]

35 minutes ago, turningrite said:

Which countries, exactly, are caving in to Trump? Maybe the UK, which is trying to manage its Brexit mess, but most other countries (well, Western countries at least) seem to be taking a hard line with Trump and challenging his tariffs, bluster and threats, to an extent that he's lashing out about it. Even the U.S. Senate, with many lapdog Republicans in the mix, recently passed a motion overwhelmingly (88 to 11) opposing his tariff and trade strategy.

https://www.independent.co.uk/news/world/americas/us-politics/trump-tariffs-trade-senate-resolution-steel-aluminium-democrats-republicans-jeff-flake-a8443061.html

Brexit is just the start, Look at italy, France, Czech, Trump is much more than Trump he's part of the populist anti-globalist movement. 

[turningrite]

On 7/19/2018 at 1:47 PM, Bonam said:

On the contrary, I think it did. Billions of people across the developing world have entered the global middle class over the last couple decades. These people have fueled the explosive growth of Western (mostly American) tech and finance companies. Facebook has over 2 billion users, and most of them are in developing countries, for example. More traditional industries have also enjoyed massive overseas sales, everything from military contractors (Lockheed, Northrop) to civilian aircraft (Boeing, Airbus) to computer hardware and software (Apple, Microsoft, Intel) to Western engineering and architecture firms designing new infrastructure and buildings in developing countries, among many others. 

 Just as the greatest benefits of globalization will be ready to be harvested, Western countries will cut themselves off from it and not share in the rewards. 

I think you've largely missed the point, which is that the benefits of globalization in the West have accrued mainly to the investor, corporate and financial classes. The problem with the argument that it's improved living standards in the developing world is that it has only done so to a certain degree. It hasn't raised them to levels that permit those new consumers to purchase goods produced in the developed world, where in fact relatively few consumer goods are now produced. And the WTO system, which permits developing countries to protect their own markets for their own manufacturers, compounds the problem. Globalization was never intended to generate a virtuous feedback loop, contrary to the views of neolib economists. It was always intended to transfer wealth elsewhere and skim profits in the process. That there is a growing and increasingly negative reaction among workers and ordinary voters in the Western world is entirely predictable. We're only now becoming aware of the real consequences of the big lie underpinning globalization.

Edited July 23, 2018 by turningrite

[taxme]

On 7/18/2018 at 8:39 PM, paxamericana said:

It is interesting to see that globalization has created a backlash movement of populism. The wave of populism is dictated by economic nationalism not Isolationism. Here is a good explanation of what's to come. 

 

About time. Long overdue for globalist corporations to start to fail and fall. More nationalism is needed. 

[Michael Hardner]

9 hours ago, turningrite said:

 1. It hasn't raised them to levels that permit those new consumers to purchase goods produced in the developed world...

2.  Globalization was never intended to generate a virtuous feedback loop, contrary to the views of neolib economists. It was always intended to transfer wealth elsewhere and skim profits in the process.

3. That there is a growing and increasingly negative reaction among workers and ordinary voters in the Western world is entirely predictable. We're only now becoming aware of the real consequences of the big lie underpinning globalization.

1. What are you talking about ?  China created a middle class bigger than anywhere in the world.

2. It was never designed to 'transfer' wealth.  The zero-sum game view is wrong, managed trade deals are win-win.

3. Unskilled labour will not be helped by economic nationalism, since they don't have marketable skills.  They would be helped by socialism, but good luck selling them that.  

[paxamericana]

24 minutes ago, Michael Hardner said:

1. What are you talking about ?  China created a middle class bigger than anywhere in the world.

2. It was never designed to 'transfer' wealth.  The zero-sum game view is wrong, managed trade deals are win-win.

3. Unskilled labour will not be helped by economic nationalism, since they don't have marketable skills.  They would be helped by socialism, but good luck selling them that.  

China made it a zero sum game. Look at their predatory economics...

[Michael Hardner]

4 minutes ago, paxamericana said:

China made it a zero sum game. Look at their predatory economics...

It's not a zero sum game.  Despite the trade imbalance there are still mutual benefits there.  Are we all ready for prices to go up due to tariffs ?

[paxamericana]

15 minutes ago, Michael Hardner said:

It's not a zero sum game.  Despite the trade imbalance there are still mutual benefits there.  Are we all ready for prices to go up due to tariffs ?

Its part of trump pressure campaign against china. Trying to get them to play by the rules. If not then fine by us. We'll bring back all those industry they are seeking so desparately to steal. Those commodity prices can be leverage to force those industry to move production outside of china. You are only looking at the short term trend. 

Oh and its not all about trade, they are trying to supplant the us as the next hegemon. Think we'll just sit there and let them do it? 

Edited July 24, 2018 by paxamericana

[Michael Hardner]

39 minutes ago, paxamericana said:

Its part of trump pressure campaign against china. Trying to get them to play by the rules. If not then fine by us. We'll bring back all those industry they are seeking so desparately to steal.

'Steal ?' They are competing with you.  Maybe improving your country, building up education and so on might be an option ?  

39 minutes ago, paxamericana said:

Oh and its not all about trade, they are trying to supplant the us as the next hegemon. Think we'll just sit there and let them do it? 

The US became great through many factors including a healthy democracy, a robust education system and meritocracy.  You can't just decide to be #1 and will it to happen.

[paxamericana]

8 minutes ago, Michael Hardner said:

'Steal ?' They are competing with you.  Maybe improving your country, building up education and so on might be an option ?  

 

Intellectual property transfer through joint venture, cyber theft, various other form of espioanage etc...

[paxamericana]

13 minutes ago, Michael Hardner said:

The US became great through many factors including a healthy democracy, a robust education system and meritocracy.  You can't just decide to be #1 and will it to happen

You are right, you don't build a economy and blue water navy overnight by saying it. You have to get help from somebody else...