The signs are clear. The U.S. may still play a large part in the global economic boom, but strong economic demand and investment in Asia and elsewhere also play an ever-increasing role. What we can learn from recent years, especially last year, is that the pace of global competition is unrelenting, producing both real benefits and immense challenges.

It’s a touchy topic for manufacturers and engineers. Not so long ago, people would talk about the United States as the main engine of the global economy. However, like the U.S. in 1776, the world is at a crucial junction in history. Globalization has not only brought nations together, it has also produced immense challenges. Conflicting political, religious and, of course, economic interests are pulling nations apart. Many of them see no advantages in unity.

Yet economists can promote real benefits of a robustly growing field: selling overseas, American businesses can employ more people. The case in point for a recent New York Times piece was the sale of 67 of Boeing’s 747s for a grand total of $16.75 billion. According to NYT: “… All of this benefits Boeing’s shareholders, the American economy and the nearly 150,000 people Boeing employs in the United States.” Moreover, the National Association of Manufacturers (NAM) followed:

We would only add to this list the thousands and thousands of small manufacturers who serve as suppliers to Boeing as well. They are all in the export game. Boeing is a company that buys almost 80 percent of its parts [in the U.S.] — and builds the stuff right here — and exports 70 percent of its products around the world.

On globalization, NAM notes that trade creates jobs, exports create jobs, trade agreements open markets to U.S.-made goods. In the modern global economy, no country can sustain itself as a closed economy.

Yet what sticks in many people’s minds is what Industrial Market Trends often hears from its readers: a 30-year professional and father of three who finds himself without work when his factory or job moves offshore, and many other similar stories.

Detractors argue that globalization has always been about multinationals exploiting cheap, third-world labor and dodging taxes and regulations to maximize corporate profits — at the expense of the U.S. middle- and working classes and devastating the domestic manufacturing base.

As such, the world today remains gripped by patterns of analysis in the style of “Us versus Them.”

Take the automotive industry, for example. Recent reports by major automakers are enough to prove that the Big Three are in big trouble. The U.S. automotive industry is struggling with parts suppliers, parts retailers, tire manufacturers and auto manufacturers, notes Global Logistics & Supply Chain Strategies magazine. Fuel and raw materials costs, coupled with intensifying competition in a saturated market, continue to put the domestic automotive industry in a bind. Auto manufacturers in Detroit continue to cut back on vehicle production in North America while foreign automakers, ironically, are boosting production levels.

As one IMT reader recently exemplified:

The “Globalists” have no problem with this report [on U.S.-versus-Japanese automakers]! But if we do not like to see the U.S. slowly becoming a third-world nation as a result, then pass the word.

It isn’t just the automotive industry.

India
India’s economy will likely grow almost 9 percent this fiscal year. Asia’s second-fastest growing economy expanded 9.1 percent in the first half of the current fiscal year that ends in March 2007, and the country’s finance minister, P. Chidambaram, expects full-year growth to be almost 9 percent. That would bring India’s economic expansion — averaging at more than 8 percent over the past three years — close to the rate in China. The record for growth in the Indian economy was 10.5 percent in the fiscal year ended in March 1989.

The Indian economy grew 8.4 percent last fiscal year.

China
As well, many observers view China’s return to wealth and power as a direct threat to the preeminence of the U.S. As The Globalist notes, “For most of human history, China was the wealthiest, socially most tranquil, scientifically most advanced and arguably the best governed society on the planet.

“It is determined eventually to restore itself to these heights.”

China’s strategic investments in natural resources, engineering, science and technology, as well as its largely youthful populations, are rapidly making it the most influential foreign “economic actor.” In time, it hopes to become the world innovation leader. If it can harness market forces to its objectives, it has a fair chance of achieving many of them.

During the first six months of 2006, China surpassed the U.S. as the world’s largest exporter. During the first half of 2006, Chinese exports of manufactured goods reached $404 billion compared to $367 billion in exports by the U.S. Only five years ago, the U.S. exported more than double the amount of China.

From the upturn in the Eurozone economy to the falling dollar — and from the booming U.S. stock market to anxieties over the Chinese yuan — the debate about America’s economic future is also an argument about currency and “free trade” versus “protectionism.” (See: The Big Picture: India, China and U.S. Trade)

China’s foreign exchange reserves are around $1 trillion. Its currency is steadily appreciating and moving, with all deliberate speed, toward full convertibility. The yuan even seems likely to become a unit of account for trade in energy and other commodities currently traded solely in dollars. The minute it becomes fully convertible, according to The Globalist, “it will join the euro as an alternative reserve currency.”

Indeed, the economic world very well could be on the verge of a very different world monetary system: one in which Europe and Asia play roles commensurate with their economic influence; one in which the U.S. no longer enjoys the privileges of economic dominance, but must share financial power with others. The domestic savings rate in China is estimated to be close to 50 percent — what trade policy analyst Ross Korves calls “far too high for any country.” (See: China Trade Disputes Loom Large)

United States
Amidst heated accusations of China as a manipulator of the exchange rate, U.S.-Asia relations face stiff challenges this year.

Consequently, the “Us versus Them” mentality as it relates to globalization is not exclusive to pitting nation again nation.

In 2007, partisan tensions in the U.S. are expected to increase over currency issues with China and over-protection of automakers against competition. Congressional leaders expect a game of brinksmanship over China’s currency regime and U.S.-China intellectual property (IP) rights issues, while the Fair Trade with China Act is almost certain to be reintroduced in the new Congress.

November’s U.S. midterm congressional elections gave power to the Democrats and defeated two dozen pro-trade members. Many of their replacements are avowed opponents of free trade.

Moreover, forget politics. Increased globalization is pitting more people domestically against industry itself.

As another IMT reader recently noted:

I can’t believe the stubbornness of the heads of the U.S. auto industry, whom are to be blamed for steering consumers away from their cars. “If it ain’t broke DON’T fix it” is the American auto industry paradigm. Now the industry is broke! The relentless corporate pursuit for profits and disregard for offering quality products and services at reasonable prices is to be blamed.

Finally, consider a report by The New York Times:

A large part of the problem is the disposition of the spoils of globalization. While liberalized trade has meant faster growth, lower inflation and huge profits, the benefits in [the U.S.] have gone disproportionately to the wealthy.

Whether you’re a proponent or opponent, the signs are crystal: the pace of global competition is unrelenting. Globalization is a fact of life, leaving us with two choices: accept it and take advantage of it, or be left behind.

Resources

Still Flying High
The New York Times, Dec. 25, 2006

The Times Gets It Right on Globalization
by Pat Cleary
ShopFloor.org (NAM), Jan. 2, 2007

Fast Forward: U.S. Automakers Face a Rocky Road in the Coming Year, While Foreign Competition Will Thrive
Global Logistics & Supply Chain Strategies, December 2006

China’s Real Three Challenges to the United States
by Chas W. Freeman
The Globalist, Dec. 12, 2006

China Replaces U.S. As World’s Largest Exporter: Trade Imbalances Could Cause Financial Upheaval…
by Richard McCormack
Manufacturing & Technology News, Sept. 5, 2006

Exchange Rates, Currency Manipulation and Trade
by Ross Korves
Truth About Trade & Technology, Dec. 29, 2006