Globalization is Not Dead Yet, Where's the Reshoring?

Mish

Trump's trade wars, tariffs, and Covid were supposed to kill global trade. Fortunately, that didn't happen.

Alive and Kicking

Please consider Globalization is Alive and Kicking in Trade’s Big 2020 Comeback.

The Covid-19 pandemic was supposed to put the final nail in the coffin of globalization and prompt a retreat into a new era of protectionism. Instead, some are now calling the crisis the Great Accelerator.

 Companies like Samsonite International SA to Walgreens Boots Alliance Inc. are reinforcing their sources of production abroad instead of retreating from global markets.

“What we have learned is supply chains are flexible and adaptable,” World Trade Organization Chief Economist Robert Koopman said in an interview. “Trade is part of the solution.”

Natalie Blyth, the global head of trade financing at HSBC Holdings Plc, isn’t seeing companies recoil supply chains to their domestic markets to protect against new risks. On the contrary. I’ve tried to find it -- I can’t find the reshoring. We can find reshaping,” Blyth said. “The super efficient, finely tuned just-in-time inventory model failed in phase one of Covid. But it’s not reshoring that’s the solution to that -- it is diversification.”

Reshoring Efforts Fail

The Bloomberg article above mentioned luggage maker Samsonite, hard hit by Trump's tariffs then Covid.

Samsonite used to get 95% of its product from China. Now it's only 35%.

Samsonite’s supply chain now extends to Thailand, Vietnam and Cambodia. “This team has really done an amazing job of shifting and the quality of what we’re getting outside of China is as good as ever,” CEO Kyle Francis Gendreau said.

Trade Shift to Vietnam

I discussed such shifts just yesterday. 

US Balance of Trade Top Trading Partners 2020-10

How Trump Improved the Balance of Trade With China

In case you missed it, please consider How Trump Improved the Balance of Trade With China.

2018 to 2019 Synopsis

  • The trade deficit in goods with China improved from $418.95 billion to $345.2 billion. That's an improvement of $73.75 billion.
  • The trade deficit with Mexico, Taiwan, and Vietnam rose by $47.07 billion.
  • The overall trade deficit (17 nation total including China) rose by $15.72 billion.

The data shows that all Trump managed to do is shift the trade deficit from China to other nations led by Mexico, Taiwan, and Vietnam.

Samsonite is an interesting case study. 

More Diverse Global Supply Chains

Neither Trump's tariffs nor Covid accelerated reshoring. 

Instead, tariffs followed by Covid accelerated trends towards more diverse global supply chains. 

Understanding Balance of Trade Issues

Tariffs cannot and will not solve alleged balance of trade issues.

Under a gold standard, countries that ran large fiscal deficits either had to jack up interest rates to attract financing or they lost their gold reserves.

Thus trade imbalances self-corrected.

Gold as an Enforcement Mechanism

Gold acted as an enforcement mechanism. Nixon ended that in 1971 when he closed the gold window. 

For discussion, please see  

Mish 

Comments (41)
No. 1-12
Realist
Realist

You can't stop humans from thinking. Therefore you can't stop human ingenuity. So you can't stop the change and advances that results. Which means there will be more competition and more globalization.

In today's world you either learn to compete, or fall behind.

Trumps strategy of trying to stop the US from having to compete, simply weakened the US ability to compete.

Eddie_T
Eddie_T

The only thing that can kill globalization is if cost analysis shows domestic production of goods to be less expensive than alternatives. I’m still not at all sure that won’t happen....but it won’t be because of tariffs. It will be because of cheap energy at home, maybe coupled with some degree of strategic necessity on some products......as it becomes more obvious that our massive dependence on China is a bad idea.

Mexico is set to be our best trading partner over the next generation, if the cartels can be controlled.

njbr
njbr

So MANY layers of irony in this...

