Our Economic Security is in the Hands of the Global Market

We live in an interdependent global market.  Today more than ever, the economic and political decisions taken by our representatives impact the economies and societies of other nations, and the decisions taken by other countries impact us as well.  This is the danger of a globalized and integrated system of production, trade, and consumption.

In the past, when tariffs and other protectionist measures were implemented in order to support domestic industries, they had a positive impact that trickled down to secondary industries and small businesses that were part of the nationally integrated supply chain system.  American investors injected capital into their own economy because that was their only option.  The markets of the world were highly regulated, national sovereignty was safeguarded and therefore it was hard to penetrate foreign markets.

Tariffs and other protectionists measures did have a tremendous impact on domestic consumers.  American consumers paid a higher cost for buying and using services “Made in U.S.A.”, but it was a good price to pay, the money stayed in the United States.  Our domestic market was interdependent on our own internal production systems as well as on our supply of raw materials coming from emerging markets.  International trade was simple, we imported raw materials and food from these emerging markets and then exported back value-added products that they were not able to produce.[1]

It was not a very equalitarian system, it was the nature of capitalism.  There were winners and losers, and we were on the winning side.  We had invented the post-World War Two game and, of course, it was designed to favor us and the rest of the Western world.  It was the time when “America was Great,” before the era of globalization.

It was the time when Republicans and Democrats were committed to nation building and the strengthening of the national economy.  When citizens had control of public services, when college was practically free (a few fees here and there and that was it), and when business was committed to community building, even if it was for utilitarian purposes.

There was a clear-cut-line between local and international business.  Risk was internal and not global.  The business sector needed to preserve a healthy local economy and thriving communities in order to prosper and increase profits; and when necessary, government stepped in to protect American interests via tariffs or other protective mechanism.

In the 1990s that reality was crumbled like a piece of paper, incinerated and turned into ashes.  I believe that the business sector, spearheaded by Multinational Corporations, was able to set in place, through the advancement of neoliberal politicians, a new economic agenda that moved away from local accountability.  After the 1990s, Democrats and Republicans worked together in order to forge a global economy that removed the risk from the domestic economy and placed it in the hands of the dynamics of the global market system. The sovereignty of the state had been broken.

President Trump’s nationalist voice resonates with those Americans that want to return to the good old days, but it is impossible unless we are willing to isolate ourselves from the global market system.  Moving away from the game we invented would be detrimental if anything we should be tweaking it in our favor.  We could end up on the sideline, watching others thrive in our own game.  Protectionist policies could force us to spin our wheels while other nations and economic blocs accelerate their pace of globalization.  Eight years of Obama trade policies have been reversed by the current government and, depending on future political outcomes, a new administration would have to reverse four or eight years of protectionist policies in order to get back on track.

This would be painful and unbearable for our aggressive consumer culture and particularly for millennials and the Generation Z, considering that they have been raised in a world of prosperity and privilege, consuming low-priced goods and services that are a direct result of global supply chains and other production mechanisms that take advantage of deregulated systems around the world.[2]  In a capitalist system, government cannot move against the will and interest of the business sector, particularly under the current globalized system where a company can simply pack up and leave in search of a better option, leaving behind jobs and the communities that depend on them.

It is disheartening to see the pro-free market party approve and implement policies that go against its economic and ideological principles.  It is also discouraging to see the opposition party moving toward a Social-Democratic model in an economy constrained by trillions of dollars in debt.  All within the context of a globalized economy that allows American companies to search for strategic solutions across the global market system. 

We live in an interdependent world that has been under construction for the past thirty plus years, yet our representatives and the political platforms they represent seem to be living in the past.  Under this interdependence, tariffs do not work in our favor and social distributive policies do not solve the problem of social injustice.  The solution is not in limiting the capabilities of the free market but in tweaking the dynamics of globalization.

Although the protectionist tariffs have a positive political impact domestically, particularly among those reminiscing the past, it is a short-term solution that has no positive long-term economic impact.  To return back to the world of “Made in U.S.A.” we need a capitalist class willing to invest in the national economy but the current business vision ingrained in the minds of the new generation of business leaders is global and not local.  We need to adapt and not go against the current.

The pioneers of the high tech industries are not designing new technologies for American consumers but for global consumers.  All industries are planning their strategy based on a global market and not a local or national market.  The design of new value-added industries is set around the potential access to global raw materials and resources, and not based on a local strategy.  The current administration is imposing tariffs on steel and aluminum while American and other global companies are injecting millions of dollars into Research and Development in order to produce new composite materials that are environmentally sustainable and less costly.  The world is pushing toward the future while some political leaders in the West, as in the case of the United States, are pushing for solutions that will return us to a past that only worked when the economies of the world were not globally integrated.

