globalization

When US president elect Donald Trump linked his election slogan “Make America Great Again” with his resolve to give up America’s role of world policing, eyebrows were raised across the world. Many observers described it as either a manifestation of his political inexperience or ignorance of global issues or even as a pure hoax. His appeal to US companies to bring back factories from the developing world to the US – a move that may result in loss of millions of jobs in countries such as India – is still being laughed off by many as pure election gimmick.

Yet, many prominent geopolitical research groups, US government institutes, far-right think-tanks and even several globally influential market research organizations have been insisting for the last couple of years that the ongoing technological revolution and its impact on global trade require exactly those strategic policy changes that Donald Trump and his supporters in the Republican Party are now advocating. The policies, if implemented, will have dangerous consequences for the poorer people and the poorer nations of the world.

In a recent article published in the journal of US National Defense University, Dr. T. X. Hammes observed, “…globalization no longer has major economic benefits for the United States……Employing U.S. power in an effort to maintain global security will be seen purely as a cost. Americans may no longer be willing to underwrite international security with their tax dollars. The U.S. military’s primary mission may revert to the punishment of bad behavior rather than engagement to stabilize a region.”

Global Geopolitics wrote, “Ronald Reagan (former US president) pursued rearmament… and he paved the way for an American economic boom with a massive increase in the national debt. Trump does not have the luxury of an imperial approach. On the contrary, during the campaign, he heaped criticism on America’s senseless wars in the Middle East…A US that moves toward isolationist nationalism will remain the world’s most powerful country by a wide margin; but it will no longer guarantee Western countries’ security..”

Klaus Schwab, Founder and Executive Chairman of the World Economic Forum has said, The speed of the current (scientific) breakthroughs has no historical precedent….Moreover, it is disrupting almost every industry in every country. And the breadth and depth of these changes herald the transformation of entire systems of production, management and governance.

A year ago, Market Watch observed, “Now, anything from planes, trains and automobiles to computers, cell phones and appliances can trace its hundreds of pieces to nearly as many companies around the world. And its assembly might take place in a different country still.

Automation, advanced robotics and software-driven technologies are ushering in a new era — one of shorter supply chains – that will provide fewer opportunities for the developing world. Regions once labeled “emerging economies” may instead stagnate, and the divide between the haves and have-nots within and among nations could widen further.”

How technological innovations are changing global trade and geopolitics

Whether you’re reading this article on a Smartphone, tablet or laptop, chances are the device in front of you contains components from at least six countries spanning three or more continents.

The raw materials used to create a typical laptop may come from as many as six continents. Those materials could then be further processed in Germany, the United States or Japan before being used to make an LCD screen in South Korea or a computer chip in Malaysia, Vietnam or the Philippines, all before being put into a final product in China. The iPhone’s components come from South Korea, Germany, France, Japan and several other Asian countries before they are assembled in China.

All these moving parts minimize costs and enable companies to take advantage of factors such as inexpensive labor.As a result, goods and parts are manufactured in the most cost-effective locations instead of the nearest ones. This change caused global trade to increase 10-fold between 1980 and 2007, propelling economic growth in China, South Korea, Taiwan, Hong Kong and Singapore in the process.

But this form of globalization is coming to an end and is being rapidly replaced by advanced robotics, artificial intelligence and additive manufacturing. These technologies stand to dramatically lower the costs of production as they become more prevalent throughout the manufacturing process. Robots would cause assembly lines to move away from countries like India and China which now offer cheap labor.

Rise of unemployment:

According to the Boston Consulting Group, about 10 per cent of all manufacturing is currently automated and this will rise to 25 per cent by 2025. Frey and Osborne’s 2014 report, The Future of Employment, suggested that 47 percent of current jobs are at risk to being replaced by automation. Between 2010 and 2013, world industrial robot installations increased by 17 per cent annually and in 2014 by further 29 per cent. These figures do not include collaborative robots designed to work alongside humans.

“The convergence of new technologies is dramatically changing how we make things, what we make, and where we make them. These new technologies combined with trends in energy production, agriculture, politics, and internet governance will result in the localization of manufacturing, services, energy, and food production. This shift will significantly change the international security environment,” observes the US National Defense University paper.

Price Waterhouse Cooper recently surveyed over 100 industrial manufacturers and reported that 52 per cent of the CEOs surveyed expect 3D printing to be used for high volume production in the next three to five years.

Interestingly, even before Donald Trump’s appeal to the US industries, the Boston Consulting Group noted an increase in the number of manufacturers bringing their facilities back to the United States, a sizeable chunk of manufacturers who would build new plants in the United States rather than China, and a majority of manufacturers who believe new manufacturing technologies will lead to localized production.  Hal Sirkin, an analyst with Boston Consulting, observed, “I can put up a plant, change the software and manufacture all sorts of things, not in the hundreds of millions but runs of five million or ten million.”

The bottom line is that more and more products will be produced locally in advanced countries resulting in doom for the developing countries.

Service Industries Are Returning too

Service industries, too, are following suit. Call centers are already moving from low wage areas to server banks. Pairing Artificial Intelligence with humans has resulted in lower costs (fewer humans) and higher customer satisfaction, according to United Services Automobile Association.

Nor is artificial intelligence limited to routine call center tasks. This year the Georgia Institute of Technology employed a software program named “Jill Watson” as a teaching assistant for an online course without telling the students. All of the students rated “Ms.Watson” as a very effective teaching assistant and none guessed that she was not human. Baker & Hostetler, a law firm, announced it has hired her ‘brother,’ Ross, also based on Watson, as a lawyer for its bankruptcy practice.

Artificial intelligence is already handling tasks formerly assigned to associate lawyers, new accountants, new reporters, new radiologists, and many other specialties. Non-routine tasks – whether manual or cognitive – will still be done by humans while routine tasks – even cognitive ones – will be done by machines.

Trump’s call to bring back factories from the third world countries to the USA may also have been influenced by the reduced demand for transportation fuels, alternative energy technologies, and increased energy efficiency as they reduce global movement of coal and oil.

In 2014, 58.5 per cent of all new additions to the global power systems were renewable energy, according to Renewable Energy Policy Network.  In 2015, almost 68 per cent of the new capacity installed in the US was renewable.

Agriculture is another area that has seen increased global trade over the last few decades. High value fruits, vegetables, and flowers move from nations with favorable growing conditions to those without. However, indoor farming has begun to undercut this trade by providing locally produced fresher, organic products. Depending on the product, such farms can produce 11 to 15 crop cycles per year.

The indoor farms do not require herbicides or pesticides, use 97 percent less water and 40 percent less power, reduce fertilizer use, reduce shipping costs, and are not subject to weather irregularities.

US National Defense University journal observed, “Currently we ship raw materials to one country. It puts together the sub-assemblies, packs them, and ships them to another country for assembly. There they complete the assembly and packaging, then ship the packaged product onward to the consuming country. With the emergence of additive manufacturing, we will ship smaller quantities of raw materials to a point near the consumer, produce them, and then ship them short distances for consumption, thus reducing international trade. The localization of energy production and return of high value agriculture to developed nations will further reduce global trade.”

Interestingly, in 2002, Pew Research found that 78 percent of Americans supported global trade. By 2008, the percentage fell to 53 per cent.

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