Economic Globalization: Trump and the Upstate Economy
Mar 01, 2017 04:07PM
By Makayla Gay
By Dr. Robert L. Underwood
Associate Professor, Dept. of Business & Accounting, Furman University
Two summers ago, one of my fellow Furman business professors took his family on an extended vacation in Ireland. As they were heading to the Dublin airport for the trip back home, he found himself conversing with an effervescent Irish cab driver concerning the impact of globalization on the local economy. The cabbie eventually asked my friend about his U.S. hometown, and upon mentioning Greenville, the cabbie shrugged his shoulders, expressing his lack of familiarity with the state and the area. My friend casually mentioned the huge BMW plant in the area and informed the cabbie that all BMW Sports Activity Vehicles (X3, X4, X5, X6) found anywhere in the world were made in the upstate of South Carolina. Astonished, the cabbie whirled his head around toward my friend and exclaimed, “Globalization—it’s [expletive] amazing!”.
Despite the sentiment of the cabbie, an increasing anti-globalization and protectionist movement is sweeping many corners of the globe. In the latest presidential campaign, both Democratic and Republican candidates strongly questioned traditional free market ideologies and the consequences of economic globalization. Clinton pivoted on her initial stance on trade and refused to support the TPP (Trans-Pacific Partnership), a major trade agreement negotiated by President Obama. Likewise, Trump called for punitive tariffs across an array of products, and argued for a total renegotiation of the North American Free Trade Agreement (NAFTA).
Following the inauguration, President Trump abandoned the 12-nation Trans-Pacific Partnership, and threatened multinational firms and trading partners with significant import tariffs. While a populist message concerning trade is nothing new in American politics, the degree of animosity toward trade and globalization has been ratcheted up considerably. These trade measures are likely to generate retributive tariffs placed on U.S. exports by current trade partners, thus diminishing exports. This scenario would be especially negative for South Carolina, whose exports support more than 158,000 jobs in the state (International Trade Administration – 2015).
The case for free trade is as strong as ever. Economic globalization is essentially the increasing economic integration and interdependence between countries across the world, achieved via reduction of barriers to trade and investment. As barriers diminish, firms realize enhanced access to foreign markets and capital, creating greater efficiencies for firms and customers. A sizeable body of evidence demonstrates that countries more open to the global economy achieve higher incomes and improve the human condition of their citizens. According to the Index of Economic Freedom (Heritage Foundation and Wall Street Journal), the world has witnessed an approximate 50 percent reduction in the global poverty rate in the last 25 years.
A further examination of President Trump’s populist position on trade exposes common myths associated with globalization: 1) the U.S. trade deficit is symbolic of an economy in poor economic health; 2) U.S. manufacturing is declining and jobs are being lost; and 3) the U.S. is offshoring all our jobs.
While oft repeated, the trade deficit refrain is the easiest to discredit. According to Daniel Ikenson of the Cato Institute, the U.S. had run a trade deficit for 41 straight years. During this 41 year period, the U.S. economy has tripled and real manufacturing value added has quadrupled. Business and consumers maximize value by sending dollars abroad for desired products (imports), many of which are not produced in the U.S. Additionally, more than 50 percent of these imports are intermediate goods (raw materials, components, machinery) that are utilized in the production of U.S. manufactured goods. The BMW example noted earlier illustrates this point. Engines and transmissions (intermediate goods) are manufactured in Germany and exported to South Carolina. These products are key components in the BMW vehicle production process, positively impacting the Upstate and U.S. economy. Lastly, the dollars we send abroad to purchase imports are offset by dollars returned to the U.S.—dollars that purchase American exports and financial investment vehicles, and those that are invested in plants, property and research.
While surpassed by China as the world’s largest manufacturer in 2010, the U.S. continues to prosper in high value manufacturing projects such as aircraft, automobiles and medical technology. Manufacturers such as Boeing in North Charleston, are also America’s largest importers, bringing in critical raw materials and components utilized in the production process. Continued access to foreign-produced components, materials and energy sources is thus essential to the profitability of the U.S. manufacturer. The concern over job loss in manufacturing is decidedly a consequence of enhanced productivity and technology (e.g., increasing automation), not a function of trade.
The final globalization myth often espoused is that the U.S. is offshoring all our jobs. In actuality, the U.S. is a net importer of jobs. According to Scott Lincicome at the Cato Institute, the U.S. is a powerhouse of global investment, the world’s largest recipient of foreign direct investment. The greater Upstate region of South Carolina is a prime example, as we are home to some 350 foreign firms from 32 different countries. Along with such global icons as BMW and Michelin, these firms have contributed appreciably to our region’s transformation from an aging textile hub to a world-class center of global manufacturing and innovation.
In terms of trade and globalization, the overarching goal should not be the protection of businesses from competitive trading forces. In Thomas Friedman’s “The World is Flat,” he called for increased skill adaptation and improvements in U.S. workforce education to compete more effectively in a rapidly globalizing world. In step with Friedman’s directive, our culture needs an educational awakening to the complex realities of globalization—an enhanced perspective of the challenges and opportunities facing stakeholders in the modern global market.