Alive and Kicking
Please consider Globalization is Alive and Kicking in Trade’s Big 2020 Comeback.
The Covid-19 pandemic was supposed to put the final nail in the coffin of globalization and prompt a retreat into a new era of protectionism. Instead, some are now calling the crisis the Great Accelerator.
Companies like Samsonite International SA to Walgreens Boots Alliance Inc. are reinforcing their sources of production abroad instead of retreating from global markets.
“What we have learned is supply chains are flexible and adaptable,” World Trade Organization Chief Economist Robert Koopman said in an interview. “Trade is part of the solution.”
Natalie Blyth, the global head of trade financing at HSBC Holdings Plc, isn’t seeing companies recoil supply chains to their domestic markets to protect against new risks. On the contrary. “I’ve tried to find it — I can’t find the reshoring. We can find reshaping,” Blyth said. “The super efficient, finely tuned just-in-time inventory model failed in phase one of Covid. But it’s not reshoring that’s the solution to that — it is diversification.”
Reshoring Efforts Fail
The Bloomberg article above mentioned luggage maker Samsonite, hard hit by Trump’s tariffs then Covid.
Samsonite used to get 95% of its product from China. Now it’s only 35%.
Samsonite’s supply chain now extends to Thailand, Vietnam and Cambodia. “This team has really done an amazing job of shifting and the quality of what we’re getting outside of China is as good as ever,” CEO Kyle Francis Gendreau said.
Trade Shift to Vietnam
I discussed such shifts just yesterday.
How Trump Improved the Balance of Trade With China
In case you missed it, please consider How Trump Improved the Balance of Trade With China.
2018 to 2019 Synopsis
- The trade deficit in goods with China improved from $418.95 billion to $345.2 billion. That’s an improvement of $73.75 billion.
- The trade deficit with Mexico, Taiwan, and Vietnam rose by $47.07 billion.
- The overall trade deficit (17 nation total including China) rose by $15.72 billion.
The data shows that all Trump managed to do is shift the trade deficit from China to other nations led by Mexico, Taiwan, and Vietnam.
Samsonite is an interesting case study.
More Diverse Global Supply Chains
Neither Trump’s tariffs nor Covid accelerated reshoring.
Instead, tariffs followed by Covid accelerated trends towards more diverse global supply chains.
Understanding Balance of Trade Issues
Tariffs cannot and will not solve alleged balance of trade issues.
Under a gold standard, countries that ran large fiscal deficits either had to jack up interest rates to attract financing or they lost their gold reserves.
Thus trade imbalances self-corrected.
Gold as an Enforcement Mechanism
Gold acted as an enforcement mechanism. Nixon ended that in 1971 when he closed the gold window.
For discussion, please see
Mish
No Mish, Trumps Tariffs were not meant to kill global trading LOL. He wants fair trading not sure why you can’t grasp that?
Wow Mish I thought you were smarter than this.. I guess you really don’t understand who our real enemies are? And which countries we shouldn’t keep making stronger. Good professors in the 60’s actually new what was going on with our economies unlike the liberal morons now teaching. One who taught an old friend of mine at Purdue comes to mind. Common Sense TRUMPS liberal BS every time. Like how I through that in there? lol
OF COURSE globalisation won t stop ! We need MORE planet destruction, MORE pandemics and last but not least MORE debt ….The pointless rat race can never be stopped ! c’mon hit the treadmill ! FASTER ! if it stops we re fckn finished !
Barring a complete inversion of savings/investment and consumption, huge budget deficits mean huge trade deficits. Even if people were to stop consuming, the savings wouldn’t go into actual investment but into deleveraging.
World leaders are the ultimate CEO’s of the means of production these days. Absolute power has finally corrupted absolutely.
Each of these New World CEO’s is hell bent on competing with the others, in a quest to build a bigger, more powerful Financial/Industrial/Media/IT/Military Complex. Power is the goal here, certainly not improvement of the human condition.
Just as China moved away from the dregs of totalitarian communism, and into a sort of hybrid “Government Controlled Capitalism,” (Fascism?) the US and EU will move farther away from free market concepts and into more Centrally Planned economic systems. Western politicians and elites are enamored with what they perceive as the “China Miracle.”
The question for investors going forward isn’t so much one of fundamentals, but rather a question of connection. As the power of the State moves more and more into the productive sector, being in some way connected to that power is vital to economic survival.
