How Technology Could Unwind a Decade-Long Trend in Global Trade
Comment of the Day

February 22 2016

Commentary by David Fuller

How Technology Could Unwind a Decade-Long Trend in Global Trade

Here is the opening of this informative article from Bloomberg:

Two of the biggest forces influencing global economic activity over the past three decades—globalization and automation—have had polar-opposite effects on workers in emerging markets.

The former pushed multinationals to move production to countries with cheaper labor costs than advanced economies, while the latter effectively substitutes capital for labor in the production process.

In a note to clients, analysts at the Goldman Sachs Group Inc. led by Senior Asia Economist Goohoon Kwon discuss how these trends have affected the global trade picture.

To the extent that robots become a less expensive input than labor in the production process, multinationals will be encouraged to "onshore" output to move it closer to their customer bases. This would mark an unwind of the long-standing trade formula, which had the growth of global supply chains at its heart, and it is a net negative for global trade that would have far-reaching consequences.

There are nascent signs that this process may be in the works, as emerging market nations in Asia have seen export volumes nose-dive despite continued growth among their major trading partners:

David Fuller's view

This is a hugely important development, and one that this service has discussed occasionally over the years.  Briefly, developed economies suffered during the earlier years of globalisation because their labour costs and currencies were too high, relative to developing economies.  This hollowed out industries in developed countries, as jobs and production facilities were moved overseas, with the Asia Pacific region being the biggest beneficiary. 

I have discussed this from time to time over the last decade or more, saying that well organised developing economies would be the big beneficiaries, at least until technology became more competitive in developed countries.  We are now crossing that threshold so developing economies are now more vulnerable unless their wages are exceptionally low. Of course technology continues to replace jobs in developed countries but at a slower rate and they are increasingly benefitting by handling more of their own manufacturing.         

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