Goodbye Global

A recent article by The New York Times and a report by CIBC World Markets suggest that rising oil prices are fundamentally changing the dynamics of international trade, as shipping costs rise. The cost of moving goods, not the cost of tariffs, is the largest barrier to global trade today.

Sky-rocketing global transport costs have effectively offset all the trade liberalization efforts of the last three decades. The cost of shipping a 40-foot container from Shanghai to the United States has risen to $8,000, compared with $3,000 early in the decade, according to a recent study of transportation costs. Big container ships, the pack mules of the 21st-century economy, have shaved their top speed by nearly 20 percent to save on fuel costs, substantially slowing shipping times.

While this is certainly not the end of globalization, economists speculate that it may signal a return to more regional manufacturing and economies. Companies are increasingly seeking to limit global shipping costs. Instead of seeking supplies wherever they can be bought most cheaply, regardless of location, and outsourcing the assembly of products all over the world, manufacturers would instead concentrate on performing those activities as close to home as possible, in what is termed the “neighborhood effect”.

Naomi Klein, the author of The Shock Doctrine: The Rise of Disaster Capitalism points out that “the Wal-Mart model is fuel-intensive at every stage, and at every one of those stages we are now seeing an inflation of the costs for boats, trucks, cars. That is leading to a rethinking of this emissions-intensive model, in terms of growing foods locally, producing locally or shopping locally.

All this suggests new patterns of international trade, and new regional economic, production and transportation hubs. Thomas Friedman’s world may well be unflattening. However, the recent economic crisis affecting the US and world markets suggests that for now, the world still contains a few bumps.

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