In this interdependent world, imposing tariffs on China is basically imposing tariffs on ourselves.  Not only do they impact the cost of production of our own businesses producing good and services in China (which are thousands of companies), but they also force them to increase their prices on American consumers.  Moreover, we provide global competitors the opportunity to take advantage of the trade war, so that they may sell their “Made in China” products at a lower cost to our consumers.

In the absence of American investors interested in injecting capital into our own economy, the trade war may deter future companies such as the subsidiary of China’s Nine Dragons Paper, ND Paper, from investing in our country.[3]  In general, our pursuit of a tariff war with China reduces the global trust on our economy, questioning the long-term economic reliability and political stability that were the pillars of our capitalist machine.  International businesses will begin to question their strategy toward the American market and that is simply not good for business or our economy.

The fact is that it is too late to move away from the interdependence in which we are locked in.  Leaders from both political parties incrementally led us down this path and now we have a leader that wants to derail us from the path that was built thirty plus years ago.  Our economic security is in the hands of the global market, yet we continue to deny it.  We hurt the well-being of the Chinese, Mexican, Canadian, Indian, Vietnamese and other global economies, and we end up hurting our own economic interests.  In a world where our national economic output depends tremendously on internal consumption, the last thing we want to do is hurt the American consumer and yet that is the ultimate outcome of protectionist policies.

The alarming fact is that this system of global interdependence now has deep roots; it is very difficult to dismantle since its foundations lie in the interests of the private sector and not the nation-state.  Recent outcomes of the re-negotiation of the North American Free Trade Agreement (NAFTA), the threats to impose tariffs on the Mexican economy, and the escalating trade war with China show that the US government now has minimal influence over the outcome.  Nothing dramatic has changed over NAFTA, the trilateral trade agreement has a life of its own, forcing the Trump administration to scale down on its protectionist trade objectives.  Similarly, US business, market, and consumer interdependence on the Mexican economy also forced the Trump administration to scale back on its threat to that market.  In the case of the Chinese tariff war, the pressure against the protectionist policies has come from within the US business sector; meanwhile, imports have been rerouted through other Asian markets, taking advantage of the deregulated nature of the global market system.  American, Chinese, and other foreign importers have found a way to navigate the tariff war and in other instances, as in the case of Nine Dragons Paper, the solution has been to directly invest in the American economy.

United States-Mexico-Canada Agreement (UMCA)

I am not an advocate of globalization, I am a strong supporter of local economic development, nevertheless, I am conscious that my representatives set forth this long-term path and unless there is a better alternative, we must stick to the free market model that has sustained our economic growth during the past thirty years.  Protectionism and rising nationalism are not sustainable models of economic development unless all the nations of the world move toward mercantilism, but that is not going to happen.  On the contrary, global markets are pressing the accelerator, hoping to catch up to our level of capabilities as we begin to spin our wheels.  Tariffs are only doing our competitors a favor, knowing that we are dependent on the international system.  We should instead embrace the globalization of the market while at the same time implementing local sustainable policies that will safeguard our strategic domestic markets and attract Foreign Direct Investment to revive other strategic sectors.

[1] Emerging economies were not incentivized to produce value-added products because our post World War Two leaders, through the World Bank and the International Monetary Fund, provided the scientific justification to construct a world based on economies that provided raw materials to the industrialized world in exchange for value added finished products.

[2] For example, cheap labor, advantageous fiscal policies, and lax social and environmental regulations.

[3] In 2018 the Chinese paper company began production in Old Town, Maine. See, for example, Lori Valigra. “Chinese firm completes purchase of Old Town Mill.” Bangor Daily News, October 23, 2018.  Accessed June 27, 2019. https://bangordailynews.com/2018/10/23/business/chinese-firm-completes-purchase-of-old-town-mill/

 

Stefano Tijerina

About Stefano Tijerina

My name is Stefano Tijerina and this blog’s objective is to connect Maine’s social, environmental, economic, cultural, and political issues to the global system, centering on how the local impacts the global and how the global impacts the local or what is known in Global Studies as the "Glocal" effect. In our present era of globalization it is crucial for the general public to understand how the new dynamics of the international system impact our lives here in Maine and how our local decisions impact the earth.