Is globalization about to change? With the advent of a new nationalistic-leaning administration in the United States, the globalized economy faces a potential major shakedown. The perceived protectionist stance announced by then presidential candidate now President-elect Trump is illustrated in a plan that would both revitalize the US economy and create ‘millions’ of local jobs.
What he plans to do is basically allow such giants as Apple and Microsoft to repatriate or bring back home corporate funds stockpiled overseas estimated to be about $1.3 trillion at 10% one time tax. If they were to do that now they face a gargantuan 40% combined federal, state and local tax liabilities. Tax havens exist for a reason. This is one of them. As further enticement he wants to also cut in half (from 35% to 15%) corporate tax for every business entity. These are revolutionary steps to say the least. Consider what might likely happen:
If successful, meaning if the gears start to churn the way Trump intends them to, capital flight from the United States would slow down, many products would be made locally again (as opposed to being imported from countries like China) and spin off commerce and support industries would result. At least that is the kind of effect Trump and company are confident will have. Hence, I foresee a shift, a re-organization if you will, of the so-called globalized economy.
As everyone knows, in its basic concept globalization simply refers to an economic picture of various countries that are entertwined in terms of factors of production: land, labor, capital, management and attendant technologies. It is way past the traditional concept of international trade. Corporate entities in a nation like the United States invest capital overseas for the manufacture of goods and have the bulk of the finished products transported back to US soil for sale. Rationale: lower cost of production on account of cheap labor. The positive net result is affordable prices to the benefit of the US consumers and higher profits for the US manufacturers that maintain those offshore plants and facilities.
Meanwhile the benefit to the offshore countries is massive creation of jobs and local infrastructure development that would otherwise take longer to achieve absent the capital resources. That is why within just a little over two decades it helped a number of countries in Asia rose from lethargic economies to tigers to now serious competitors to what essentially were their benefactors the United States of America.
Case in point: the size of China’s economy is destined to soon pass that of the US if it has not already. Its growth rate as evidenced by its GDP (Gross Domestic Product) in the last seven to ten years has been in the upwards of 7% annually. India is not that far behind either. Japan, South Korea and Singapore continue to grow stronger too in the process. Malaysia, the Philippines, Indonesia, Thailand and Vietnam are coming right along with better than 5% average annual growth. By contrast, the United States has stagnated in the 1% to 2% range. Clearly in the ensuing period the world has witnessed a major shift in economic power. When and how did all this start?
Historically speaking, as far as I can recall the globalization concept came about in the late seventies as a consequence of the unstoppable growth of strength of labor unions that essentially caused the cost of labor in the US and Canada to reach unjustifiable heights. That forced corporate employers to look elsewhere to have their products made profitably. The concept became reality and it continued to morph rapidly in the nineteen eighties and nineties, going full swing in the new millennium -- in large part because of exponential advancements in information, communications, transportation and manufacturing technologies.
Altogether that suggests one big happy international community right? Maybe yes, maybe no. If you are for example a middle class AT&T call center employee in Manila or New Delhi or a Docker sewing machine operator in Bangladesh, the answer is yes. Yes even to an American living down your street who has money and a well-paying job. But not if you're not any of these. There have been casualties. In the ensuing years countless number of US plants were closed, thousands of jobs were lost, and many communities suffered. Detroit, Cleveland and many other parts of Middle America are among the worst hit. Other factors were also in play of course, among them restrictive regulations and until this year, a long sustained spike in energy costs. But to a large extent, the global economic scenario is to blame.
Enter Trump and his movement to ‘Make America Great Again’. Will his effort to achieve his goal of making his country ‘strong again’, ‘safe again’, and yes, ‘rich again’ mean a re-structuring of the way things are in the globalized economy? How will it affect Walmart, Costco, Amazon and others in the marketing business? For sure the upside will also be met with downsides. A lot of it.
Throughout the history of mankind change is inevitable. In fact it has been said, “nothing is as constant as change”. I am sure the global economy as it presently stands is not exempted. It is bound to change sooner of later, Trump or no Trump. That is just the way things go on this great planet earth.