Although globalization is widely recognized these days, the U.S. economy actually remains relatively closed.Here is part of what they find:
Obviously, if a pair of sneakers made in China costs $70 in the United States, not all of that retail price goes to the Chinese manufacturer. In fact, the bulk of the retail price pays for transportation of the sneakers in the United States, rent for the store where they are sold, profits for shareholders of the U.S. retailer, and the cost of marketing the sneakers. These costs include the salaries, wages, and benefits paid to the U.S. workers and managers who staff these operations.This analysis supports the thesis of Pankaj Ghemawat that the world really isn't so "flat." He summarizes this thesis in his challenging recent book World 3.0 which I read over the summer. Ghemawat wrote in 2007:
Table 1 shows that, of the 11.5% of U.S. consumer spending that goes for goods and services produced abroad, 7.3% reflects the cost of imports. The remaining 4.2% goes for U.S. transportation, wholesale, and retail activities. Thus, 36% of the price U.S. consumers pay for imported goods actually goes to U.S. companies and workers.
This U.S. fraction is much higher for imports from China. Whereas goods labeled “Made in China” make up 2.7% of U.S. consumer spending, only 1.2% actually reflects the cost of the imported goods. Thus, on average, of every dollar spent on an item labeled “Made in China,” 55 cents go for services produced in the United States. In other words, the U.S. content of “Made in China” is about 55%. The fact that the U.S. content of Chinese goods is much higher than for imports as a whole is mainly due to higher retail and wholesale margins on consumer electronics and clothing than on most other goods and services.
The implications here are the we should be supporting globalization -- the interconnections of markets and societies -- not pulling away. The fact that reducing reliance on Chinese imports costs American workers more than Chinese workers is one of those inconvenient facts that will find it difficult to make it into American political discourse.I still remember a TV interview a year ago in Mumbai where the first question I was asked—quite seriously or, should I say, flatly?—was why I still thought the world was round. Spouting such attitudes—the flattening of the world, the death of distance and the disappearance of differences across countries—seems to be considered a hallmark of global thinking. But I prefer to think of it as “globaloney.”
Why? Because most types of economic activity that could be carried out within or across national borders are actually still concentrated domestically. Not convinced? Ask yourself, of all the capital being invested around the world, how much is foreign direct investment by companies outside of their home countries? Maybe you’ve heard the globaloney about “investment knowing no boundaries,” and so on. The fact is, the ratio is generally less than 10% and, while it may be pushed higher by merger waves, has never reached 20%.
As the chart below demonstrates, the actual levels of globalization associated with telephone calls, long-term migration, university enrollment, stock investment, and trade as a fraction of gross domestic product (GDP)—look at the blue bars—resemble the data presented above: they fall much closer to 10% than the levels close to 100% that one would expect if one took the gurus of globaloney at their word.
As The Economist notes of Ghemawat's analysis versus that of Thomas Friedman or Benjamin Barber:
This sober view of globalisation deserves a wide audience. But whether it will get it is another matter. This is partly because “World 3.0” is a much less exciting title than “The World is Flat” or “Jihad vs. McWorld”. And it is partly because people seem to have a natural tendency to overestimate the distance-destroying quality of technology.The world isn't much globalized and globalization is a good thing. Try making those arguments these days.
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