There has been much discussion recently about the pros and cons of globalization in the economic development of nations, and more particularly its impact on employment and displacement of workers.
For some, globalization is a fact of life, and businesses are both adjusting to it and benefitting from it. To others it is a matter of economic philosophy and priorities. I put myself firmly in the former camp.
I try to put myself in the shoes of a country manager heading up a large American business halfway around the world, as I used to do. There was always a certain confidence in where any U.S. administration stood in matters of economics, business, and trade policies. Sitting across the table from senior bureaucrats or political leaders in emerging markets, I always felt confident telling them about the value of open borders, low trade barriers, free movement of goods, low tariffs, and reasonable taxes, knowing all the while that this is what any American government believed was best for economic growth.
Now, in U.S. government circles, this is a matter for debate. If the current administration’s statements are to be taken at face value, many of these principles are no longer going to be adhered to. In fact, there is a belief that free trade is a zero-sum game, with winners and losers. How, then, can one persuade emerging market leadership to open up their economies? How would I, as country manager of an American business, argue with bureaucrats in Pakistan or Ukraine that high import tariffs on my company’s shampoos and soaps are only keeping local competitors from operating efficiently, or are keeping consumer prices artificially high, thereby limiting the development of markets? By keeping markets from growing, the government is in fact restricting its own revenue through forgone taxes.
There has been talk of the new U.S. administration wanting to upend the global economic order. While many have benefited from this order over many decades, it was based on rules established by the U.S. and its Western allies. If we upend it, what exactly do we want to replace it with?
Global businesses and multinational companies are operating with carefully constructed global supply chains. It may be hard to say how much of any imported product’s value is created in which part of the world. For example, about 40% of the value of cars imported from Mexico into the U.S. is actually composed of U.S.-made components. Some of these parts and components may have crossed the border multiple times, before finally ending up in the finished product.
The same goes for painstakingly negotiated multi-country trade agreements: one can argue that a certain agreement is unfair to one or more of the participants, but to claim all trade agreements are inherently bad is hard to understand. With the new administration having announced its disregard for the agreed, but not yet ratified, Trans Pacific Partnership (TPP), China has already started stepping up to write new rules of trade in that important and growing part of the world and beyond.
In the last few months, as I sit here in Washington, D.C., it has dawned on me how important the free market, and the open trade philosophy of any U.S. government, has been to the conduct of American businesses in emerging markets. The success of these businesses overseas has directly benefited my American company here in the U.S., even as it contributed to economic development in the host emerging markets.
It remains to be seen how the rules of global trade will be rewritten in the coming years, but already some roles seem to be reversing and alliances are being rearranged. Stay tuned. My bet is globalization is here to stay.
August 14, 2017