The Millennial Economy Part I: Global Value Chains
I don’t usually do commercials in these weekly pieces, but something important happened a few weeks ago that deserves a shout-out — the October 20 launch of the U.S. Global Value Chain Coalition. Composed primarily of retailers like Macy’s and Target, along with companies and associations representing various parts of the apparel industry, the coalition, if it accomplishes nothing else, will perform one important public service by regularly reminding people that the economic world we live in today is very different from the one many of us grew up in.
For people growing up in the 50s, 60s, and 70s, there may have been a lot of political turmoil, but the economic world was safe and largely familiar. Families drove Fords, Chevys, or Chryslers or one of their affiliated models, along with the occasional Volkswagen, ate food grown or raised on American farms, bought appliances from reliable American companies like GE, Whirlpool, and Zenith, and wore clothes and shoes made in American from American textiles and leather. When I began working for Senator John Heinz (R-PA) in the 1970s, the largest manufacturing employer in Pennsylvania was the apparel industry, and the first major trade crisis I had to work on was dealing with increased footwear imports that threatened the survival of many small companies in the central and eastern parts of the state. (The second one was steel, which everyone is familiar with, and the third mushrooms, which became the source of a number of good stories I will tell another time).
Today, of course, while many of those companies are still around, there are a lot of others — Toyota, Honda, Hyundai, Sony, Panasonic, and now Haier, ZTE, and Alibaba — that remind us every day that our economy has diversified along with our population. And, as the coalition will teach you, even the products made by the old familiar names are manufactured very differently.
For a relatively short period of time — perhaps 50 years — there is a lot of history here, and a lot of books have been written about it. To summarize them all in one sentence: milestone improvements and cost reductions in transportation and communication culminating in the rise of the digital economy have enabled producers to reach far beyond their neighborhoods and national borders and construct supply chains that take full advantage of global high quality and low prices. Today’s quintessential “global” product is the iPhone, which contains components from six or seven different countries, is assembled in another country but fundamentally rests on intellectual property conceived and developed in America.
The result has been more, better, and often cheaper products that benefit consumers. The magnitude and particularly the rapid pace of this change has not been an unalloyed good, as I and others have written and as both our presidential candidates said last year. The transformation of manufacturing has led to the loss of thousands of jobs (while creating thousands more other jobs), contributed to growing income inequality, and left people rudderless, leading to politicians demanding a 21st century variant of that old cliché: “Stop the world; I want to get off.”
Of course, the world is not going to stop, and history suggests that it would take a cataclysmic event like another world war or depression to reverse the globalization that is occurring — events we all devoutly hope will never happen again. But this is where the coalition comes in — a source of information and education about modern reality, in particular reminding us that many of those “foreign” products allegedly costing us jobs contain a high percentage of U.S. content that is the source of many American jobs. “Global value chain” is not a synonym for imports; it is a statement about the integrated nature of the global economy and countries’ mutual interdependence.
I began this piece with the experience of old fogeys like me, but we’re dying off (slowly, I hope). Far more important is the attitude of today’s young people who grew up in an integrated world, take it for granted and have adapted to it. Remember, once again, Bill Clinton’s line: Globalization is neither good nor bad; it’s here and we better get used to it. Millennials have taken that to heart, and the rest of us should do so as well. The U.S. Global Value Chain Coalition provides an important public service by providing the facts and encouragement we need to do precisely that.
William Reinsch is a Distinguished Fellow with the Stimson Center, where he works principally with the Center’s Trade21 initiative. This article originally appeared here.
Correction: Last week’s article has been updated to reflect that the U.S. exported 900 thousand tons of wheat to China last year, not 900 million.