Great article, it sounds like the future of "globalization" is just deepening investment in Asia without being super focused China. Doesn't sound like this is Latin America's time yet, which is a real shame because Latin America should be an easier destination for America & Canada. But as you pointed out the agglomeration, talent, and supply chains are already in East Asia.
One thing though. In our "globalized world" its more regional - 85% of world trade is concentrated in North America, Europe, and East Asia & Pacific while 15% is in Middle East, South Asia, Russia, Central Asia, and Africa.
Here's the breakdown of the three regions:
The EU, UK, Swiss +& Sweden alone is around 40% of world trade (Europe region)
East Asia, South East Asia, & Pacific is around 30% (East Asia region)
USMCA is around 15% (North America region)
Totaling 85% of global trade
In Shannon O Neil's book "The Globalization Myth" she would call this period - regionalization. Especially since half of East Asian trade is within East Asia, two-thirds of European trade is within Europe, and 40% of North American trade is in North America.
What do you think the proportions would be if in Globalization 2.0? I suppose since India and Bangladesh are rising do you think South Asia would become a fourth trade hub? Does "Globalization 2.0" really just mean South Asia emergences the fourth trade hub just like Globalization 1.0 was really just the emergence of East Asia?
Another fantastic article... thanks.... Two points:
1) On Xi not visiting... there is a simpler explanation... China is a mess, he has political opponents, leaving the country right now may not be viable. Most dictators are overthrown right after vacations and overseas trips.
2) The economic analysis is very good... the innovation/technology analysis is missing. The nature of technology acceleration is that the nature/value of "cheap" labor is falling quickly... in favor of robotization. In this world, a small number of large ecosystems will gain investments for regional manufacturing. The North American version is very likely to be Mexico. There will be one (perhaps two) in Asia, and one in Europe. This is not to say that the Mexican hub won't have Chinese owners or the SE Asia hubs won't have American/European owners.
Overall, the actual nature of the work done by the labor will shift significantly.
> The North American version is very likely to be Mexico.
I wonder how much (if at all?) this will be derailed by Mexico's on-going inability to deal with its massive crime problem, which seems to be getting worse instead of better. If you're a big company building post-China supply chains, surely that's got to make you wonder whether putting stuff in "Altasia" is safer.
It certainly has the potential to be derailed. If Mexico can get some better level of governance, it will certainly be the next economic "miracle." This would also go a long way towards solving the immigration/border issues as well. Today, investment is happening in the auto/electronics industry despite the drug violence. Typically, this is happening in standalone campuses (Tesla being an example). Altasia will do well also...there is a massive local market to be serviced.
The only reason the auto industry is doing it is because of the law (USMCA) saying cars need to have 75% of their content from North America or face steep tariffs. Mexico is literally the only option, not because Mexico was ceteris parabis "better" than Altasia or China or even some country in South America.
I mean, that's fine and all. I'm not against it. But it kind of obscures how actually competitive Mexico is at the moment.
Auto industry has been there for years... NAFTA is and continues to be a big reason. Also, the labor force is reasonably productive. Ignoring the crime/governance issues (not easy to ignore..I agree), Mexico is an easy call from a north American point-of-view. It's close, covered by NAFTA, reasonable labor productivity with advantages for price. From a product development point-of-view, it's in the same time-zone...though language is somewhat an issue. Of course, the US is going into "spanlish" and mexico is doing the same.
FYI... Mexico just passed both Canada and China as the largest trading partner for the US. Also, foreign direct investment into Mexico is rising rapidly. As you might expect, US was the biggest investor...you know who was second.. China.
You are right to point out the governance issues...
Mexico becomes the biggest U.S. trading partners, an overnight success that took 20 years. Clinton-era maquiladoras were controversial at the time but stuck. For good reason, Mexico has demonstrated the ability to manufacture low-end and high-end products, e.g. automobiles, medical diagnostic equipment, etc.
Another example of proximity is Australia as China’s biggest trading partner.
Another factor is what we see with Amazon: move goods closer to your large customer bases. Some years ago, Enphase Energy (microinverters for solar panels) moved its manufacturing from China to Mexico. It’s biggest market was California. The result of a number of factors including simpler logistics and lower shipping costs: Enphase had about 40% of the U.S. residential solar market but in three shorts years it’s U.S. market share climbed above 60%. Its stock soared from $1.00 to more than $340.00. That’s the power of proximity.
Great piece with good charts and links, thanks! Note the FVA graphic shows a Covid-related dip that may be transitory and I suspect trade as pct of GDP was also influenced by lower oil prices post-GFC as well as US oil imports falling due to fracking, shale, etc.
