Major Shift #2: Deglobalization
Global Trade Is Unraveling — What Does that Mean for Us?
Post Summary:
The world economy, as we’ve known it, is about to end as the US pull back from ensuring global free trade.
Key Theme: As the global market fractures, we will lose cheap products.
Financial Implications: We will pay more for less over the next decade.
On the East Coast, where the Potomac meets the Atlantic, down a tree studded highway, sits Mount Vernon — George Washington’s home. The place is a living historical site, where you can quite literally step into the past. Walking around the grounds a few years ago, my wife and I stumbled upon Washington’s stables and blacksmith, where the warm glow of coals and smell of smoldering hickory drew us in.
Standing at attention across the workspace stood iron-wrought tools for grabbing, dipping, and molding metal. The Blacksmith saw our interest in the operation and pointed to the day’s work. Back then, he said, his predecessors would have focused on custom parts, not mass produced items such as the bag of nails lying on the table. The crude miniature spikes, he said, were often purchased from England directly (the city of Birmingham alone had more nail makers than the entire colonies). It was just cheaper to buy them. He even noted that trade was so common, it enabled the luxury of daily tea for the Brits. I didn’t realize just how interconnected our world was even as early as the 1700s.
Fast forward to today and what do we see? A global economy humming: containerships the size of skyscrapers ferrying billions of tons of goods across every navigable water way the world over. But the degree of interconnection — to depend on foreign trade for survival — is unique in world history. Before our time, countries never relied on trade to supply vital goods, like food, because…duh. Security meant producing your own essential goods in-house. Why depend on your neighbor for food if the same neighbor could cut off your supply? But in the decades after WWII, many countries did became dependent on global trade.
As the US patrolled the seas for its allies after WWII, the world blossomed into a single global market. Backwaters become economic players, integral parts of a global trading system. But that system, one we’ve known since the fall of Hitler, is going away. The US is pulling back, no longer ensuring free trade, pulling the rug up from under the global economy. It’s been in slow motion since the fall of the Soviets, but has sped up since America became energy rich.
Key Theme: As the Global Market Fractures, We Will Lose Cheap Products.
After WWII, the degree of interconnectedness of America and her allies was unprecedented in human history. The term “bubble” is often bandied about these days, but this was more of an intentional distortion. Through alliances, the US gained military support to confront Russia, while US allies gained economic advantages. They could now trade freely and safely with each other and America, and thus, a global market was born. During those eighty years, it was the most peaceful and productive in recorded history. Entire populations were lifted out of poverty. And the stability of the period seems normal. It wasn’t. This stretch of history is a result of the US protecting the waterways of the world, ensuring safe trade among allies. And with economies of scale came the best products at the cheapest prices, enticing nations to abandon formerly vital industries. If the alliance’s reason for being ever changed, so would this global, but fragile, arrangement.
After the fall of the Soviet Union, the only reason forcing American interests to continue policing the seas was to stabilize the price of oil. The US was not immune from dependence either — the American economy has a fentanyl level of addiction to fuel. Yet since 2015, America has reached oil independence. Its original interests, first the Soviets and then oil, are gone. It’s about to become heartbreakingly clear that this eighty year period was an aberration, historically and economically. The US no longer needs to ensure global trade because its interest are no longer global. The world economy as we know it is ending. But what does this mean for us?
It’s unclear when, but at some point we will likely lose the link to cheap manufacturing, especially with China. War, US policy, or just from the magnetic pull of self interest, our relationship with China is about to change. Whenever that link breaks, we will lose the cheap products we’ve grown accustomed to for decades. And it will take years before we’ve fully “on-shored” manufacturing stateside.
Financial Implications: Over the Next Decade We Will Pay More for Less
Say it with me — inflation :( It’s coming back with a vengeance. Costs will rise as our link to cheap products disappears. This paired with wage inflation from depopulation will create a nasty one-two punch for our wallets. Products and service costs will likely increase for years. Ugh.
As Covid taught us, emergency savings isn’t a luxury, but a necessity. Six months of expenses saved is a minimum. And create room in your budgets for costs to creep up for years.
The US will start to bring manufacturing back to our soil or within North America, but it will take years before we can produce at the scale needed by today’s standards. As we develop, prepare for the quality to be poor at the start. Remember how bad Japanese and Chinese goods were initially? It will take us time too.
As cheaper products slowly disappear, we might even have a flourishing of repair and reuse culture if parts and supplies are harder to come by. Be prepared to creatively fix supply issues. For a consumeristic culture, the lack of instant gratification will be jarring — but consider just how good we have it compared to the alternative: many countries are no so interdependent that if there was a breakdown in global supply chains, people would starve. A day may come when you can’t find a random gadget on Amazon, but you’ll always have food in the US. Not only can American feed itself, but it’s been feeding parts of the world for years.
Take the Long View…
It doesn’t always feel fun to live through history. My generation is fond of asking “can we just have precedented times?” The US is leaving an eighty year economic system that no longer suits its interests. Global trade likely shifted a bit ago, even before Trump’s tariffs rolled in like a wrecking ball. 2019 may have been the last “normal” year of trade as we’ve known it; but the system was never normal.
Once the US and North America get their manufacturing online, the future looks promising. We will become a manufacturing powerhouse as a whole. Houston of tomorrow could rival Beijing of today. But it will take time.
Keep your eyes on the long view. The 2040s could see a major economic boom, like the 60s and the 90s. America is and will remain the envy of the world economically, but between now and then it will be frustrating in so many unforeseen ways. We’ve built up our manufacturing before (WWII) and we can do it again. Hang in there.
'It seems like years since it’s been here…
Here comes the sun…
And I say, “It’s all right.
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