...Far from stopping people from traveling illegally from Mexico to the United States, President Donald Trump’s border-wall project may have actually encouraged it. Two whistleblowers have alleged that contractors helping to build Trump’s wall illegally smuggled armed Mexican guards over the border to enlist them to watch over their construction sites. According to court documents unsealed by a federal judge Friday and reported by The New York Times, the contractors even built a dirt road to help armed guards make the illegal trip. An unnamed supervisor at the Army Corps of Engineers is accused of approving the operation. The U.S. Customs and Border Protection agency refused to comment on the allegations....

MAGA!

Sechel
Sechel

reshoring will fail. the best the u.s. can do is to attempt to lower the cost of doing business here. this means better infrastructure, better educte work force, good legal structure etc adidas built a facotry in Germany but only once the technology permitte d a fully automated one which didn't do much for jobs. But do we really want to compete for the lowest paying jobs and should we?

KidHorn
KidHorn

Trump wasn't simply applying tariffs on Chinese goods to on shore jobs. He was also trying to hold China in check. And imports switching from China to other countries helped with that.

njbr
njbr

Cambodia, Thailand, Mexico, Taiwan

All have enormous investments by Chinese companies that have accelerated in recent years.

The speed at which the country-of-origin changed for Samsonite has me dubious as to how much change has occurred--dropping new work into the lap a of a new supplier in a new country seems to be the least likely route to have gone.

Re-labeling, trans-shipment, moving of packaging operations, and perhaps movement of assembly equipment probably occurred--but more than likely it is the same company doing the work.

And perhaps the attempt at decoupling has done the Chinese company a favor--they now have cover to now move operations to a lower cost country like Vietnam or Cambodia without attacting the disfavor of the central government.

Did you know that a few years back, China got a 99 year lease for 20% of Cambodia's coast line (ajacent to Thailand). That area is controlled by Chinese guards and the shipping/warehousing/factory facilities there provide more than sufficient cover for any labeling shenanigans that might be necessary for meeting the labeling requirements.

Six000mileyear
Six000mileyear

No trend follows a straight path. The larger the trend, the more subtle the change in direction occurs. Change in general is a process, not an event. COVID has forced companies to re-assess their supply-chain vulnerabilities, as well as their model for face-to-face physical interactions which has lead to a more virtual office.

So re-shoring will happen to some degree.

Companies outsourcing software development eventually realized the time zone difference hindered communications and the ability to prioritize the vendor's resources. The next project more thought was placed in assessing the trade-off between schedule and budget; concluding some of the software development needed to be done locally.

Some countries have protected their industries by imposing "offsets" in military contracts with military companies. Some of the manufacturing for foreign military purchases have to occur in the buyer's country.

Dodge Demon
Dodge Demon

If China wants to pollute their country and people to hell, then who am I to judge? I’m do my best to reduce my carbon footprint by staying out of the big box stores and not patronizing Amazon.

Jackula
Jackula

So moving mission critical production back to the US was a non-starter, instead diversified to other Asian economies, interesting. The Fed currency swap lines have also been quite interesting to watch, lots of countries with dollar shortages.

AnotherJoe
AnotherJoe

Globalization can't possibly die. It has been around since before Marco Polo. The only time I can find that almost killed globalization was during the black plague and it didn't. BTW re-shoring just like save coal was never gone happened. Also, I don't believe that off-shoring killed US know how. IMO market forces did. Higher paying jobs shifted to the financial and service sector. Factory jobs shifted to low cost countries so a US consumer could afford low cost goods. The US government decided not to fund pure research because it was the job of the industry. This of course is totally wrong. And the result of all this: China is ahead in quantum computing, 5G etc. BTW why would anyone expect that a real state developer would know what to do?

Webej
Webej

Barring a complete inversion of savings/investment and consumption, huge budget deficits mean huge trade deficits. Even if people were to stop consuming, the savings wouldn't go into actual investment but into deleveraging.

FromBrussels
FromBrussels

OF COURSE globalisation won t stop ! We need MORE planet destruction, MORE pandemics and last but not least MORE debt ....The pointless rat race can never be stopped ! c'mon hit the treadmill ! FASTER ! if it stops we re fckn finished !


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