Who is the Real Culprit Behind Globalization?

Globalization is up against the ropes. What a great way to end 2022, knowing this one-world, free trade, fast profit ideology is now revealed to be akin to an EF-5 tornado ripping through the land.

In Washington, lackluster support for globalism among voters is often packaged as needing to be tough on China. The argument goes that globalization didn’t work because it’s China’s fault. And while some of that is true – China plays by a different rulebook — the real culprit behind globalization isn’t China. China could be taken out of the mix completely, and under the logic of globalization, be replaced by Southeast Asia, India, and Mexico.

The biggest proponents, cheerleaders and benefactors of globalization are multinational corporations and big Wall Street investment banks. They pushed globalization on the country, which was meant to move costly, highly regulated production to countries with low labor costs and less inhibitive regulations. The job deserts in the U.S. are a direct result of those companies outsourcing manufacturing. The Chinese and Mexican government didn’t force companies to move there. Companies left on their own volition.

In his new book, “Dismantling the American Dream: How Multinational Corporations Undermine American Prosperity”, author Michael Collins makes the case that short-term profit motives got us into this mess, and only a rethink will get us out of it.

The problem with globalization, therefore, is the multinational corporation, Collins says. China was given Western manufacturing and industrialized. It went from a nation that made Happy Meal toys and Christmas lights, to the go-to manufacturers of iPhones, the creators of TikTok, and owners of telecom and auto brands that are now replacing American ones in Latin America.

“Their need for trying to cut labor costs just never ends,” he says, in thinking about the average, publicly traded multinational company.

Collins was once a general manager at Columbia Machine. They made equipment that worked with robotic arms to store products in warehouses or lift them onto conveyor belts. A lot of the peripherals for robotic arms are custom made so it is almost outsource-proof. The company is still thriving in Vancouver, Washington. Plus, demand for automation is ongoing as it is seen as a way to gain productivity while reducing labor.

“As far as tax, regulation, and labor goes, labor has been the most important for the last 40 years, but now it is becoming a much smaller part of their driver,” says Collins. “What this has ended up being for manufacturing is a regression to a global mean. The U.S. is not going to do very well if we continue on this path.”

In “Dismantling the American Dream”, Collins notes how CEOs from the Business Roundtable, seeing the general disdain for globalization among the populous and many of their elected leaders, declared in 2018 that it would now cater to stakeholders, not just shareholders. This has become a ubiquitous term among the corporate A-list and is used as frequently as talks of diversity and inclusion.

But the question for Collins is whether the CEOs of the Business Roundtable share the same definition of what a stakeholder is.

“They see there is a long-term threat if they continue to kill communities by laying off workers and driving suppliers out of the market, but I have seen very little evidence that they are reaching out and supporting stakeholders,” Collins says. “If they really want to help stakeholders, they have to back away from short-term profits and a singular focus on shareholder value. Which leads to things like stock buybacks.”

CPA members will find they have a lot in common with Collins’ view in “Dismantling”. Collins is a CPA donor and member of the Buy American and Supply Chain committees.

In the chapter on outsourcing, Collins notes that if the corporate members of the Business Roundtable are going to pursue their “New Purpose”, publicized in 2019, they will have to focus on reshoring jobs and industries and reduce outsourcing.

“I think CPA does a good job lobbying against outsourcing, but the question is whether corporations are going to reshore production voluntarily,” he says.

For now, many are still stuck in the free trade fairytale.

In Chapter Four, The Myth of Free Trade, Collins says business influencers need to “save manufacturing” from the notion of free trade. Fair trade has to replace it.

That seems to be taking shape now in parts of Washington. U.S. Trade Representative Katherine Tai is a fair trader, not a free trader. As was her predecessor, Robert Lighthizer.  Collins writes that currency misalignment is a problem as an overvalued dollar “distorts trade flows and encourages outsourcing and the growth of imports.”

The Treasury Department recently published a 51-page report on the overvalued dollar. In its most recent assessment, the IMF continued to judge the dollar to be overvalued on a real effective exchange rate basis.

Collins thinks the Trump-era Section 301 tariffs should remain. “We need to continue to use them to slow the flood of cheap imports and move toward a balanced trade budget,” he writes.

“Dismantling the American Dream” is loaded with spreadsheets showing just how much has been dismantled.  In 2002, there were 1,935 textile fabric mills still in the U.S. employing 145,214 people. By 2021, there were 1,046 factories and 45,902 employees left in the field. In 2002, there were 2,715 manufacturers of communications equipment employing some 183,000 people. By 2021, it fell to 2,661 and the employee headcount collapsed to 86,089. Industrial mold manufacturers, of which many are CPA members, used to number in the 2,900s in 2002 with some 44,400 workers. By last year, that number was reduced to 1,570 industrial mold makers with 34,084 employees. There used to be 6,600 semiconductor manufacturers of all shapes and sizes in the U.S., back in 2002. Some 523,000 were employed there. By 2021, the factory totals fell to 6,245 with employment dropping to around 370,000. All data comes from the Bureau of Labor Statistics.

Collins isn’t one for whining. He lists 12 recommendations to tackle the current malaise, some easier than others. One of them, in the final chapter, is the easiest – no more new trade agreements. Other recommendations include making China tariffs permanent and getting the Treasury Department to “admit that 15 of our trading partners are unfairly manipulating currency and keeping the dollar value high so that our export prices are not competitive,” he writes. Getting the Treasury to do anything on currency is considered a “moonshot” in Washington. They have often labeled a country a currency manipulator, but the onus on correcting the behavior was on the foreign central bank. Treasury took little to no action on its own.

For “Dismantling”, Collins looked at around 30 different industries that outsourced to Asia, in particular.

“Take laptops for instance. Taiwan Semiconductor used to just make the printed circuit board, then they said hey we can make more than that and soon enough they were making the entire laptop. That’s just one example. In product after product, we go from outsourcing technology to losing the design aspect of the technology, and that is suicide if we stay on this path,” Collins says.

But if corporate America got us into this mess, can they get us out?

“The real solution is for big companies to do something about it, but I have not seen much evidence that they are willing to do that,” Collins says about reshoring at least some of what has been offshored. “Trying to change the minds of the C-suites at Boeing or Caterpillar is going to require a threat, and one way is to extend the tariffs. But I don’t know if you can convince them even with that,” he says. “If we don’t find a way to reshore manufacturing, it’ll be a death blow for a lot of these companies in the long term,” he says, as those companies teach their contractors, and their competitors, how to build the same thing, and then sell it for less, without the same regulatory burdens imposed by Western governments.

“Dismantling the American Dream” is worth it just for the charts. His view that multinational corporate giants bear the bulk of the blame for a globalization most of us disdain is spot on, and is a view that needs to be shared more widely in Washington. Most of the voting public has already figured that out.