Who needs protectionism when fuel prices are going through the roof?
The rule of thumb in the brand new global trade world in recent years is that companies look overseas for cheap labor to produce goods and that, even after shipping products halfway around the world, the cost is still less than if they were made at home. That approach may be in the process of changing as rising transportation costs are making the global economic model less attractive, according to a New York Times report.
"If we think about the Wal-Mart model, it is incredibly fuel-intensive at every stage, and at every one of those stages we are now seeing an inflation of the costs for boats, trucks, cars," said Naomi Klein, author of The Shock Doctrine: The Rise of Disaster Capitalism. "That is necessarily leading to a rethinking of this emissions-intensive model, whether the increased interest in growing foods locally, producing locally or shopping locally."
A number of factors are working against globalization. There's the high cost of fuel but also environmental concerns, concerns over product safety, rising wages in countries where goods have been produced on the cheap and a backlash in industrial nations over the loss of jobs and a perceived lowering of living standards.
As the Times article points out, many economists do not think that the move to overseas production will abate no matter how high fuel prices go.
"It would be a mistake, a misinterpretation, to think that a huge rollback or reversal of fundamental trends is under way," said Jeffery Sachs, director of the Earth Institute at Columbia University. "Distance and trade costs do matter, but we are still in a globalized era."
Others, however, are looking to move production closer to the consumer markets where they will eventually be sold.
IKEA, for example, opened its first factory in the U.S. in May. Some companies that had pulled up stakes from Mexico to move to China have reopened factories south of the border.
"If prices stay at these levels, that could lead to some significant rearrangement of production, among sectors and countries,” said C. Fred Bergsten, author of The United States and the World Economy and director of the Peter G. Peterson Institute for International Economics. "You could have a very significant shock to traditional consumption patterns and also some important growth effects."
A report by CIBC World Markets found that rising fuel costs have added what amounts to a nine percent tariff on trade. "The cost of moving goods, not the cost of tariffs, is the largest barrier to global trade today" and it "has effectively offset all the trade liberalization efforts of the last three decades."
Discussion Questions: Do you see factors such as fuel costs, environmental concerns, rising production costs in developing nations, etc. causing a slow down or a reversal in the globalization trend? Will we once again start to see goods "Made in America" or at least closer to the U.S. than in the recent past? What will this mean for producing nations such as China and India?