I share your optimism and the trend has been evident and beneficial in the Philippines, Indonesia, Vietnam and Bangladesh for some time. Countries ahead on the complexity curve (Malaysia, Thailand and don’t forget Mexico and South America) are moving further up the value chain but even in aggregate might not replace China as they don’t have the scale or the educational system. North Korea (post Kim) is a wild card. These countries might not have to replace China as automation increases (robots cost the same everywhere). Would be great to see Pakistan follow Bangladesh’s trajectory but multinationals have concerns about safety and stability (in addition to the usual corruption concerns in the region).
India is an enigma. Lots of inefficiency and corruption and substandard power grid and transportation. They really could do so much more given its good education system and its scale. On the other hand the people and politicians seem to like doing things the Indian way rather than the capitalist/neoliberal way and it has created some global companies (as Japan and Korea did successfully, though India isn’t close to that yet and tolerates more corruption and fraud). Different parts of the economy move at much faster and more modern pace than others - I worry that the stress on the machine may make the whole thing fly apart at some point. They are probably more like France than they are an Asian tiger.
Economically, emerging Asia is hot. However, politically and from a human point of view I think what happens in Africa (incl North Africa and also parts of the Mideast) could be more important over the next 20 years. The US and Europe seem to be neglecting that region while China and Russia increase their meddling. The US sixth fleet should already be active in disaster relief in Libya and Morocco but so far, crickets. They were just in the Western Med in August but a chunk of the fleet is in the eastern Med and Black Sea area for exercises. A missed opportunity.
Hopeful and educational article. I'd love to see you do another one on how we could globalize labor and labor protections. I'm all for Globalization but I think it's been a huge mistake to have pursued it while entirely ignoring Labor. Americans passed labor protections because they believed it was the right thing to do - why should American companies get to ignore them by going oversees? I have an article I mean to post about this. Forcing corporations from the developed world to prove their supply chain doesn't abuse people would not make globalization signficiantly less attractive but it would certainly reduce untold misery.
The critical feature of post-1970s globalisation was that it combined totally free movement of capital (and largely free trade in goods) with stringent restrictions on movement of labour. By contrast, the late 19th century era had free movement of goods, labour and capital. The next phase of globalisation will be somewhere in between, I think.
Separate point: the deglobalized economy from 1914 to the 1970s shows that the process isn't irreversible, though it took a catastrophe to bring it about.
Like a lot of Noah's posts, this seems rather unhelpful for policy. Does he really think that the new globalization will be awesome regardless of the policy that countries actually decide to follow. If not, what are the policies that will permit this awesomeness to occur?
Noah- you and Peter Zeihan seem to have (wildly) divergent views on this topic. I like your conclusion a lot better, but it would be great to see you and PZ discuss your assumptions and analysis together. Maybe you move him off Team Dystopia a little.
“I don’t think it’s a bad outcome for the U.S. for China to inefficiently make 7nm chips: every year that China stays banging its head on the wall at 7nm instead of focusing on moving down the learning curve from a fully indigenous .13 micron process to 90nm to 65nm to 40nm to 28nm to 22nm to 16nm to 10nm to 7nm is another year that China doesn’t break the 5nm barrier.”
And US workers, as those in other developed Countries keep losing... kind of a large oversight in all of this. Our middle class has been decimated by all the ...zations. It's not just about Capital...(and I'm Capital, not Labor). I don't know if this will ever penetrate the self-serving myopia of the leadership ship class. They ignore it at their own, eventual, peril.
I wouldn’t exactly call US and Europe “peripheral” to the electronics industry. Without US tech companies writing the apps that everyone uses and both continents’ engineers designing the chips that Asia makes, the electronics industry is stuck making marginal improvements to anything you would sell at a Radio Shack or Best Buy, rather than making the platforms atop which Google Store and iTunes sell... well, pretty much the entire modern tech economy.
I often hear economists argue that immigration regulations are inefficient in that they prevent inputs to production from being optimally allocated. That is, preventing people from crossing an arbitrary boundary in search of opportunities that make better use of their skills is considered an unfortunate byproduct of our nation-state system.
But it seems like one implication of Krugman et al.’s New Economic Geography is that gains from global trade are predicated on restricting immigration to relatively rich countries. Put another way, if every country opened its borders, would the gains from globalization disappear entirely?
Until Nationalism and expansionism runs its course and reasonable minds see the bigger picture for humanity, decoupling will likely yield to complete severance for the sake of strategic advantage.
Great article, it sounds like the future of "globalization" is just deepening investment in Asia without being super focused China. Doesn't sound like this is Latin America's time yet, which is a real shame because Latin America should be an easier destination for America & Canada. But as you pointed out the agglomeration, talent, and supply chains are already in East Asia.
One thing though. In our "globalized world" its more regional - 85% of world trade is concentrated in North America, Europe, and East Asia & Pacific while 15% is in Middle East, South Asia, Russia, Central Asia, and Africa.
