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"Retreat From Globalization Adds to Inflation Risks"

Wall Street Journal

By Yuki Hayashi

December 5, 2021

Summary

Globalization has helped reduce the price of goods and services. This has been achieved by increased competition where domestic organizations face competition from cheaper imports. According to Robert Johnson, an economist, the decrease in prices is evident in the US, where consumer prices are reduced by a yearly percentage of 0.1 to 0.4. The lower prices have also resulted from outsourcing production from countries with low wages. However, the pandemic can undo the impact globalization has brought to the country. However, several policies will remain in place once the supply-chain bottlenecks have been removed. These policies include tariffs, relocation of production to the united states, and the Buy American procurement rules. This reorganization will affect consumers, forcing them to purchase goods at a higher price. The deglobalization started to increase in 2008 due to the global financial crisis, the decision of Britain to exit Europe, and the tariffs put in place by Donald Trump, which has added to the high inflation rates.

A study that the Asian Development Bank carried out determined that the global manufacturing preproduction increased from 17.3% in 1995 to 26.5% in 2011 and reduced to 23.5% in 2020. The United Nations Conference on Trade and development also determined that the global foreign direct investment was at an all-time high in 2015, with a value of $2 trillion in 2015 but reduced to $1.5 trillion in 2019. The price of household furnishings and operations increased by 3% from October 2017 to March 2020. Since then, they have risen to 8.5% as a result of the tariffs which the Trump administration introduced. The price of polysilicon used in the manufacture of solar panels increased to $20 in the second quarter of 2021 compared to $6.2 in the previous year due to the Biden administration banning these materials from China. It has also doubled the levies on Canadian softwood lumber to 18%. It has also accelerated the requirements of federal agencies to procure American-made products and amplified the trade policies of Donald Trump. It has made them stricter, which has the potion to add half a percentage point to the United States inflation. There has also been a decrease in immigration trends to the United resulting in labor shortage of labor, especially in the driver, which has resulted in increased cost of products and delivery fees.

Implications for Practice

Losers:

1. Organizations in the United States that use polysilicon in the production of solar panels, which the US government has prohibited from being imported from China's Xinjiang region.

2. The American citizens will be forced to purchase products at high prices due to an increase in inflation and lack of competition from cheaper imports.

3. The third loser is China, whose export to the united states have been impacted by tariffs that were introduced by the Trump administration and amplified by the Biden administration

Winners:

1. The first potential winner is the American firms that were forced to lower their products as a result of competition from imported products.

2. The second winners are the American domestic workers, where power will be shifted to them as a result of labor shortages in America due to the decline in immigration.

3. The other winners will be the American citizens, where there will be an increase in the number of jobs due to the shift of the supply chain back to the united states of America.

Implication for Theory

Political risk: the political risk is of significant concern since it entails the United States stopping globalization and shifting the supply chain back to the country. The result of this is that countries will also increase tariffs on American exports, which will result in the decline of the US economy.

International Trade: the article discusses how international trade will be affected by the tariffs and levies that the United States government has put against countries such as China and Canada.

Absolute Advantage: The absolute advantage will be in the united states, where it will be able to produce domestic products and services more efficiently than other countries due to the shift of the supply chain back to the country.

Future Direction

My personal prediction from reading the article is that inflation in the United States will increase in the near future. The price of products and services will also increase due to the lack of competition which external imports offered to the United states organizations. The last prediction is that there will be a labor shortage in the United States, resulting in domestic workers having a higher bargaining power than American organizations.