One fateful question for 2013 is this: What
happens to globalization? For decades, growing volumes of cross-
border trade and money flows have fueled strong economic growth. But
something remarkable is happening; trade and international money
flows are slowing and, in some cases, declining. David Smick, the
perceptive editor of The International Economy magazine, calls the
retreat "deglobalization." What's unclear is whether this heralds
prolonged economic stagnation and rising nationalism or,
optimistically, makes the world economy more stable and politically
acceptable.
To Americans, some aspects of deglobalization will seem
delicious. Take manufacturing. Globalization has sucked factory jobs
from the United States. Now, the tide may be turning. Just recently,
Apple announced a $100 million investment to return some Mac
computer production home. Though tiny, the decision reflects a
trend.
General Electric's sprawling Appliance Park in Louisville, Ky.,
once symbolized America's post-World War II manufacturing prowess,
with employment peaking at 23,000 in 1973. Since then, jobs have
shifted abroad or succumbed to automation. But now GE is moving
production of water heaters, refrigerators and other appliances back
to Appliance Park from China and Mexico. Year-end employment is
reckoned at 3,600, up 90 percent from a year earlier, writes Charles
Fishman in December's Atlantic.
Nor is GE alone, Fishman notes. Otis is moving some elevator
production from Mexico to South Carolina. Wham-O is shifting Frisbee
molding from China to California.
The changes are harbingers, contends the Boston Consulting Group,
which predicts a manufacturing revival. China's labor cost advantage
has eroded, it argues. In 2000, Chinese factory wages averaged 52
cents an hour; but annual double-digit percentage increases will
bring that to $6 an hour in high-skilled industries by 2015.
Although wages of U.S. production workers average $19 an hour, BCG
argues that other non-wage factors favor the United States. American
workers are more productive; automation has reduced labor's share of
expenses; and cheap natural gas further reduces costs. Finally,
higher oil prices have boosted freight rates for imports.
By 2015, China's overall cost advantage will shrivel to 7
percent, BCG forecasts. As important, it says, the United States
will maintain significant cost advantages over other developed-
country manufacturers: 15 percent over France and Germany; 21
percent over Japan; and 8 percent over Great Britain. The United
States will be a more attractive production platform. Imports will
weaken; exports will strengthen. BCG predicts between 2.5 million
and 5 million new factory jobs by 2020. (For perspective: 5.7
million manufacturing jobs disappeared from 2000 to 2010.)
Because the United States is the world's largest importer, this
shift would dampen trade. Similarly, cross-border money flows
("capital flows") have abated. Banks, especially in Europe, have
reduced foreign loans to "deleverage" and strengthen their balance
sheets. From 2011 to 2012, bank loans to 30 "emerging market"
countries fell by one-third, says the Institute of International
Finance, an industry group. "It's the most decisive case of 'home
bias' [in lending] being re-established," says economist Philip
Suttle of the IIF. Government regulators encourage the shift, he
says, suggesting that "if you're going to cut lending, cut there and
not here."
Of course, globalization won't vanish. It's too big and too
entwined with national economies. In 2011, total world exports
amounted to nearly $18 trillion. The same is true of capital flows.
Despite banks' pullbacks, those same 30 emerging market countries in
2012 received an estimated $1 trillion worth of investment from
multinational companies, private investors, pensions, insurance
companies and other lenders - a still-huge total, though down from
its peak. But globalization's character may change.
For years, the world economy has been wildly lopsided: China and
some other countries ran big trade surpluses; the United States was
perennially in massive deficit. Similar imbalances existed in
Europe. Now, slumps have dampened the American and European appetite
for imports. The upshot is that "China and others are recalibrating
their export-led economic strategies" to focus more on domestic
demand, argues economist Fred Bergsten of the Peterson Institute.
That's good, he says; the world economy will be more balanced.
Likewise, erratic capital flows have triggered past financial
crises. Slower flows may promote stability.
Not everyone is so optimistic. Smick of The International Economy
sees globalization as "the proverbial goose that laid the golden
eggs." The search for larger markets and lower costs drove
investment, trade, economic growth and job creation around the
world. That's weakened, and there's "no new model to replace it."
Domestic demand will prove an inadequate substitute. Central banks
(the Federal Reserve, the European Central Bank, the Bank of Japan)
have tried to fill the void with hyper-easy money policies. Smick
fears currency wars as countries strive to capture greater shares of
stagnant export markets; and burst "asset bubbles" caused by easy
money.
These visions clash. In 2013, we may learn which is right.