Here's the breakdown of the three regions:
The EU, UK, Swiss +& Sweden alone is around 40% of world trade (Europe region)
East Asia, South East Asia, & Pacific is around 30% (East Asia region)
USMCA is around 15% (North America region)
Totaling 85% of global trade
In Shannon O Neil's book "The Globalization Myth" she would call this period - regionalization. Especially since half of East Asian trade is within East Asia, two-thirds of European trade is within Europe, and 40% of North American trade is in North America.
What do you think the proportions would be if in Globalization 2.0? I suppose since India and Bangladesh are rising do you think South Asia would become a fourth trade hub? Does "Globalization 2.0" really just mean South Asia emergences the fourth trade hub just like Globalization 1.0 was really just the emergence of East Asia?
Article/Visuals/Data for Global Trade proportion:
https://yawboadu.substack.com/p/who-dominates-global-trade
Article/Visuals/Data for Interregional Trade:
https://yawboadu.substack.com/p/who-dominates-global-trade
Another fantastic article... thanks.... Two points:
1) On Xi not visiting... there is a simpler explanation... China is a mess, he has political opponents, leaving the country right now may not be viable. Most dictators are overthrown right after vacations and overseas trips.
2) The economic analysis is very good... the innovation/technology analysis is missing. The nature of technology acceleration is that the nature/value of "cheap" labor is falling quickly... in favor of robotization. In this world, a small number of large ecosystems will gain investments for regional manufacturing. The North American version is very likely to be Mexico. There will be one (perhaps two) in Asia, and one in Europe. This is not to say that the Mexican hub won't have Chinese owners or the SE Asia hubs won't have American/European owners.
Overall, the actual nature of the work done by the labor will shift significantly.
> The North American version is very likely to be Mexico.
I wonder how much (if at all?) this will be derailed by Mexico's on-going inability to deal with its massive crime problem, which seems to be getting worse instead of better. If you're a big company building post-China supply chains, surely that's got to make you wonder whether putting stuff in "Altasia" is safer.
It certainly has the potential to be derailed. If Mexico can get some better level of governance, it will certainly be the next economic "miracle." This would also go a long way towards solving the immigration/border issues as well. Today, investment is happening in the auto/electronics industry despite the drug violence. Typically, this is happening in standalone campuses (Tesla being an example). Altasia will do well also...there is a massive local market to be serviced.
Mexico is not the source for the majority of illegal border crossing/asylum claims.
yes agreed. However, if Mexico become much more prosperous, it can be the target destination.
The only reason the auto industry is doing it is because of the law (USMCA) saying cars need to have 75% of their content from North America or face steep tariffs. Mexico is literally the only option, not because Mexico was ceteris parabis "better" than Altasia or China or even some country in South America.
I mean, that's fine and all. I'm not against it. But it kind of obscures how actually competitive Mexico is at the moment.
Auto industry has been there for years... NAFTA is and continues to be a big reason. Also, the labor force is reasonably productive. Ignoring the crime/governance issues (not easy to ignore..I agree), Mexico is an easy call from a north American point-of-view. It's close, covered by NAFTA, reasonable labor productivity with advantages for price. From a product development point-of-view, it's in the same time-zone...though language is somewhat an issue. Of course, the US is going into "spanlish" and mexico is doing the same.
FYI... Mexico just passed both Canada and China as the largest trading partner for the US. Also, foreign direct investment into Mexico is rising rapidly. As you might expect, US was the biggest investor...you know who was second.. China.
You are right to point out the governance issues...
From bloomberg today: https://www.bloomberg.com/graphics/2023-mexico-china-us-trade-opportunity/?cmpid=BBD091223_politics&utm_medium=email&utm_source=newsletter&utm_term=230912&utm_campaign=bop
On Xi not visiting, https://www.wsj.com/world/china/chinas-defense-minister-has-been-removed-from-post-u-s-officials-say-ae0761f4 .... he was busy
"We also make pants"
https://twitter.com/Noahpinion/status/1407228601603223552
Geographic proximity, indeed.
Mexico becomes the biggest U.S. trading partners, an overnight success that took 20 years. Clinton-era maquiladoras were controversial at the time but stuck. For good reason, Mexico has demonstrated the ability to manufacture low-end and high-end products, e.g. automobiles, medical diagnostic equipment, etc.
Another example of proximity is Australia as China’s biggest trading partner.
Another factor is what we see with Amazon: move goods closer to your large customer bases. Some years ago, Enphase Energy (microinverters for solar panels) moved its manufacturing from China to Mexico. It’s biggest market was California. The result of a number of factors including simpler logistics and lower shipping costs: Enphase had about 40% of the U.S. residential solar market but in three shorts years it’s U.S. market share climbed above 60%. Its stock soared from $1.00 to more than $340.00. That’s the power of proximity.
Really enjoyed this article! What role can we expect Africa to play in this new phase of globalization?