Not only is Globalism here for the duration, so is MMT. How long could this continue? Well, it “Worked “ in the Soviet Union for 60+ years, until the last of the seed corn was consumed. And it is still “Working?” In China.
What to do? Dunno, maybe put it all in PM’s and bury them, to be dug up after the failure of Central Planning, or get “Connected.”
Globalization can’t possibly die. It has been around since before Marco Polo. The only time I can find that almost killed globalization was during the black plague and it didn’t. BTW re-shoring just like save coal was never gone happened. Also, I don’t believe that off-shoring killed US know how. IMO market forces did. Higher paying jobs shifted to the financial and service sector. Factory jobs shifted to low cost countries so a US consumer could afford low cost goods. The US government decided not to fund pure research because it was the job of the industry. This of course is totally wrong. And the result of all this: China is ahead in quantum computing, 5G etc. BTW why would anyone expect that a real state developer would know what to do?
China is also way ahead in oppression and totalitarian control of its population. Not a very equitable trade off in my book.
“ BTW why would anyone expect that a real state developer would know what to do?”
Good point and often overlooked….in fact, part of our problem in American politics is that real estate has made so many idiots rich in this country…..and now they have power…..and they erroneously think they know something.
It isn’t just Trump…..it’s a widespread phenomenon.
So moving mission critical production back to the US was a non-starter, instead diversified to other Asian economies, interesting. The Fed currency swap lines have also been quite interesting to watch, lots of countries with dollar shortages.
Either goods cross borders, or bullets do.
If China wants to pollute their country and people to hell, then who am I to judge? I’m do my best to reduce my carbon footprint by staying out of the big box stores and not patronizing Amazon.
Because China is on an entirely different planet…?
You make a great point, but I haven’t seen any virtue signaling lawn signs to that effect in the suburbs. Same with worker issues. Its all a race to the bottom for the cheapest piece of junk.
The fact the warmongers and environmentalists haven’t joined forces to propagandize a war with China based on protecting the health of the planet, just shows the extent of China’s influence. The people in power enjoy the wealth bestowed upon them from China (via human and environmental exploitation, not to mention stealing our IP).
Catch up with the month–“virtue signaling” is a passe’ phrase…”What started off as a clever way to win arguments has become a lazy put down. It’s too often used to cast aspersions on opponents as an alternative to rebutting their arguments. In fact, it’s becoming indistinguishable from the thing it was designed to call out: smug posturing from a position of self-appointed authority.”
…smug posturing from a position of self-appointed authority…
No trend follows a straight path. The larger the trend, the more subtle the change in direction occurs. Change in general is a process, not an event. COVID has forced companies to re-assess their supply-chain vulnerabilities, as well as their model for face-to-face physical interactions which has lead to a more virtual office.
So re-shoring will happen to some degree.
Companies outsourcing software development eventually realized the time zone difference hindered communications and the ability to prioritize the vendor’s resources. The next project more thought was placed in assessing the trade-off between schedule and budget; concluding some of the software development needed to be done locally.
Some countries have protected their industries by imposing “offsets” in military contracts with military companies. Some of the manufacturing for foreign military purchases have to occur in the buyer’s country.
Cambodia, Thailand, Mexico, Taiwan
All have enormous investments by Chinese companies that have accelerated in recent years.
The speed at which the country-of-origin changed for Samsonite has me dubious as to how much change has occurred–dropping new work into the lap a of a new supplier in a new country seems to be the least likely route to have gone.
Re-labeling, trans-shipment, moving of packaging operations, and perhaps movement of assembly equipment probably occurred–but more than likely it is the same company doing the work.
And perhaps the attempt at decoupling has done the Chinese company a favor–they now have cover to now move operations to a lower cost country like Vietnam or Cambodia without attacting the disfavor of the central government.
Did you know that a few years back, China got a 99 year lease for 20% of Cambodia’s coast line (ajacent to Thailand). That area is controlled by Chinese guards and the shipping/warehousing/factory facilities there provide more than sufficient cover for any labeling shenanigans that might be necessary for meeting the labeling requirements.
I was wondering how much of the new supply from Cambodia, Thailand, and Vietnam is actually from those countries or from China. Or it could be a hybrid, China produces the parts and they are assembled in Cambodia, Thailand, or Vietnam.
