Decline of Globalization

-edited

The change in total global exports has now gone negative.

Barron's has an interesting article How Investors Should Navigate Globalization’s Decline.

A decadeslong drive toward freer trade across borders has begun to reverse. Globalization is being overwhelmed by populism, nationalism, and protectionism.

Brexit threatens to erect new trade barriers between the United Kingdom and the rest of Europe. India just moved to limit foreign operators selling goods online.

“I probably never would have said it was going to end, but I’m starting to wonder,” says Don Allan, chief financial officer at Stanley Black & Decker. “The trend seems to be heading that way. Countries are becoming more focused on protecting their world and less on how to work together as a global economy.”

China Decreasing Influence Percentagewise

GoerTek , a Chinese company that makes Apple’s AirPods, reportedly told suppliers last year that it was moving production to Vietnam. It will join companies like LG Electronics (066570.South Korea) and Samsung Electronics (SSNLF). And it’s not just tech: Chemical company Huntsman (HUN) announced last summer that it had opened a plant in Vietnam, its first in Asia outside China. In fact, manufacturing grew more in Vietnam than in any other major Asian country last year, IHS Markit has calculated.

Misleading Percentages

The above chart and a focus on percentages is misleading. The US trade deficit with China has been hitting fresh highs.

Tariffs, Robotics, Wages, Transportation Costs

The article concluded "The tectonic plates of global trade are in motion. Even a handshake between Trump and Xi won’t stop that shift."

I agree, but shifts were underway before Trump became president. But as the article notes, Trump's tariffs definitely accelerated the trend.

It was a rise in labor costs in China that led to China losing manufacturing jobs not only to robots but to Vietnam.

Manufacturing Employment

Thanks to robots, some manufacturing has returned, but without the jobs. It takes fewer and fewer people to do anything. Minus wages and transportation costs, it makes sense for manufacturing to be close to the end buyer.

Yesterday's Battle

Trump is fighting a losing battle. Manufacturing those jobs are gone and they won't return.

Real Problem

Trump has his eyes in the rear view mirror. He wants to bring back manufacturing jobs when those jobs are in decline for the long haul.

More problematic for the US is China's new focus on high-end technology as opposed to routine assembly.

Huawei, a Chinese corporation, is the world's reader in 5G technology.

Trump seeks to put an end to that by claiming Huawei is an espionage threat. For discussion, please see Real Reason Trump Wants to Ban Huawei: US Wants to Spy and China Won't Cooperate.

The US needs to focus on the jobs of the future, not the jobs of the past.

Trade talks with a spotlight on soybeans, phone assemblies, etc will not do the US a damn bit of good. Tariffs have not and will not solve a single problem.

Meanwhile, somehow the US has fallen behind on 5G. That's not good to say the least.

Mike "Mish" Shedlock

Comments (67)
No. 1-17
Cichocki
Cichocki

You have Trump all wrong. He doesn’t want to bring back manufacturing jobs. He wants to feel perceived as a winner and in this case it’s by those people who want to bring back manufacturing jobs. The guy is a total shell of a human. I suppose it doesn’t change your analysis, but let’s at least recognize what it is.

Tengen
Tengen

Lotta broke people out there. Hard to sustain global trade when it's increasingly just the beneficiaries of money printing pushing paper back and forth. We can only break so many windows, build so many empty commercial/residential units, start so many wars, etc.

abend237-04
abend237-04

Bingo! Globalization has brought massive change and enabled billions of people to raise their sights from grinding poverty to higher hopes for themselves and their kids, something we've always taken for granted.

The downside effects of globalization need attending to. Our political slicks are not up to it.

There's no votes in saying, "Thirty percent annual technology price erosion on the world market means that the product you're making today for $371 using that technology will be sold by either you or your competitor(s) for only $100 five years from today. We in the Beltway cannot protect you from that unless we stop trade by tariffs, taxes, embargoes, and trade wars. These will all drastically lower living standards for everyone.

Our only hope is to compete. We need everyone doing their part in that effort. We, your politicians, cannot shield you from the heat that's coming except by leading you backwards into mediocrity, second class national status, and eventual irrelevance."

Try that pitch against the likes of AOC and Bonkers Bernie.

flubber
flubber

Looks like globalization is leading to a worldwide average wage equilibrium of $2.17/hr without benefits.

Realist
Realist

”The US needs to focus on the jobs of the future, not the jobs of the past.”

Exactly.

AWC
AWC

Interesting reference to that Barrons piece there, Mish. Especially the Robotics connection. An investment theme I haven't considered, and will now give some attention to. Thanks for that!

hehee
hehee

I would love to see the discussion on the topic of "future jobs". What are these? Where, by whom? What nature?

Sechel
Sechel

Interesting timing. Story in the FT today:

US farm groups are ramping up pressure on Donald Trump to quickly launch trade talks with Tokyo, as they face mounting evidence of lost sales and market share in Japan following America’s withdrawal from the Trans-Pacific Partnership.

Christian dk
Christian dk

Good bye to Apple spy phones in China and brics, But there it is the consumer that boycotts USA made products, that they make themselves making 5 $ an hour. Keep going Trump, and the next thing that will be Boycottet is the US$, as people realize the scam of F.i.a.t paper money enslaving the world. Soon south America will wake up, and be freed from US $ slavery. The USA is already BANK-RUPT, merely creating more fake money to pay interest on 22...23...TRILLION $ of Debt + future liabilities. + 1 trillion $ + of deficits. Could they have conned the world on a true gold/silver standard, at 15 $ silver when there is less than 1 billion oz produced each year.... NO. They have already lost control of Palladium, which is now more EXpensive than gold, because they can NOT sell palladium paper shorts to manufactures that need the actual metal. next up is silver.

Webej
Webej

What will the value-added jobs of the future be? And I'm not questioning that there will be niches with value-added jobs (at employers who are way more dependent on the right capital than on employees), but where will the millions of jobs be for disenfranchised manufacturing and office workers, not to speak of landless peasants??

KidHorn
KidHorn

I see the decline in globalization as a passing trend. It sounds good to create jobs doing things in your own country until you discover it costs a lot more to do so.

Replacing human labor with automation is always a good thing. The world will not be a handful of super wealthy and everyone else dirt poor with no job. As long as people have money, they find away to spend it. And much of the money is spent on things humans do.

jivefive99
jivefive99

Lets not give "high tech" all this love. Beyond all the media hype and pop-culture delusions that computers and robots can do everything, the overwhelming majority of humans in this country are pretty simple in their needs (especially as they get older). We all need housing, food, furniture, clothing, phones, cars, entertainment etc. Im sure the countryside will be blanketed with virtual reality amusement parks soon enough, but in the meantime, the basics rule. And, universal basic income covers this need as well.

Blurtman
Blurtman

It will be interesting to track changes in domestically sources goods and services over time. And don’t expect a transition to domestically sourced to happen overnight.

ReadyKilowatt
ReadyKilowatt

I got the nephews a 3D printer for Christmas. I was a little concerned that it might be a little too advanced for them, but they seem to have figured it out. They're using it in their school robotics club, for building Lego pieces and they made birthday presents for grandpa. They'll be just fine if my sister can keep them off drugs.

THX1138
THX1138

That first chart is all but meaningless. It only covers the last 12 months. It could easily show the onset of global recession and not the Decline of Globalization..

Euromario
Euromario

Jobs of future?! Try to get professional plumber!!!