Globalization as we all know it might not be dead yet, but it is weaker and as unpopular as ever. Members of CPA are moving the needle on this one.
Fifteen years ago, a small group of people got together to create the Coalition for a Prosperous America (CPA) to push back against unfettered, laissez-faire global trade. CPA was built on the idea that someone had to represent the struggles of domestic producers, especially those who served large, global corporations – whether selling them animal proteins, copper rebar, or tooling equipment. It was clear that those corporations would ditch their domestic supply chain partners for anyone overseas if the price was right. Competing against Mexico, China and most of Asia was always going to be a headwind: they had lower labor costs, fewer environmental rules, weaker currencies, and often lower taxes. Something had to be done. CPA tried to change the conversation from one-world kumbaya globalism in favor of building domestic supply chains rather than foreign ones. It’s working.
Even globalization stalwarts like BlackRock CEO Larry Fink see the signs.
In Fink’s 2022 letter to shareholders, he wrote that supply chain disruptions caused by the pandemic and the Russian-Ukraine war have “put an end to the globalization we have experienced over the last three decades.” It was as close to an admission that the Western world’s Asia-centric globalization model was on its last legs.
Economists like to think reality can be captured in mathematical formulas. They plug in numbers about all sorts of complicated things – how we work, what we spend – creating complex models to stimulate our world. They then crank the algorithmic engine on these models, and out comes the data that shapes the politics that govern our country, our community, and our lives. But economics is not a pure science, like physics. It’s far more like biology, or sociology, or even anthropology. It’s a world that is ever-changing. Since the 2008 financial crisis and the pandemic, it has become clear that the ”invisible hand” that is supposed to guide our markets and our economy toward a happy and healthy equilibrium isn’t always right. – Rana Foroohar, author’s opening remarks, “Homecoming: The Path to Prosperity in a Post-Global World,” Crown Publishing, on book shelves in October.
To be fair, globalization has been declared dead since early 2016. That’s when the World Economic Forum first said as much, ahead of its annual meeting in Davos, Switzerland. Worth noting, this was months before Donald “Tariff Man” Trump was even considered a contender for the White House. He would go on to a shocking victory in November 2016, shifting the conversation towards how trade deals have hurt “the forgotten men and women” of the U.S. Both U.S. Trade Representatives serving under Trump and now President Biden believe this fully.
Leading Wall Street billionaires have called for a “deglobalization” of the U.S. economy this year.
Howard Marks, co-founder and co-chairman of Oaktree Capital Management, wrote in a memo posted on Oaktree’s website in March that the “negative aspects of globalization have now caused the pendulum to swing back toward local sourcing.”
Marks recognizes that offshoring has “led to the elimination of millions of U.S. jobs and the hollowing out of the manufacturing regions and middle class of our country.” In his writing this spring, Marks said he thought reshoring will “increase the competitiveness of onshore producers and the number of domestic manufacturing jobs and create investment opportunities in the transition.”
What’s at stake, and what has happened to change people’s minds?
Financial Times columnist and Brooklyn-local, Rana Foroohar unleashes on the damages caused by hyper-globalism in her new book, “Homecoming: The Path to Prosperity in a Post Global World”, to be released in mid-October.
CPA members looking for a deeper understanding of how we got here should read Rana’s book. It often reads like a CPA creed on trade and its discontents. For sure, Homecoming will hone your arguments on why a post-neoliberal industrial strategy is needed to win the global competition for good jobs and industries.
Homecoming gives readers a globalization history lesson. The neoliberals of the 1930s wanted to connect the world to buffer populism. At the time, populism was seen primarily as a communist revolt risk. To avoid such uprisings, they created multilateral institutions to govern global finance and trade, where everyone would be on the same page. Tears in the fabric of this system became apparent in 1999 during the World Trade Organization’s Ministerial Conference in Seattle. Protests were violent, something the U.S. had not seen since the race riots of the 1960s. Labor movements saw the WTO as gatekeepers to a corporatist trade system that was a detriment to their livelihood. NAFTA was already six years old. They had the receipts. Their concerns were ignored, however. China ascended to the WTO two years later. Ross Perot, who ran for President as an independent against George H.W. Bush and Bill Clinton, famously said such trade arrangements would result in a “giant sucking sound” of manufacturing jobs leaving the U.S. He got nearly 19% of the vote, unheard of for an independent candidate. It was a sign of things to come, both politically and economically. For Foroohar, the ability of global corporations and finance to control more businesses, more wealth and political power than any time in history, “has led us to a place in which neoliberal visions of globalization are collapsing. Individuals everywhere are left stranded in the middle.” Alternatives to laissez-faire globalism are gaining influential followers. Foroohar would not have written this book otherwise.