Or even just box up in a different country.
…Sihanoukville is the site of a special economic zone (SEZ) backed by the Chinese and Cambodian governments, which according to a February China Daily article, now houses “121 companies, including 104 Chinese ones, five Cambodian, and the rest from developed markets such as the United States and Japan.”…
Trump wasn’t simply applying tariffs on Chinese goods to on shore jobs. He was also trying to hold China in check. And imports switching from China to other countries helped with that.
I don’t think Trump has had an explicit policy of keeping “China in check”.
The whole process has been a response to what he described as unfair trading practices and theft of intellectual property.
Where has Trump ever made an explicit statement on the need to keep China down in spheres other than trade?
reshoring will fail. the best the u.s. can do is to attempt to lower the cost of doing business here. this means better infrastructure, better educte work force, good legal structure etc adidas built a facotry in Germany but only once the technology permitte d a fully automated one which didn’t do much for jobs. But do we really want to compete for the lowest paying jobs and should we?
better transportation , roads, sewers eletric grid and legal system will be how we do it.
All reshoring works on the basis of automation. I remember a story a few years ago about a meat plant openng in Greece (reshoring to the EU), 95% automated. There will be major reshoring, but it will be about replacing third world labor with machines, not with first world labor.
As far as lowering the cost of doing business: In addition to infrastructure, Medical costs and Educational costs, as well as taxes for the military, are the big items. Medical costs alone are enough to price out American labor, even if they have zero dollars for any discretionary spending. Financialization has left a huge cost burden on every aspect of American life. The amount of military gear, or medical care, or education that you get out of $1 lags really far behind competitors.
Here is why: the high paying jobs often depend on a low paying jobs to do other work. If the low cost jobs are offshore, it is inevitable that the high paying jobs arise locally to the low paying jobs, aka you lose both low paying and high paying if you offshore either one. Look at what happened with semiconductors. First it was just manufacturing, now chips designed (aka high paying jobs) in Asia often outperform the ones designed here.
So MANY layers of irony in this…
…Far from stopping people from traveling illegally from Mexico to the United States, President Donald Trump’s border-wall project may have actually encouraged it. Two whistleblowers have alleged that contractors helping to build Trump’s wall illegally smuggled armed Mexican guards over the border to enlist them to watch over their construction sites. According to court documents unsealed by a federal judge Friday and reported by The New York Times, the contractors even built a dirt road to help armed guards make the illegal trip. An unnamed supervisor at the Army Corps of Engineers is accused of approving the operation. The U.S. Customs and Border Protection agency refused to comment on the allegations….
MAGA!
The only thing that can kill globalization is if cost analysis shows domestic production of goods to be less expensive than alternatives. I’m still not at all sure that won’t happen….but it won’t be because of tariffs. It will be because of cheap energy at home, maybe coupled with some degree of strategic necessity on some products……as it becomes more obvious that our massive dependence on China is a bad idea.
Mexico is set to be our best trading partner over the next generation, if the cartels can be controlled.
Please forget about Mexico and China / Asia comparison. Mexico has a population of 126M , a 3rd of the United States. China and India alone have ~ 3Billion people.
We’re talking about an order of magnitude difference.
The deal with demographics is the AGE of the consumers in those countries. Old people don’t buy much. Young families raising children and buying houses and condos do….much, much more.
Young adults are the consumers. Of the entire world, only a very few countries have a young adult population now. Mexico does, France does. The US does..
Are you saying Asia doesn’t have young people. Please come back to the thread when you’ve counted how many they have vs Mexico, then we can have a conversation
I humbly suggest you follow this link to Wiki and scroll down to look at China’s changing demographic pyramid…..Look at 1982…and then look at 2010.
This inversion of the demographic pyramid means that the ratio of old people to young people is getting larger over time. This is a macro trend, and it’s continuing to get worse over time. It’s not done happening.
Your idea that China has “lots of young people” has to be considered in proportion to the rising tide of aging people, who will collect pensions and not work.
You undestand that and then maybe we can have a conversation.
Here is a clue – a music video by BTS, a Korean pop group has 600 million unique views. Numbers like that is something western artists can only dream about
Demographics of China in 2020 looks very similar to that of USA in 2020 and both looked similar in 1950s. It’s a very typical graph associated with birth / death rates, e.g. replacement only vs growth.