Globalization is an economic term. It refers primarily to the free flow of trade and the easy movement of people, goods, and services among countries. During the last 50 years we have outsourced, offshored, and built complex supply chains, along with networks of suppliers and customers. In the 1970s we became convinced that a global economy would raise all boats. However, since that time we have learned that it did, indeed, raise some boats, but not all.
The economic prosperity and benefits that globalization brought about went primarily to capital with very little, if any, being distributed to labor. With the greatly expanded labor force we then had an abundance of workers driving down the labor cost. Over the next 40 years we saw very little, if any, increase in wages. Labor unions lost much of their power, especially with younger workers, as they negotiated contracts to protect the older and more senior union members.
In 2016, we saw some of those who felt left out of the economic prosperity express their view politically with the election of Donald Trump. With a change in relationship between the United States and China, we will no longer be looking to them for cheap goods. The supply chain disruption illuminated the risk that long complex global business relationships had created. To reduce risks, we are currently shortening the supply chain by reshoring or near-shoring much of our production. One consequence of this trend is a shortage of available industrial buildings to accommodate the sudden uptick in demand for domestic production facilities.
A very intriguing look at deglobalization can be found in Peter Zeihan’s book “The End of the World is Just the Beginning. In it he describes the effect of deglobalization on transportation, finance, energy, industrial materials, manufacturing, and agriculture. He offers an interesting history of how we got to where we are today. He then takes the trends under way and projects them into the future.
My wonder has been, what is the cause of globalization and/or deglobalization? Why is it happening, and who benefits with the changes? There are both winners and losers. With globalization it appears that those companies that were looking for cheap labor benefited along with those that wanted larger markets for their products and services. Coming out in the short end of the stick were America’s small towns where manufacturers moved their work to Mexico under the NAFTA free trade agreement. With the consolidation of agriculture those communities lost much of their reason to exist. Ironically, remote work using broadband fiber optics may revive these communities and give them a new economic reason to continue.
So, what are some of the economic opportunities deglobalization will bring about? We are now seeing a frenzy of site searches and new project announcements due to re-shoring, onshoring, and rapid domestic expansion to meet increased demand. We’re being challenged to provide the workforce to support this influx of job opportunities. This has resulted, in some cases, in increased wages and an effort to reengage a disused labor pool. Labor force participation rates are at an all-time low. This is causing a reexamination of the benefits companies offer to re-engage workers that dropped out of the workforce during COVID such as childcare and transportation.
Nationalism brings with it a sense of domestic security. As we move further and further away from globalization and towards nationalism, we will see several changes. According to the October 22nd Financial Times article, “My Guide to a Deglobalizing World“, we will see an upsurge in localism. “Globalization isn’t dead, just different.” The article describes why place matters politically, economically, and socially.
Our trading partners will be closer to home in the Americas. As Peter Zeihan points out, Northern Mexico and Columbia will likely become a source of lower cost labor. The United States is a somewhat self-contained market and with its own production capacity to meet our own needs with less international trade. Increased labor costs along with labor shortages will continue into the foreseeable future. Export led economies will suffer, domestic production will increase to meet demand, and production costs will increase.
As the pendulum swings toward nationalism and away from globalization we will see an increase interest in what happens at home and less of what is happening elsewhere in the world. We have seen this before in 1914 and again in 1939. It is important to remember that all wars are fought over a competition for resources, whether it be land, raw materials, or people.
Let’s hope that we remember our history lessons.