Globalization

Overview

Globalization has produced a radically different result from the widely shared prosperity that its advocates promised. Instead, production shifted from some countries to others, taking labor demand with it and leaving behind a weakened industrial base, collapsed communities, and poor employment prospects. These shifts result not from genuine comparative advantage, but rather in response to aggressive government subsidies and the availability of exploitable labor in countries like China. Uncontrolled immigration and temporary work programs have a similar effect in reverse, flooding some countries with additional labor that releases the pressure on employers to pay good wages or invest in higher productivity.

This form of “free trade” is not the epitome of free-market capitalism; it is the antithesis. Economists and policymakers who believed that capitalism is “just another word for economic freedom” assumed that the free flow of goods, people, and capital across borders would automatically generate prosperity. But capitalism relies upon the mutual dependence of a nation’s capital and labor to produce good outcomes for both, and for consumers, too. Globalization has severed those bonds, urging the owners of mobile capital to forsake the interests of their fellow citizens and pursue higher profits through labor arbitrage abroad. American workers, their families, and their communities paid the price. The nation’s industrial strength, capacity for innovation, and economic resilience declined.

China poses a particular problem. Globalization’s rise coincided with the Cold War’s end, in part, because a global free trade system that incorporated the Soviet bloc was unthinkable. But the “holiday from history” of the 1990s created a presumption that liberal market democracy was on the march everywhere, and globalization’s proponents argued that incorporating China into a global marketplace would accelerate its own liberalization. They were wrong. Instead, China changed us—corrupting the free market, distorting investment flows, capturing valuable industries, and even exporting its authoritarian politics through campaigns of economic pressure.

At American Compass, we work to understand why globalization has failed and what alternatives exist. We develop approaches through which policymakers can rebalance America’s role in the global economy.

The Regaining Our Balance collection presents a comprehensive critique of how globalization has gone wrong, including Oren Cass’s seminal essay, Searching for Capitalism in the Wreckage of Globalization, and Senator Jeff Sessions’s reflection on how conservatives, himself included, were led astray. In Wrong All Along, page after page of quotations from an overconfident elite exposes the flawed ideology that has driven globalization; in Where’s the Growth, chart after chart depicts the negative economic results. Other essays dig deeper on particular facets of the failure, including Senator Marco Rubio’s assessment of China’s ascension to the WTO and Michael Pettis’s economic analysis of how free trade theory has broken down in practice. The Guide to the Semiconductor Industry provides a concrete example of these forces eroding American leadership and prosperity.

While evidence for globalization’s success is scarce, the market fundamentalism prevalent on the right-of-center has traditionally ignored this reality, instead pushing a narrative in which America has always embraced an open economy and any alternative would be worse. The Rebooting the American System collection confronts these myths. In fact, the American economic tradition historically resisted global entanglement and the economy developed into an industrial colossus with the help of aggressive public investment and high trade barriers. Oddly enough, as John Burtka observes in Don’t Trade on Me, free trade dogma was imported to America by the antebellum, secessionist South. The Reagan-era quota on Japanese vehicle imports, which strengthened domestic manufacturers and gave birth to a massive new industry in the American South, provides compelling proof that a different approach can work.

Examples like these point toward possible solutions today. The Balancing Act provides a comprehensive overview of interventions that could help bring American trade, immigration, and investment flows back into balance. The Moving the Chains collection details a range of strategies for reshoring American industry and innovation, including Willy Shih’s proposal for pre-competitive consortia and Michael Lind’s proposal for local content requirements. Fortunately, the unthinking consensus that encouraged mockery of anyone who questioned globalization’s wisdom has collapsed, and policymakers are beginning to act.