CAPITALACCOUNT That Noise You Hear Is the Sound of Globalization Going Into Reve

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CAPITALACCOUNT That Noise You Hear Is the Sound of Globalization Going Into Reverse As trade barriers break up world-wide supply chains, the real costs are higher prices and fewer choices for consumers ,n January 201, The France-based aerospace gare "hach employs 14000 people r' Britan has sad reconudenng its By Greg Ip June 27, 2018 803am ET Around the world the gears of globalization are shifting into reverse Companies spent decades farming out every step of production according to where inputs- labor, infrastructure, know-how-were optimally located. Now, as trade barriers rise, they are grappling with how to localize production again Harley-Davidson Inc.'s plans to move some production out of the U.S. to avoid European Union retaliatory duties is the tip of the iceberg. German car manufacturers now export some models to the U.S. from Germany and export others from the U.S. to China. That doesn't make sense if the US, slaps tariffs on German-made cars and China imposes tariffs on U.S-made cars. Last week Airbus SE warned its U.K operations could be threatened once Britain leaves the European Union because it relies on the bloc's unified regulatory standards and free movements of parts across borders. Bombardier Inc. said it would assemble some aircraft in Alabama instead of Canada to escape U.S. duties. As supply chains reorganize to serve local markets, the numbers of jobs gained and lost probably end up a wash. The real costs are more subtle: higher prices and fewer choices for consumers Pre-globalization, multinationals routinely produced locally for local markets, which avoided high tariffs but meant small production runs and high costs. As trade barriers and transport costs fell, cross-border supply chains took shape. After the U.S and Canada signed the Auto Pact in 1965, their auto industries became one. The North American Free Trade Agreement expanded supply chains to Mexico. In 1996 the Information Technology Agreement established global free trade in information technology products, spurring the complex supplier chains that link designers and engineers in the U.S, Europe and Japan with assembly and manufacturing throughout east Asia. 1/3

Explanation / Answer

The tone of an article by Greg Ip suggest that USA adopting more protectionist policies to " Make US great again" may give short term results to US Producers but this may prove to be a myopic move. In the long run US economy and industrialists may suffer.

There are two examples to support this view: USA Companies are high on research and produce superior products. This is also supported by cheaper factors of production in developing countries. USA increases tariff on imported goods then other countries have started to reciprocate this move making it difficult for US firms to sell. Harley- Davidson is an example. It wants to move to EU To avoid taxes .

Also, USA firms may end up increasing their costs as USA has higher labour and infrastructure costs. Eg Apple products.

Present US Govt. also cites economic reasons to put tariff. China prospered by being exporter. it purposefully kept its currency value low and kept on following policy of Import substitution. This made Chinese economy to grow whereas USA trade deficit kept on increasing.

It is believed that USA firms enjoy high technical edge, may get productionn at lower cost all over the world and get profit back to USA. This model has worked for them. However, this has created unemployment problems in USA.

After analysing all these points it is clear that WTO aims at creating a free trade world where all the competent firms will produce better quality products and customers will be better off.This will also create oppprtunities for countries making conditions favourable for production. This will give developing countries a chance to compete with developed countries. These protectionist policies will however, make all these efforts futile.

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