Recent trade battles with China, Mexico, Canada, and Europe have reduced trade flows in the USA. Now, with the outbreak of COVID-19 severely impacting international commerce, many argue that globalization will soon be dead.
Globalization is not dying. Rather, it’s evolving, and existing trends are accelerating. American companies and workers would be wise to prepare for what’s ahead.
From 2018 to 2019, world merchandise trade decreased by 3%. But this drop is nothing compared to what’s forecast this year. Due to COVID-19, the World Trade Organization predicts global merchandise trade will decline by anywhere from 13% to 32%, depending on how rapidly countries can contain it. Before I discuss how globalization is evolving, let me first explain how we got here.
Advances in telecommunications, transportation and finance led to the integration of national markets through trade and investment. This process of globalization has lifted millions of people out of poverty and significantly boosted standards of living.
But globalization is like fire: It can cook your food, keep you warm or burn your house down. It has been tremendous for companies that produce products and services rich in intellectual property, and for workers engaged in lifelong learning. However, it has presented new challenges for companies that manufacture low-technology products and for employees with limited skills.
A major aspect of globalization has involved offshoring: the practice of moving production from high-wage countries, like the United States, to low-wage ones. Some argue this was a mistake and that all outsourced production should be brought back home. It sounds appealing.
But employing American workers to make lower-value goods — like clothing and toys — or even to assemble higher-value merchandise, would result in extremely high prices that would make products far too expensive for average consumers. And, over time, the American standard of living would fall.