Is Globalization Dead?...

The simple answer is no, globalization is not dead but we have to add some big caveats. President Trump wants to re-shore jobs lost to globalization in the 80’s, 90’s and 2000’s. If America can bring manufacturing back then we will be strong again. At least this is the theory.

The problem, however, is that globalization has gone too far and America has lost too much of the infrastructure and logistics of the manufacturing process. Globalization is not just about China and our trade deficit with them. Take the iPhone for instance, the most visible and the most successful global product. The new iPhone camera comes from Japan, the power management chip from England, the memory from South Korea, the wireless circuit from Taiwan, the user interface processor from the Netherlands. The radio frequency transceiver and the Gorilla glass face (Corning) still come from America. And the final product is put together in China which has the flexible workforce that can expand and contract to adjust to spikes in product demand.

But just because the components and assembly come from somewhere else doesn’t mean we are weak. The lion’s share of the profit from the iPhone goes to Apple. The chart at the bottom is a little confusing but the important point is that it costs $390 all-in to make the iPhone whereas the phone can command a retail price of nearly $1,100. The biggest share of the difference between cost and retail price goes to Apple. The Chinese assemblers get less than 5% of the total cost of the phone.

The biggest benefit of globalization goes to those companies who can design and market products that the growing number of worldwide consumers (both in the developed world and in the developing world) want to buy. And America still comes up with a significant number of these products.

The answer to our trade deficit with China is not a simple tariff but leveraging America’s greatest strengths. Thomas Friedman in The New York Times says we have three huge assets we are not taking advantage of: immigration, allies and values. We are not allowing in the talented immigrants who have made America so great in the past. We are also alienating our allies today, the very countries who want to be our friends not our enemies. And finally, we are not maximizing the values which America represents and which the world respects: the dignity of human beings, the rights of minorities and women and the rule of law.

Tariffs on Chinese imports might actually do more harm than good over the short term. Tariffs might push China to develop even faster its high value-added manufacturing abilities. Tariffs might also simply shift our importing (and thus our deficit) from China to other low-cost areas like Vietnam, Cambodia and Thailand. Globalization is still a good thing. It is sad that it is being so maligned today.

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