As we enter the second quarter of 2017, the global economy is experiencing its sixth year of stagnation, and the growth outlook does not indicate any improvement. Consumers and businesses share a sense of anxiety, uncertainty and reticence regarding both the economic and political environment across the globe.
Here we go again: The U.S president is attacked on a global scale for his thinking on trade and investments. Mrs. Merkel, chancellor of Germany even announced a “new chapter in U.S. European relations” and stated that “Europe must take our fate into our own hands’’. Similar accusations had been raised in 1980 after the election of President Reagan. He was labelled a B class actor, a cowboy and an inexperienced but lucky vote gainer. The accusers were wrong then and they are wrong now!
President Trump lived up to his convictions during the tense G-7 political summit just as he had already done during and after the U.S. presidential campaign. No surprises there when he reflected on the need for more balanced trade relations and the requirement for all nations to pay a fair contribution for the benefits they obtained from the United States.
The modern world of art offers fascinating insights into the forces currently shaping world trade and the global economic system. For decades, China has experienced breakneck economic growth and has become a world leader in both the consumption and production of art, which illustrates some intriguing changes in the global economy.
The global market for high-end, rare art pieces is a good example. In recent years, as China grew more prosperous, there has been a sharp uptick in luxury art purchases by Chinese customers. In 2016, according to insider information, Oprah Winfrey sold a 54”x54” painting to a Chinese collector for $150 million. This example indicates how China has grown in its appreciation of originals. This shift perhaps presages an eventual reduction in counterfeit products for which China is still infamous. Chinese auction houses have also risen to prominence. Of the world’s top ten art auction houses, six are Chinese, and many of the largest art houses are state-owned enterprises.
In the art world, China has not only become a dramatic consumer of art, but also a prodigious producer. The southern Chinese city of Dafen, nearby to megacity Shenzhen which borders Hong Kong, has become the center of knock off art masterpieces. Beginning in the 1980’s reform era, Dafen became a hub for starving artists from around the country to work and train, pumping out high-quality knock-offs of famous European and American painters ranging from van Gogh’s Sunflowers to portraits of Western icon John Wayne. Artists produce these works on the cheap and can offer custom alterations, such as changes to the color or size to fit the purchaser’s own décor. Since the works are not signed, they do not count as fakes.
The producers of export knock-off masterpieces will face pressure to adapt, focusing more on creativity and original works. When Chinese artists copy the great masters, they hone their skills and imagination, which over time will allow them to eventually emerge as new artists in their own rights
Unemployed coal miners want their jobs back. So do manufacturing plant workers whose employment has been outsourced to lower-wage countries. Add to those young people, including scores of college graduates, whose job prospects are grim, forcing them into underemployment and requiring them to live at home rather than on their own.
This litany of complaints (and outrage) has fueled, in part, the resurgence of populism not only in the United States but in Europe, as well. And while these grievances are understandable, it is time for real truths–not alternative truths–about labor markets. These are:
Dying industries cannot be resuscitated. Typewriters, pay phones, folding maps, beepers, Kodak film, and cassette players are obsolete, their product life cycles have run their course and their replacements/substitutes superior in every way. Coalmining employed nearly 130,000 workers when Obama was elected president. By 2015 that figure had dropped to 98,000. Competition from cheap, shale gas; fracking; renewables; and technology was and will continue to be the reasons for the continual fall. Other declining industries include knitting and apparel, hardware manufacturing, communications, equipment, and glass manufacturing. Here, too, technology will boost productivity while decreasing labor input.
Most offshored jobs will not be re-shored. Although some will be coming back, the vast majority will not. Outsourcing, whether transferred in-company to an outside supplier, from a union state to a right- to-work state, or to a foreign country like China or Mexico is intended to reduce costs to allow a company to sell to consumers at a lower price. The negative impact on a firm’s employees will be the same. Reducing costs allow the company to offer consumers a lower price. When Delta moved 1,000 jobs to India it reduced costs by $25 million and used the money saved to fund 1,200 new reservations and sales positions in the U.S. The intent of market capitalism is to serve the consumer, not the producer’s employees.
Professor Michael Czinkota
World trade has forged a network of global linkages, in which everyone and every country is involved. Nowadays, a drought in Brazil and its effect on coffee production and prices is felt around the world. U.S subsidies for ethanol production from corn affects prices for other agricultural crops and livestock in the far reaches of the world. As the key player in globalization, any U.S reform tends to change the international market. The old saying goes, if the U.S. sneezes, other nations catch a cold.
After only 100-days in office, President Trump has already released a tax reform memo to the public. Although not complete and detailed, there is clear a signal coming from the release how the government would like to encourage U.S companies to export and invest abroad.
First, comes a cut in the top tax rate for all businesses to 15%, far below the current 35% top rate. This reduction is not imbalanced since it would also benefit the owners and shareholders of international corporations in the United States. With this tax cut, companies, especially manufacturers, can lower the price of exports and have more money for R&D and marketing. This measure will greatly enhance the competitiveness of U.S goods in the global market. Also, a tax reduction will significantly reduce the financial constraint on companies and allow American companies to seek investment opportunities on a global scale.