Impact of globalization on manufacturing in the U.S

Globalization owes its origin to at least the late 1980s. During this period, new nations were entering into manufacturing, which was in some logic the weakest connection in the U. S. series of science, development, manufacturing, and sale of goods and services. However, for some nations such as Japan, lower wages firstly made it possible to exploit this relative U. S. weakness. Nevertheless, Japan swiftly developed other diverse advantages articulated on improved manufacturing methods (Benjamin & Perry, 2003). Impact on labor market Globalization stimulates extensively differing views and projections, varying from rosy portrayal of a supple, worldwide borderless labor market to awful situations of severe polarization between labor market â€Å"winners† as well as â€Å"losers. † First, let us examine globalization impact on careers (labor) and its subsequent consequences on manufacturing. With reduced trade barriers, new international market crop up as well as advanced information and communication technologies, the job market was tremendously affected. Globalization has had an astonishing effect on working-class citizens in the United States, chiefly through the loss of hundreds of thousands of jobs brought about by outsourcing, with limited benefits to society (Benjamin & Perry, 2003). The key motivation for the outsourcing of jobs was to cut the extremely high labor costs that are thought to diminish revenue. Employers are reluctant to hire workers due to high cost of employee benefits, competitive wages, and skyrocketing health-care premiums hence they consider outsourcing the work to be cheap (Bardhan & Kroll, 2003). In essence, it is more economical for an American firm to hire a computer programmer in India who would be eager to perform the work for about one-fifth the pay of an American employee with a degree, whose starting salary would be about $50,000-$70,000 (Benjamin & Perry, 2003). This leads Americans to be more uncertain about their job security since they cannot compete with their foreign counterparts that perform the same quantity of work for considerably less pay. Studies show that an estimated more than 2 million workers in the United States have lost their jobs in the last several years due to business closures in addition to layoffs (Bardhan & Kroll, 2003), (Benjamin and Perry 2003). Whereas higher productivity and new management and hiring practices are associated with loss of jobs, a number of companies are increasingly transferring their businesses to other countries with cheap cost of wages as opposed United States. Manufacturing industry has suffered largely in terms of job losses, involving mostly blue-collar workers. It is however acknowledged that many of white-collar jobs are going to China (for manufacturing) (Benjamin and Perry 2003). In the case of working Americans, they have been negatively affected by the colossal increase in foreign trade. There has been loss of well-paying manufacturing jobs, important downward pressure on wages as well as increased disparity. The doubling of trade as a share of the economy over the last 25 years was accompanied by a substantial trade deficit, directly displacing several million jobs (Benjamin & Perry, 2003). Majority of the jobs were in the manufacturing region, which incorporated millions of union jobs that were well paying compared with average wages (Bardhan & Kroll, 2003). Within a period of five years from 2000 to 2005, there was decline as well as disappearance of more than three million manufacturing jobs. It is estimate that at least 30 percent of the decline was due to the rise in the manufactured goods trade deficit (Bardhan & Kroll, 2003). With U. S. multinational corporations being occupied on both sides of the international trade, almost 50% of all U. S. -owned manufacturing production is now situated in foreign countries, thus an imperative part of the manufacturing job loss has been due to most of U. S. firms exporting back to the U. S. or producing abroad what they once produced locally (Benjamin & Perry, 2003). The loss of manufacturing jobs as result of globalization saw wage losses for displaced workers, majority of whom never regained their former wage levels even after acquiring new employment. Globalization had also the effect of increasing world production capacity, which had had the effect of lowering the prices of traded goods, the consequence of which saw workers pay being reduced to reflect the value of goods produced (Bardhan & Kroll, 2003). Employers to oppose wage increments for the manufacturing employees used the direct foreign threat. Similarly, the flow of investment in plant and equipment and technology oversaw increase in foreign productivity in sectors that used to be U. S. export strongholds, resulting in declining terms of trade and hence declining real income growth. Last but not the least, as foreign trade drove workers out of manufacturing into poorly paid service jobs; the new supply of workers competing for the same jobs orchestrated lowering of wages of similarly skilled service workers. What does it imply? It implies that throwing the American workers into competition with production derived from low-wage countries, both those workers engaged directly in import-competing sectors as well as all employees economy-wide who have similar expertise and qualifications will have their wages squeezed. In fact, whereas trade flows with low-wage nations have increased, the distribution of income and wealth in the U. S. has grown more and more unequal (Benjamin & Perry, 2003). Impact on input versus output International Trade is increasingly imperative in the global economy and to the United States in particular. During the last 15 years, global sells abroad have more than tripled and have accounted for more than a third of global economic growth. In deviation from the previous decades, when industrialized economies dictated global trade flows, there has been an increase in developing economies’ share of global exports by just over a quarter in the late 1990s to 41 percent by 2004 (Bardhan & Kroll, 2003). Increased participation in international trade by the developing world is a crucial force behind what many refer to as â€Å"globalization†. Actually more than 50 percent of US trade presently carried out with developing countries, up from just over a third in the late 1980s. In US economy, manufacturing is the most trade-engaged sector accounting for 60% of the country’s exports and 80% of imports. Globalization has had an important impact on U. S. manufactures, as manufactured products