Any discussion of globalization and its impact on a country needs to recognize that a nation comprises both producers and consumers. Producers are businesses. Consumers are J6P (Joe Six Pack or Jane Six Pack aka common man / woman).
While import of cheap goods from China might cripple American manufacturers, it is a positive for American consumers because they save money. Just to be clear, “goods from China” includes both products of American brands made in China (e.g. Apple) as well as those of Chinese brands made in China (e.g. Qingdao Sunsong). While 70% of goods in the shelves of supermarkets of USA are made in China, less than 10% are Chinese brands (most of the 90% are American brands).
To take this disconnect to the next level, consider the situation when the cheaper Chinese goods are not end consumer items in America but raw material or components for producers in USA. With cheaper inputs, local American manufacturers can reduce their costs, increase their market size, boost their profit, raise wages, provide greater employment, and thereby boost GDP, yada yada yada. While some American manufacturers will shut down, other American manufacturers will prosper.
High tariffs on imports from China can drive two behaviors with opposite outcomes.
- American Importers pass on the higher cost caused by tariffs to American consumers. This will help improve the competitiveness of American manufacturers but will come at the cost of increasing prices for American consumers.
- Fearing loss of American market, Chinese exporters reduce their prices by either working on a lower margin or by getting subsidies from their government. As a result, even after tariffs, the cost to American importers will not go up. This will keep the end consumer prices unchanged but will not improve the competitiveness of American manufacturers.
No one knows which way tariffs will go but, if history is any indication, the second route is more likely.
The last time USA levied tariffs on imports from China, it failed to save American manufacturers. Apparently Chinese manufacturers avoided tariffs by resorting to rampant transshipment via Thailand and other non-tariff countries.
When David Rashid took over US autoparts maker Plews and Edelmann, the company was losing business to its Chinese rival, Qingdao Sunsong. Both companies make power steering hoses, but Sunsong was offering its hoses to retailers at a much lower price. Then, in 2018, the Trump administration threw companies like Rashid’s a lifeline, by announcing tariffs on a range of Chinese goods, including some autoparts. Rashid thought the tariffs would finally force Sunsong to raise its prices, but, somehow, the company never did. Source: NPR Planet Money podcast entitled “The trade fraud detective“.
A similar logic applies to outsourcing of IT by American companies to low cost economies like India. While offshoring kills local jobs and is a negative for local workers in USA, it’s positive for American companies – it helps them source their technology at the best possible price-performance ratio, optimize their P&L and maximize shareholder value (MSV).
LOL. “…the top three drivers of job losses in America are globalization, automation, and Ronan Farrow.” ~ https://t.co/etQmLi7ndr via @davepell
— Ketharaman Swaminathan (@s_ketharaman) September 10, 2019
When Donald Trump appointed Sriram Krishnan as Senior Policy Advisor for AI at White House, MAGA dunderheads totally lost it. X fka Twitter was full of rants about how Indians have invaded USA and taken over all tech jobs.
My take was that USA enjoys tech hegemony all over the world including India, so America should accept labor hegemony of India all over the world including USA. If USA bans H1B and thereby Indian tech workers, India could ban American software products from the likes of Microsoft, Oracle, and Salesforce.
In short, globalization is a two-way street or a no-way street.
There’s enough ammo for both supporters and opponents of globalization.
One way to break out of this quandary is if, in the early days of local manufacturing, citizens are willing to pay a higher price for locally produced goods, even if it’s of inferior quality, with the belief that quality will improve with time. I believe this consumer behavior in the sixties through eighties led to the massive growth of the manufacturing industry in South Korea and Japan.
There’s a third outcome of tariffs: Get foreign companies to shift their manufacturing to USA.
In his interview with Economic Times, Stephen A. Schwarzman, CEO of Blackstone describes this goal of reciprocal tariff regime:
Addressing concerns about the impact of reciprocal tariffs on the US economy, he said that while input costs for American businesses may rise, the policy is already stimulating large-scale inbound investments. He pointed out that for over two decades, the US manufacturing base had shrunk as businesses moved to lower-cost locations. However, the tariff strategy, coupled with lower corporate tax rates, could encourage foreign companies to establish operations in the US, potentially allowing them to avoid tariffs while benefiting from tax incentives. He suggested that with the right influx of capital and expertise, the US economy could see a positive shift.
This sounds like Make In India. While the common man in India (herewith Jai6P) tends to assume that the program refers to Indian manufacturers manufacturing in India, fact is, it also includes foreign manufacturers manufacturing in India. The most visible success stories of Make in India are of the latter variety e.g. Apple, Samsung.
I think Make in India has a positive impact on India whether it involves Indian or foreign brands.
Will the common man in USA accept that Make In USA dominated by non-American brands would MAGA?
Only time will tell.
