Over the past few years, several events have delayed or altered globalization, which is the interdependence of the world’s economies, cultures and populations. In the article, “The Tricky Restructuring of Global Supply Chains” in The Economist, the challenges facing international trade and commerce are highlighted. It describes the reimagining of global capitalism in board rooms and governments.
The author raises concerns that globalization could lead to protectionism, worsening inflation, and a global economic slowdown because of the following:
• A focus on obtaining goods and services on a secure rather than efficiency basis. Many firms are adopting dual sourcing and longer-term contracts.
• Doing business with countries and people our government is friendly with and can rely on. “The West is seeking long-term supply deals from allies rather than relying on spot markets dominated by rivals.”
Since the end of the Cold War, world economies benefited from a historic increase in cross-border trade of goods and services, sharing of technology and expanded overseas investment. Globalization encouraged each country to specialize in its core area of competency using the least number of resources. It promoted economic growth and lower prices of goods and services.
An economic order — now at risk
Since 1945, the United States has helped build a global economic order. It was governed by accepted rules and overseen by multilateral institutions such as the International Monetary Fund, the United Nations, the World Bank, the World Trade Organization and NATO.
In order to sustain and expand globalization, free trade and the rule of law were mainstays. This approach prevented most economic disputes from escalating into larger conflicts.
GEO-ECONOMICS: A brief history of globalization
Free Trade: A Refresher Course
Doc’s Prescription: UN warns of global food shortages and major price spikes
The Peterson Institute published an article entitled, “What is Globalization? And How the Global Economy Shaped the United States.” The article provided the following data:
1. U.S. trade grew to levels exceeding one-third of its Gross Domestic Product.
2. 80% of world trade is driven by supply chains run by multinational corporations.
3. China has become the biggest source of U.S. imports. China’s trade footprint is seven times as big as Russia.
4. The United States has a growing trade surplus in services and deficit in goods.
While globalization benefited society as a whole, it hurt certain groups. For example, millions of blue-collar workers in advanced countries lost their jobs because of competition from lower paid workers in developing countries. Globalization has not protected labor, the environment or human rights. By contrast, globalization led to increased demand for high-skilled, higher-paid workers. A consensus of economists believe that globalization contributed marginally to rising U.S. wage inequality.