Major economic trends in international trade, globalization and automation were strongly reflected in the November 8th election of President Donald Trump. They also were underlining factors in the United Kingdom’s June 23rd decision to withdraw from the European Union, known as Brexit, and in support of populist politicians in Europe. Why is this?

Globalization: The Good and Bad

Technological advances in telecommunications, transportation and finance have led to the integration of national markets through international trade and foreign investment. This process, known as globalization, has lifted millions of people out of poverty and significantly boosted American and global standards of living. In fact, it may have benefited the United States more so than any other country.

With the continual implementation of new sophisticated communications technologies like smartphones, Skype and Viber, more and more people from all corners of the globe have the means to connect, cooperate and create new value, products and services for distribution around the world. For companies focused on higher technology products and services, and for employees who continually improve their level of skill, the world is an increasingly attractive market. And the upside is big.

Globalization is like fire: it can keep you warm, cook your food or burn your house down.

International trade delivers approximately $1.7 trillion in benefits to the U.S. economy or $13,600 per American household, says Matthew Slaughter, professor at the Tuck School of Business. And, according to the Business Roundtable, an association of chief executive officers of leading U.S. companies, trade accounts for nearly one in every five American jobs.

The bottom line: global trade has become essential since markets outside the United States represent 80 percent of global purchasing power, 97 percent of economic growth, and 95 percent of world consumers, reports the U.S. Chamber of Commerce.

But global economic integration has not benefitted all of us. Put another way, globalization is like fire: it can keep you warm, cook your food or burn your house down. Unfortunately, it has created new challenges, especially for companies with low technology products and for employees with limited skills.

Automation and Jobs

Due to automation and its resulting productivity gains, fewer workers can generate greater output in far less time. And rising productivity is one of the most important contributors to improvements in our standard of living.

But there’s a downside: an increasing number of jobs are being replaced by machines and robots. In fact, nearly half of total U.S. employment is at risk due to automation within two decades, according to studies published by Oxford University and the McKinsey Global Institute.

In The Spotlight

Protectionism Doesn’t Work

The fear of losing a job or having hours cut back due to foreign competition is a serious issue. But history tells us that resorting to protectionism by raising barriers to trade and investment is not a viable solution.

On June 17, 1930, President Hoover signed the Smoot-Hawley Act that raised tariffs nearly 60 percent. Within two years following the act’s implementation, U.S. exports decreased by nearly two-thirds.

In anticipation of Smoot-Hawley’s passage, France, Italy, India and Australia passed their own protectionist legislation. Others, such as Spain, Switzerland and Canada, followed suit. The result: export markets dried up, domestic industries slowed down, and the unemployment rate in the United States rose to 25 percent in 1933.

Misinformation about trade and globalization continues to spread. For example, many believe that outsourcing production to low cost countries has been the biggest contributor to job losses in American manufacturing. In reality, however, automation, not outsourcing, accounted for more than 85 percent of job declines in manufacturing from 2000 to 2010, reports the Center for Business and Economic Research at Ball State University.

The Fear Factor

The inability to adapt to fast-paced changes produced by globalization and automation have caused fear, stress, instability and very importantly — job losses among significant numbers of people in the United States and Europe. These realities and fears were addressed by Donald Trump during his Presidential campaign and by supporters of Brexit, and they continue to be discussed by populist politicians in Europe.

Unfortunately, protectionism and anti-globalist solutions offered are poor solutions. And if implemented, they could do tremendous damage to companies and workers in the United States and around the world.


John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.

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