accounts for 75 percent of worldwide trade (Bhagwati & Marvin, 1994). Following vigorous intensification of both U. S. manufactured exports and imports at some stage in the mid 1990s; a noteworthy departure has taken place. Ever since 1998, U. S. sells abroad have grown by just 3 percent per-year (Bardhan & Kroll, 2003). The country’s share of world exports fell from 13 percent in 1998 to just 9 percent in 2004 – the lowly allocation dating 17 years back. Happening correspondingly, imports grew by 8% per-year and the manufactured trade shortfall increased from -240 billion to -603 billion by 2005 (Bhagwati & Marvin, 1994). Whereas a variety of the latest import surge has been as a result of the strong U. S. conomy (especially since mid-2003) the truth remains that today, trade ins account for over a 35 percent of manufactured products consumed in the United States – an increase from 25 percent in 1992 and just 15% a 10 years earlier (Bhagwati & Marvin, 1994). A 66 percent of the increase in manufactured imports since 1998 originated from the developing world, and half of that has came from China alone. This rise in import penetration and loss of export competitiveness has had a sign ificant impact on the current state manufacturing (Bhagwati & Marvin, 1994). While in general, manufacturing production has improved from the 2001 decline, currently positioning at 6 percent above its pre-recession high, in addition to manufacturing employment increasing moderately subsequent to bottoming out earlier in 2004, the present manufacturing resurgence has developed half as fast as the recoveries following the preceding four declines (Bhagwati & Marvin, 1994). Of eminent concern is the loss of market share both at home and abroad in recent years by the Unite States manufacturing. While some articulate this market share loss to be because of the inevitable bad trade policy as well as globalization, to others this serves as a pointer to the fact that in a time of severe global competition, changes in a country’s competitiveness have much larger effects at present than they had in previous decades. Consider dollar value for instance. After sustaining stability for the better part of a decade, its value increased by 28 percent through the period running from 1996 to 2002. Dollar value increase led to imports being competitive in the US market, whereas concurrently it made U. S. exports more costly in markets overseas. It was during this period that, the rise in import penetration as well as the loss of global export share abroad was most significant. In a period of elevated international competition, US manufacturers have crucially been burdened by high structural non-production costs. Over the last decade, U. S. manufacturers have increased their productivity by over half, more than 150 percent the pace of their major trading partners. Conversely, much of these efficiency gains have been offset by rising non-production costs at home. As per a research carried out several years ago by the NAM’s Manufacturing Institute, which compared non-production costs on U. S. manufacturers to their nine major trading competitors: The findings indicated that Corporate Taxes on U. S. manufacturers were 16% high than those of their major trading partners. Benefit costs 36% higher, Regulatory burden 85% higher and Litigation 250% higher. Summed up, these excessive non-production costs add 22% to the cost of manufacturing in the U. S. and put U. S. manufacturers at the same level with Germany as most expensive place to produce in the world (Benjamin & Perry, 2003). Moreover, the recent rise in natural gas prices in US has only exaggerated the problem. If US could exclude those excessive costs, it would actually be a lower-cost place to manufacturer than most of their industrialized competitors (Broda & David, 2006). Outsourcing has seen the elimination of hundreds of thousands of jobs in the United States within the manufacturing industry. Outsourcing not only benefited US corporations, but also minimized the benefit to society (Broda & David, 2006). To offer an anecdote to this observation that outsourcing only benefits corporations while, only minimizing the benefit to society, Tyco Corporation, recently relocated to a location in Texas. Two of the major grounds for their relocation were due to the fact of lower labor costs as well as cheaper manufacturing costs (Broda & David, 2006). This was due to the comparatively close proximity to Mexico. Tyco perhaps took advantage of the great number of immigrants that move to Texas, who can work for comparatively low pay, which would facilitate raise, their bottom line. In so doing the company laid-off more than two hundred employees, some of this had been with the company for almost thirty-five years who had been making close to $22 per hour. The net effect was that these employees had to look for fresh employments, in lower-paying positions that maybe paid half as much, as well as they lost all of their seniority (Broda & David, 2006). Conclusion Even though there has been decline in jobs as well as universal interest within the manufacturing sector, outsourcing has had its benefits within the United States (Mandel, 2004). Sadly, it has been a consequence of just corporate welfare. Outsourcing has absolutely maintained costs low because of cheap input costs, which drips downward to the end user in low-priced products. In addition, with productivity rising from annually, corporations have been capable to raise their bottom lines while avoiding price surges (Mandel, 2004). Regrettably, corporate profits are escalating, save for there are no new jobs being created—jobs relocated to other countries are not being replaced. If blue collar, working-class citizens as well as the jobless workers who experience no job intensification are losing out, in that case who is winning the battle? Fine, additional productivity as well as lesser-input expenses decode to higher wealth. Businesses with their continually increasing profit limits; consumers, who experience near to the ground cost of goods. Furthermore, with no job growth in the current economy, there is really no new job industry to lead the way in creating new jobs. Too many U. S. jobs are being outsourced, and without the innovation of new industries, â€Å"job growth will stay sluggish, demand will eventually sag, and†¦incomes will be driven down under the continued pressure of competition from China, India, and other low-wage countries† (Mandel, 2004). However, with the innovation of new upcoming technologies there can be an explosive surge in employment and enormous potential for the economy.