Globalization: Part II
Protectionism & self-reliance
Key Questions
Will free trade persist?
Why does technology matter to national security?
Are factories coming back to the US?
Will Mexico become the biggest producer for the US(the biggest consumer)?
Topics Covered
Protectionism
US CHIPS & Science Act
Domestic Manufacturing
New Trade Blocs
Globalization Series
Protectionism
Free Flow of Information
If protectionism keeps rising we may see nations head towards an autarky. This is a complex topic and depends on the economic context of a nation. For example, the US is in a massive trade deficit and prioritizing domestic manufacturing may help bolster output. However, net exporting countries would not benefit from this strategy. There are arguments that nationalizing supply chains would lead to better economic security, but then we may lose some comparative advantage gains.
Security Blocs
Trade Blocs
Trade Wars
Sanctions
US CHIPS & Science Act
On Aug 9, 2022 President Joe Biden signed the US CHIPS & Science Act ushering in a new era of innovation for the US economy. The new fiscal spending aims to ensure American dominance in technology and particularly targets China as the their adversary. Biden even went as far as to threaten any American tech worker in China to return or face their citizenship being revoked.
It is clear that this technological war is heating up. In the current state of things it appears China will be taking a sizeable blow from this US policy, but I am sure competition will endure.
The US-China Tech War
Something to keep in mind is that technology is being more important in military operations. This is a large part of the reason why the US is taking such drastic action to maintain their technological superiority. Everything from fighter jets to missiles and vital communications systems require semiconductors, software, and more.
Another big part of the reasoning is dominance over AI technology. Already we are seeing it being implemented in military systems.
Palantir
Anduril
Lastly, we also have to consider quantum computing technology. Once this becomes remotely functional our modern standards of encryption will basically go out the window. AES-256 is used to secure all financial transactions and this is light work for a quantum computer. We will have to figure out quantum encryption to combat this.
Domestic Manufacturing
There was a time when China was not the manufacturing powerhouse it is today. Companies like IBM and Intel had numerous factories across the US. As the times changed various parts of the manufacturing process moved abroad.
After the wake of the US CHIPS & Science Act we are now seeing a resurgence in US manufacturing. TSMC is building a factory in Arizona, and many other manufacturers are following suit. This trend has been developing for some time now, most likely due to national security concerns over supply chain reliability and technological theft.
USMCA
The new NAFTA deal is called the USMCA. Trade blocs can cause political tensions over whether each trading partner is getting their fair share of the benefit.
One thing that is clear is that Mexico will become a huge manufacturing partner for the US.
Tesla has announced that their next Gigafactory will be in Monterrey, Mexico.
So why is it advantageous to manufacture in Mexico? Well to start there is a thriving labor force with rising education rates. In fact, a lot of the working American population consists of Mexican immigrants. Second, they are geographically convenient as we can trade across our land borders and adjacent ports. Last, they are aligned with Western political and security interests. I will be covering this topic in more depth in a future post!