Globalization was a contentious issue in the 2016 presidential election. Our president has made no secret of his opposition to free trade and the trade partnerships that are NAFTA and TPP. On his third day in office he repealed the Trans Pacific Partnership (TPP), his predecessors signature trade achievement, and called for tax cuts for businesses. Perhaps the only thing he and Bernie Sanders have in common is their staunch opposition to globalization and free trade. They both have the same narrative for free trade: Free trade makes the rich richer while the poor and middle class stay where they are. In his book The Wealth of Nations, philosopher and economist Adam Smith sought to explore the topic of free trade and its ramifications for countries and the people that inhabit it.
The Wealth of Nations, by Adam Smith
In his book The Wealth of Nations, Adam Smith took a look at the underpinnings of globalization. The opposite of globalization, an economic concept known as protectionism, theorizes that nations will grow wealthier if they try to produce all of the goods needed within their borders. But Smith disagrees, arguing that every country is good at making different strengths. For example, some were good at making wine, while others were good at pottery. One country cannot be good at everything. So if the nation that is good at making wine and the one that is good at pottery trade together and share their strengths with each other, everyone wins; but most importantly everyones grows wealthier in the process. He says that “It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy.” He said that if Britain could produce woolen goods more cheaply than Portugal could and Portugal could produce wine more cheaply than Britain, it would be in both parties interest to buy each other’s goods than to spend more money on their own’s. His ideas were first put in to place in Britain. For a long time, the price of grains had been determined by the government, and grain from foreign countries had been kept out. The Parliament debated and eventually repealed the laws. Once the law came into affect, the price of corn dropped sharply, which enabled the people of Britain to spend more money on other goods instead of grain. The result of this was Britain’s economy growing.
I would recommend reading the Wealth of Nations, it is a classic work of philosophy.
The overall affects in contemporary context
This section comes back to the question of the article: How has globalization impacted the United States and the world at large? The U.S.’s position as a world superpower could not have been achieved without globalization. Globalization has opened up more markets and areas of the world for U.S. businesses to sell in and for people to buy from. Globalization has also created multi-national corporations with immense wealth and influence. Without globalization, companies in the U.S. would not be nearly as competitive and would not be “on top”. In the section of this article in which I pointed out Adam Smith’s ideas about globalization, I mentioned when Britain adopted Smith’s ideas in the grain market. Before they implemented Smith’s ideas, the price of grain was determined by the government. Once they allowed grain trade, the price of grain dropped; allowing citizens to spend the money they save on grain on other things. This all collectively resulted in the proliferation of Britain’s overall economy. The same occurrence happens in America when we open our borders to trade. When we trade goods with other countries, the prices of goods goes down. The cheaper prices increase the standard of living. But there are also negative effects globalization has had on the American economy. Many workers are concerned about jobs being moved overseas because other people are willing to do the same work for less. This results in the lower prices of goods that we talked about. Now workers in America have to compete with other countries’ workers. Another negative effect is the rising trade debt the United States has amassed. If the United States intends to stay the global superpower that it is today, it will have to figure out a way to deal with its growing trade deficit. Although trade agreements such as NAFTA have been highly controversial, many economists say that pulling out of it would not have a significant effect on the deficit. President Trump’s protectionist measures will not help the American worker. The only affect it will have is increasing the price of goods for the average joe and at the same time cut U.S. businesses off from crucial parts of the world. It is not pro-business to be a protectionist. President Trump’s decision to pull the U.S. out of the TPP is a decision that has cut us off from 11 other nations, and a cumulative GDP of the nations totaling $28 trillion, 40% of the global GDP.
A graphic of the TPP. Credit: New York Times
Is globalization destroying the middle class?
One of the main benefits of globalization is that it makes everyone wealthier. Take the example of the grain prices in Britain that I explained, as well as the sheer amount of countries and wealth that is opened up to the United States with TPP; or was… The American middle class is disappearing, I am not arguing that it is not. But the cause of wealth inequality is not globalization. The cause is the abuse of regulations and who plain break them. The people who are causing the shrinking of the middle class is the corporate executives who bend the rules. The lobbyists who represent these Wall Street bankers and the politicians who comply with their demands. When we don’t allow workers to bargain on their own behalf, i.e. unions. When big companies can take advantage of their workers, and pay them less by way of ignorance, that is when the middle class starts to shrink. And yes, I will cede to the protectionists who will read this that trade deals have and do play a part in wealth inequality in the United States, but it is not the driving force.
Manufacturing and globalization
It used to be that you could graduate from high school and go straight to the assembly line. There you could buy a nice suburban home, have a few kids (2 probably), and live a comfortable life on a comfortable salary. That was in the 20th century. Now, in order to achieve the exact same place in the American middle class, you must graduate from college. Needless to say, higher education is much more important than it once was in not just securing a job, but having an actual career. Now if you graduate from high school and intend to reach the middle class without any post-high school education, to you I say good luck and godspeed. All of this talk about education though comes back to manufacturing in the United States and how globalization has affected that. Scott Paul, the president of the Alliance for American Manufacturing spoke to NPR about this very topic. “Policy levers ranging from education to trade to investments in infrastructure and innovation, and also getting that corporate mindset to focus on the fact that it might be possible to produce products in the United States,” Paul said to NPR’s Rachel Martin. He brings up infrastructure, which is something that I mentioned earlier in this article. President Trump’s agenda that of course, all stems from the campaign includes investing in infrastructure and getting Americans to work on these projects as one way to get Americans back to work. But some people don’t need a shift in federal policy to manufacture in the United States. Tesla CEO Elon Musk is building three new plants in the U.S. and is enlisting both the work of machines and people to get the job done. “The idea that automation is the enemy of manufacturing job growth I think is very much misplaced” says Paul. While low-skill manufacturing jobs have been exported to places like India and China, high-skill manufacturing jobs have stayed in the U.S. Today, the manufacturing industry supports about 17.4 million jobs in the U.S. As of 2014, the unemployment rate was 5.2 percent, 1.1 percentage points lower than the average for all other industries. There are jobs out there, jobs that require more training and education than ever before. But these are also jobs that pay more than ever before, jobs that put you in the middle to high range in the middle class. The manufacturing industry has changed-maybe American workers should too.
It is no secret that globalization is a hot-button political issue. Protectionists like President Trump want to feed off of the anger in the middle classes to spring himself up to higher office. But at the end of the day, whether or not it feels like globalization is ruining the middle class, it is really Wall Street and the big banks that are doing the real damage. It is common knowledge that the big banks and Wall Street were the main causes for the 2008 financial crash. When we deregulate these industries, when we give them freedom to choose, they will always choose greed and irresponsible behaviors that will eventually only enrich themselves and their corporations. Yes, bad trade deals do play a small part in destroying the middle class. But so does the absence of unions, lack of investment in infrastructure, and lobbyists who work for the wealthy. Like all things, globalization is nowhere near perfection, but it is a far better option than to build a wall around our economy and our borders and keep other countries from forming a global community that includes the United States.