Great piece with good charts and links, thanks! Note the FVA graphic shows a Covid-related dip that may be transitory and I suspect trade as pct of GDP was also influenced by lower oil prices post-GFC as well as US oil imports falling due to fracking, shale, etc.
I share your optimism and the trend has been evident and beneficial in the Philippines, Indonesia, Vietnam and Bangladesh for some time. Countries ahead on the complexity curve (Malaysia, Thailand and don’t forget Mexico and South America) are moving further up the value chain but even in aggregate might not replace China as they don’t have the scale or the educational system. North Korea (post Kim) is a wild card. These countries might not have to replace China as automation increases (robots cost the same everywhere). Would be great to see Pakistan follow Bangladesh’s trajectory but multinationals have concerns about safety and stability (in addition to the usual corruption concerns in the region).
India is an enigma. Lots of inefficiency and corruption and substandard power grid and transportation. They really could do so much more given its good education system and its scale. On the other hand the people and politicians seem to like doing things the Indian way rather than the capitalist/neoliberal way and it has created some global companies (as Japan and Korea did successfully, though India isn’t close to that yet and tolerates more corruption and fraud). Different parts of the economy move at much faster and more modern pace than others - I worry that the stress on the machine may make the whole thing fly apart at some point. They are probably more like France than they are an Asian tiger.
Economically, emerging Asia is hot. However, politically and from a human point of view I think what happens in Africa (incl North Africa and also parts of the Mideast) could be more important over the next 20 years. The US and Europe seem to be neglecting that region while China and Russia increase their meddling. The US sixth fleet should already be active in disaster relief in Libya and Morocco but so far, crickets. They were just in the Western Med in August but a chunk of the fleet is in the eastern Med and Black Sea area for exercises. A missed opportunity.
Hopeful and educational article. I'd love to see you do another one on how we could globalize labor and labor protections. I'm all for Globalization but I think it's been a huge mistake to have pursued it while entirely ignoring Labor. Americans passed labor protections because they believed it was the right thing to do - why should American companies get to ignore them by going oversees? I have an article I mean to post about this. Forcing corporations from the developed world to prove their supply chain doesn't abuse people would not make globalization signficiantly less attractive but it would certainly reduce untold misery.
The critical feature of post-1970s globalisation was that it combined totally free movement of capital (and largely free trade in goods) with stringent restrictions on movement of labour. By contrast, the late 19th century era had free movement of goods, labour and capital. The next phase of globalisation will be somewhere in between, I think.
Separate point: the deglobalized economy from 1914 to the 1970s shows that the process isn't irreversible, though it took a catastrophe to bring it about.
Like a lot of Noah's posts, this seems rather unhelpful for policy. Does he really think that the new globalization will be awesome regardless of the policy that countries actually decide to follow. If not, what are the policies that will permit this awesomeness to occur?
Noah- you and Peter Zeihan seem to have (wildly) divergent views on this topic. I like your conclusion a lot better, but it would be great to see you and PZ discuss your assumptions and analysis together. Maybe you move him off Team Dystopia a little.
“I don’t think it’s a bad outcome for the U.S. for China to inefficiently make 7nm chips: every year that China stays banging its head on the wall at 7nm instead of focusing on moving down the learning curve from a fully indigenous .13 micron process to 90nm to 65nm to 40nm to 28nm to 22nm to 16nm to 10nm to 7nm is another year that China doesn’t break the 5nm barrier.”
Ben Thompson, Stratechery
But why is Mexico's GDP per capital lower than Polands?
And US workers, as those in other developed Countries keep losing... kind of a large oversight in all of this. Our middle class has been decimated by all the ...zations. It's not just about Capital...(and I'm Capital, not Labor). I don't know if this will ever penetrate the self-serving myopia of the leadership ship class. They ignore it at their own, eventual, peril.
I wouldn’t exactly call US and Europe “peripheral” to the electronics industry. Without US tech companies writing the apps that everyone uses and both continents’ engineers designing the chips that Asia makes, the electronics industry is stuck making marginal improvements to anything you would sell at a Radio Shack or Best Buy, rather than making the platforms atop which Google Store and iTunes sell... well, pretty much the entire modern tech economy.
I often hear economists argue that immigration regulations are inefficient in that they prevent inputs to production from being optimally allocated. That is, preventing people from crossing an arbitrary boundary in search of opportunities that make better use of their skills is considered an unfortunate byproduct of our nation-state system.
But it seems like one implication of Krugman et al.’s New Economic Geography is that gains from global trade are predicated on restricting immigration to relatively rich countries. Put another way, if every country opened its borders, would the gains from globalization disappear entirely?
Until Nationalism and expansionism runs its course and reasonable minds see the bigger picture for humanity, decoupling will likely yield to complete severance for the sake of strategic advantage.