Freight Pain

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Postscript

Japan's Disaster and the Manufacturing Meltdown

Marc Levinson

As U.S. auto assembly lines grind to a halt for want of components that usually come from now-disabled factories in northeastern Japan, business strategists may be forced to rethink the way globalized companies do business.

As politicians blame international trade for closed car-parts factories in Ohio, shuttered furniture plants in the Carolinas, and the arrival of deadly pet food from China, discomfort with the global economy is growing throughout the United States. A 2007 survey by the Pew Research Center found that only 59 percent of Americans polled thought that trade was good for their country -- down 19 percentage points since 2002. Yet even as Americans lament too much globalization, they are in fact on the verge of facing the opposite dilemma: too little. Two factors are driving the retreat of globalization: rising transportation costs and diminishing reliability, both of which are causing long-distance supply chains to lose appeal. Companies that provide American and European customers with goods made in Asia are rethinking their business models and seeking ways to shorten the distance between the factory floor and the store shelf. Although international trade in manufactured goods will continue to expand, its rate of growth is likely to be far lower than the double-digit average of the past four decades. The world is not so flat after all.

The end of globalization's golden age will have major political and economic implications. "Deindustrialization" is likely to fade as a domestic political issue as the recent wave of factory closures in the United States yields to a tide of openings and expansions. Although automated production makes a big recovery in assembly-line work unlikely, the rebound in manufacturing will bring new jobs in plant-level maintenance and technical tasks. Industrial unions may even regain a bit of the bargaining power they have lost since the 1970s. Consumers, who have grown accustomed to seeing imports drive down the prices of clothing, furniture, toys, and appliances, may be unhappy when imports become costlier. The Federal Reserve's job of maintaining price stability may become harder as domestic prices are no longer held so tightly in check by the influx of cheap goods from abroad. And if international trade becomes less important, the incentives for close cooperation between major trading partners, such as the United States and China, may weaken as well.

GOODBYE, GLOBALIZATION