There are 16 chapters in Homecoming. The chapters likely to interest CPA members most are The Problem with Big Food; Trade and its Discontents, The Post-Dollar World, and Why Making Things Matters.
China also plays a key role in the book. It was the biggest disruptor of the Western-led trade system. The main architects and advocates for China’s new role as America’s manufacturing center claimed to believe China would become one giant Japan, despite being a top-down, command and control system run by the very same political party the U.S. fought a Cold War with for forty years. To many of us, it is hard to believe they were convinced of this outcome, or even sincerely hoped for it.
The fact that China was not becoming freer as it got richer was “papered over for decades,” Foroohar writes.
Looking at the manufacturing sector between 2000 and 2014, the domestic share of total value added and the domestic share of labor income within that declined in the U.S. and all of the West.
China, of course, was the exception to the rule. There was an increase in domestic manufacturing as a percentage of national GDP. Much of the Western world’s foreign direct investment was going there instead of at home. The multinationals from G7 countries turned China from a Happy Meal toy-making economy to the guys behind TikTok, and the lab partners to BioNTech and Pfizer’s Covid vaccine.
“The rise of trade-related political risk…may be creating a consensus around the idea that we really do need a revamp not only of the global trading system but of globalization itself,” Foroohar said, considering all of the supply chain snafus caused by China’s lockdowns. “Today, we are still largely in the hyperfinancialized laissez-faire system that characterized the period from the eighties onward. What we need is a paradigm shift more suitable to the reality of a post-Trump, post-Brexit, post-China world,” she said.
On the dollar front, Foroohar said that the “overvaluation of the dollar and the underinvestment in the industrial base meant that American consumers increasingly had no choice but to buy cheap stuff from China sold at Walmart – because they didn’t make enough to do anything differently.” Once, when interviewing an economic advisor to an unnamed senior Democratic senator from the South, Foroohar inquired about the economic deserts dried out by manufacturing high-tailing it to Mexico and Asia. This was in 2016. The aide told Foroohar that the White House, led by the Obama Administration at the time, said it was cheaper to pay people to move to urban areas and subsidize them than it was to hope for manufacturing to return.
Trade has helped American multinationals. But those lower down the totem poll increasingly had to compete with low-cost, low-regulatory rivals to serve those big business partners like Ford and Boeing. To make matters worse, the foreign exchange rate usually worked against them.
When a single country has both the privilege and the burden of being the international reserve currency, as the United States has been since the Bretton Woods period (1970s rule that takes the dollar off the gold standard) until today, “only so much can be done to curb economic imbalances,” Foroohar said. “The dollar not only allows but in some senses forces Americans to become debtors, as investment from around the world naturally flows into the dollar, pushing up its value and encouraging financialization and speculation.”
Where do we go from here?
In Homecoming, Foroohar talks to some domestic manufacturers like Jason Ballard, founder of Texas-based 3D-printing company ICON, and CPA board member Anderson Warlick, CEO of textile company Parkdale Mills in South Carolina.
“Our supply chains have been dismantled for 30 years and manufacturers in the U.S. haven’t been as respected as they should be,” Warlick told her. “You can’t turn back the clock on thirty years overnight. But that doesn’t mean you shouldn’t start now.”
Foroohar is a realist. She doesn’t think globalization ends but thinks we never go back to the no-holds-barred globalism of the pre-Trump era. But…“It won’t be completely localized, either,” she said.
She gives an example of how some parts of Brooklyn are returning to manufacturing, helping blue-collar workers stay local rather than needing to take trains into Manhattan for service jobs. This is good news.
Alas, it is clear that the bulk of big corporations, and the firms that lobby for their interests, want a return to the pre-2017 trade war era. They want to go where dollars go farthest, and that’s not here. They want to invest in growth markets, which are all in Asia. They will ignore geopolitical tensions between China and the U.S.
Major investment firms and corporate brands like Goldman Sachs to Pepsi were fast to announce the closing of their businesses in Russia once the war in Ukraine began. Who thinks Apple and Intel leave China in the event of a shooting war in the South China Sea?
Foroohar is rational-minded throughout but allows herself to get dreamy in the end.
“There will be new frictions and unexpected challenges as we move from a highly globalized economy to one in which production and consumption are more tightly geographically connected,” Foroohar said in her final chapter. “There will be huge opportunities. Around the country…you’ll see a far greater number and variety of communities becoming economic hubs as both policy and business models push back against the trend of centralization and globalization.”