Tides of globalization

Sometimes, a small incident might signal momentous changes: A dead duck in a Chinese village may be the first victim of a flu epidemic that will shake the world; a larger-than-usual chunk of ice breaking off Antarctica might raise fears of rapid global warming. A few days ago, a New York Times report on rising international transport costs revealed changes that could signal the turning of the tide of globalization. Tesla Motors, which is building an electronic luxury sports car, had planned to make the batteries (which weigh about 450 kilograms) in Thailand and send them to Britain for assembly before being shipped to the United States – a total distance of around 8,000 kilometers. But, after calculating the transportation costs, the company decided to make the batteries and assemble the cars in California. Similarly, many other companies are reportedly considering producing their goods near their final customers rather than concentrating solely on the cheapest labor markets. The rise in transport costs is, of course, the result of higher fuel prices. Countries such as China and India are consuming such quantities of oil that international prices keep rising. With the profits from manufacturing, wages rise and workers become consumers, in turn raising demand for all kinds of products, including fuel. These countries subsidize fuel prices, thereby underpinning demand for oil. This pushes up the price of oil and transportation, raising the price of products sent to the West. At the same time, inflation and higher wages in the producer countries have increased the prices of goods even before their transportation. If the price of oil remains at such high levels, it is likely to lead indirectly to the repatriation of many jobs to developing countries that had been lost to cheaper labor markets in the East. Then again, more jobs will drive consumption and raise prices, until companies realize that they can import the same goods from the East at cheaper prices. Then the tide of globalization will turn again.