We increasingly hear, especially from politicians on the US right, that globalization is
a problem. It hurts our workers and makes us more dependent on producers in other
countries and their governments.
But is globalization a problem? In answering the question, we need to look not only at
the costs of globalization but also at the benefits. To leave out the benefits is to engage in
“single-entry bookkeeping.” And the benefits are many—from cheaper goods and services
to diversification of supply chains to a more peaceful world.
T
he Main Costs of Globalization
First, though, we need to consider a major cost of globalization: the loss of jobs for people
who are used to working in a particular industry and lose their jobs because of competition
from imports. One of the biggest shocks that imports caused to domestic jobs is labeled
the “China shock.” When China was granted most-favored-nation status in 2000, US
consumers took advantage by buying hundreds of billions of Chinese imports annually.
In 2016, a National Bureau of Economic Research study by MIT economist David Autor
and his co-authors David Dorn of the University of Zurich and Gordon H. Hanson of the
University of California, San Diego, made a big splash with its estimate of as many as 2.4
million jobs lost in US industries that competed with Chinese goods. According to these
three authors, adjustment of these displaced workers to other industries was slow and a
large percentage never regained the real income from working that they had had before the
“China shock.”
T
he estimate of job loss by Autor et al. is at the high end. A later study, published in 2018
by Lorenzo Caliendo, Maximiliano A. Dvorkin, and Fernando Parro of the St. Louis
Federal Reserve Bank, concluded that “the China trade shock resulted in a reduction of
about 0.55 million US manufacturing jobs, about 16 percent of the observed decline in
manufacturing employment from 2000 to 2007.” There’s a big difference between 2.4
million and 550,000 jobs. Caliendo also found that the job loss was approximately offset
by increases in jobs in services, construction, and wholesale and retail trade.
Hoover Institution
3 Globalization And Its Discontents | Henderson
T
he other main cost of globalization is dependence on producers in other countries. What
could happen, for example, if Taiwan, which produces a huge percent of the semiconductors
that Americans buy, were to be invaded by the Chinese government? There’s a good chance
that semiconductor production would be hobbled, especially if China’s government took
over production and we got the glories of socialism.
Read more here.