CIBC Research Piece On Energy Costs - Globalization Is Reversible - Jeff Rubin

[hatrack]

EDIT

Food and energy prices may not count in the Fed’s inflation metrics, but they sure count in the lives of everyday Americans these
days. While core inflation may be barely over 2%, that’s only of solace if you don’t eat or drive. Headline inflation is running at almost double that and it isn’t about to be coming down any time soon (see pages 8-11). Not
when world oil prices are heading toward $200 per barrel, with grain price movements not far behind.

Food inflation isn’t about the US economy any more than triple-digit oil prices are about motorists driving on interstate freeways.
They’re instead about hamburgers replacing rice bowls and millions of new Tata and Chery drivers on traffic-choked roads in China, India and the rest of the emerging market world.

But even more threatening to the outlook for price stability than the rise in oil prices, is the fact that exploding transport costs are removing the single most important brake on inflation over the last decade—wage arbitrage with China. Not that Chinese manufacturing wages won’t still warrant arbitrage. In and of themselves, they will. But in today’s world of triple-digit oil prices,
distance costs money.

The cost of shipping a standard 40-foot container from East Asia to the US eastern seaboard has already tripled since 2000 and will double again as oil prices head towards $200 per barrel (see pages 4-7). Unless that container is chock full of diamonds, shipping costs have suddenly inflated the cost of whatever is inside. And those inflated costs get passed onto the Consumer Price Index when you buy that good at your local retailer. As oil prices keep rising, pretty soon those transport costs start cancelling out the East Asian wage advantage. They already have in steel. Soaring transport costs, first on importing iron to China and then exporting finished steel overseas, have already more than eroded the wage advantage and suddenly rendered Chinese-made steel uncompetitive in the US market.

That’s great news if you are the United Steelworkers of America. Long lost jobs will soon be coming home. And the more that oil prices and transport costs rise for Chinese steel exporters, the more that US steel wages can grow. But if you’re a steel buyer, your
costs are going up regardless of whether you are sourcing it from China or Pittsburgh.

EDIT

http://research.cibcwm.com/economic_public/download/smay08.pdf

[XemaSab]

1. Globalization is not reversible

Some outsourcing may be, but not globalization.

[Vincardog]

2. Tell me oh wise one. How can globalization be so unstoppable when it will soon cost more to ship

products from china to the USA than it costs to make them in the USA?
How does that invisible hand feel when it backhands you favorite meme?

[XemaSab]

3. How does that invisible hand look when it points you towards a dictionary?

:shrug:

glob·al·ize

–verb (used with object), -ized, -iz·ing.

to extend to other or all parts of the globe; make worldwide: efforts to globalize the auto industry.

Also, especially British, glob·al·ise.



—Related forms
glob·al·i·za·tion, noun

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glob·al·ize

tr.v. glob·al·ized, glob·al·iz·ing, glob·al·iz·es

To make global or worldwide in scope or application.

glob'al·i·za'tion (-lĭ-zā'shən) n., glob'al·iz'er n.

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globalization

noun

growth to a global or worldwide scale; "the globalization of the communication industry"

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http://dictionary.reference.com/browse/globalization

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Globalization is not synonymous with "making cheap crap in China and shipping it over here," though that is a manifestation of globalization. It's about the international flow of materials, services, technologies, and ideas. If you have Indian takeout for lunch, that falls under the aegis of globalization. If you go look at the BBC website, that's globalization. Or, if you shop at Ikea, that's globalization.

And by my reckoning, it's been happening, in some form or another, for at least 500 years, if not longer.

[Dead_Parrot]

8. The invisible hand rasies a middle finger...

...and having raised, moves on.

[XemaSab]

9. And nobody took note....

Why's that?

The invisible hand is invisible, silly. :P

[DCKit]

4. The OP is Addressing Goods, not Services.

If you're going to argue for no good reason, please stick to the subject.

We may continue to outsource data and customer service jobs, but the cost of shipping cheap crap from China is soon going to cost more per unit than anyone is willing to pay. Far less expensive to make plastic shit right here at home. After all, an oil tanker is one solid mass of petroleum products with little wasted space, and no packaging other than the ship itself.

[XemaSab]

6. We're always going to have global flow of goods

It's like calling the American telecommunications network "reversible." Yeah, you can reverse it, but it's barring catastrophic collapse, it will still be possible to send a shirt from China to LA.

[DCKit]

7. When the cost of shipping the shirt costs more than the shirt, what's the point?

Are you being deliberately obtuse? Arguing for the sake of argument?

I've never put anyone on ignore before, but you have contributed nothing to this thread but an illogical, totally off-topic argument.

If your agenda is cheerleading for "Free Trade", dissing an argument about transportation costs isn't exactly relevant.

[XemaSab]

10. I'm not cheerleading for free trade

I'm just pointing out that "globalization" has become a catchall term for outsourcing, free trade, the invisible hand, NAFTA, unfettered capitalism, the WTO, wage deflation, the spread of zebra mussels, economic enslavement of the third world, and the decline of American manufacturing.

These things are all tied to globalization, but they're not synonyms. I'm just trying to fight the good fight in the service of the English language by refusing to accept the conflation of these terms. "Globalization" is neither good not evil, it just is. (If you'll allow a tangent, I think it's similar to arguments about renewable energy. Half the people arguing in favor of renewables are in favor of reducing CO2, and the other half are in favor of decentralizing the grid. It's two totally different agendas under the same umbrella, and it annoys me.)

All that being said, yes, at some point the costs of transporting the shirt from China to the US will cost more than the value for the shirt. I totally understand and accept the premise of the OP, I just think it's a stupid headline.

To use an argument taken from the OP, if we're still shipping diamonds from Africa, globalization is intact. They might be more expensive, yes, but African diamonds will still be available. (I'm using this argument knowing full well that diamond prices are controlled by a cartel and they're pretty much not a great example, but so be it.) Indian call centers might be a better example. You're engaging in commerce with someone on the other side of the planet, and as long as it saves some fat cat 10 cents to have your call handled by Vinaya and not an American, Vinaya will still be telling you how to fix your modem.

Finally, if you still want to put me on ignore, be my guest.

[applegrove]

5. That is why the USA gave up its manufacturing base. Soon people

will not be able to afford civil goods (like decor pillows). People will be buying just the basics.