This week in globalization

Clearing out my files for the week:

• Martin Wolf on why the US is going to win the global currency battle:  "To put it crudely, the US wants to inflate the rest of the world, while the latter is trying to deflate the US."  We win because we have infinite ammo.  But better that we come, per my Monday column, to some agreement at the G-20. 

• Sebastian Mallaby, also in FT, says that, despite the current currency struggles, the "genie of global finance is out of the bottle" and not to be stuffed back in.  Wolf had noted $800B capital inflows to emerging markets 2010-2011, which is gargantuan, thus the crazy struggle of some places to keep their currencies low.  As for America stopping China from buying US bonds in retaliation for our not being able to buy Chinese assets?  China holds only about one-third of the US T-bonds abroad ($3T total), so it can buy all its wants from others in the system.  There is no turning back, he says.

• Meanwhile, the Pentagon makes plans to turn back the clock on the globalization of defense manufacturing.  A new spending bill provision--inserted at DoD's request--includes the power to exclude foreign parts suppliers (read China). Just about every US-based defense firm uses offshore suppliers, so this is going to get very expensive very fast.  It'll be a lot harder to find that $100B in savings over five years. This is almost a fifth generation warfare version of shooting yourself in the foot--first, before the other guy can.  China does nothing here, that frankly we shouldn't be able to handle, but we move down a path that instantly adds a significant tax to everything we buy in the growing-by-leaps-and-bounds IT realm.  One hopes there's a half-billion for that American rare earths mining co. that's looking for a new investor.  Interesting how China's becoming vulnerable to, and dependent on, so many unstable parts of the world for resources, and we're going to cut off the tip of our IT nose to spite our face.  I can imagine a cheaper way, but that would be so naive in comparison to spending all this extra money.

• China continues to buy low, as a ruthless capitalist should. Giving us a taste of what it could be like if we don't get too protectionist, it's buying up Greece's "toxic government bonds."--and plenty more in Europe. All of the EU is getting a taste, says Newsweek, as Chinese investors are snapping up bankrupt enterprises and--apparently--putting people back to work.  China also, like a ruthless capitalist, seeks to make bilats reduce the chance of EU-wide restrictions on its trade. Old American trick.

• Another sign of globalization on the march:  emerging economies buying up food and beverage companies in the West that would otherwise naturally be targeting them for future expansion. Bankers expect the trend to continue.  Gotta feed and water that global middle class that keeps emerging at 70-75m a year.  Emerging economies are buying up the companies from equity firms that had previously bought them during down times.

• Great FT story on how Turkey has the Iranian middle class in its sights.  Long history of smuggling inTurkey dips a toe in, would like to drink entire tub eastern Turkey.  Sanctions hold up what could be a major trade, so the black-marketing local Turks mostly smuggle gasoline--and a certain amount of heroin.  But the official goal is clear enough:  be ready to take advantage whenever Iran opens up.  A local Turkish chamber of commerce official floats the notion of a free trade zone at the border. Those 70m underserved Iranian consumers beckon.

• Bloomberg Businessweek stories on how China's working aggressively to get western technology and cooperation to allow it to work its significant coal-bed and shale gas reserves.  Russia's exporting nuclear reactors like nobody's business, and Mongolia's beginning a long boom as "one of the last places on earth with huge, untapped metal ore resources" (guess who's showing up in numbers--with cash).

• India's airline industry can't keep up with demand generated by itsGet me planes and pilots--now! booming middle class. Boeing says Indian airlines will buy over 1,000 jets in the next two decades. Already they're forced to have one-in-five pilots be foreigners.

• Fascinating WSJ story on how China's car economy is going wild, with ordinary Chinese exploring the freedom of the road.  Drive-in service is taking off, weekend jaunts mean hotel business, etc. In past visits I saw a lot of this coming down the pike.  Just like when America's car culture went crazy after WWII, this is a serious social revolution.

Don't forget your meal of eternal happiness!

• "Brazil and China banks join list of world's top credit card issuers."  And so it begins.

• Funny thing about all this South China Sea hubbub: "Corporate ties linking China and Japan have never been stronger," says the WSJ.  Serious driver?  Japan is exporting its mania for golf to China--the fastest growing market for the sport.  It's what middle-class guys do.

Coming soon: the "golf wars"

• WSJ story on Vietnam creating its own Facebook to keep a closer eye on its netizens.  Defeat the anti-capitalist insurgents!What caught my attention: "The team has added online English tests and several state-approved video games, including a violent multi-player contest featuring a band of militants bent on stopping the spread of global capitalism."  I would say we finally won the Vietnam War.

Comments

[PenGun]

Martin Wolf is a fool. There is no way the world is going to roll over for the USA. That is starting ... well now.

Your currency is the currency of record. That's your infinite ammo. That will change. There is no reason the world has to use the US money especially as it is being devalued at a very high rate.

Gold will rise steadily, the dollar will fall steadily, a bit faster actually with QE2 now imminent and in a while the world will chose a better baseline. At that point it all changes.

It's not a secret that the US and UK tried to destroy the Euro. That failed largely because China would not let it happen and Angela Merkel is no fool. As that failed and as the Euro is recovering there has been a large change in the attitude the world has towards the USA. Israel is about your only friend. Japan and all the rest will now defend their currency's and the US dollar is fucked. This why helicopter Ben is firing up QE2.

There is nothing good in your future for maybe 10 years.

[louis Heberlein]

'Meanwhile, the Pentagon makes plans to turn back the clock on the globalization of defense manufacturing. A new spending bill provision--inserted at DoD's request--includes the power to exclude foreign parts suppliers (read China). Just about every US-based defense firm uses offshore suppliers, so this is going to get very expensive very fast.'

Well Duh!
NIST established the digital manufacturing standards for small parts and led the national and international initiative in the late 1980s and early 1990s. The parts represented 75% of the cost/value of equipment/vehicles etc. NIST used Navy/DOD DARPA initiatives under the 1990s Rapid Acquisition of Manufactured Parts (RAMP) program to define and become first users of the logistics procedure. DOD then made the technical standard ISO 10303 part of new acquisitions and shared the methods & data with allies and customers of the US companies, Bush #1 started the process using concepts of the Council on Competitiveness which was an institution that started as a result of an academic/industry research effort for US modernization effort requested by Reagan.

Bill Clinton used the Committee ideas and US early efforts as part of his initial campaign documents, but his campaign workers seemed unaware of it, or its implications. Clinton expanded the NIST/DOD initiatives and 'sold them' personally. He made Robert Reich, an economist who wrote books involving this topic in discussing how the US economy must transform to match technology modernization and globalization, his Secretary of Labor.

My students then tried to use the Labor Department in Central California and Nevada to get assistance in helping them deal with bad labor situations due to economic transformation and globalization. In each case the lower and middle level labor department guys insisted they could only help with mass production, (not emerging mass customization matters), or cyclical routine issues like health care workers.

I requested assistance from NIST and received a lot of good background info, but no response to my question as to why they had such low media and publicity attention. Buried in their info box was the tape of a PBS interview with NIST rep. The PBS guy asked the same question. After a little tap dancing, the response was that neither political party wanted the manufacturing modernization and international standards to get 'too much' attention.

So Duh!

[Craigicus]

Hmmm... PenGun vs. TPMBarnett --- They've called their corners and now let's watch. It should be less than two years to find the definite winner.

Either the US economy will shatter and fall creating a vacuum (PenGun) or the decoupling will be follwed by recoupling, with the US lifted by its presence in the new rising gargantuan international markets ocean.

Stick around PenGun. Keep your story out there as it evolves. Let's see how well you predict the future...

[Thomas P.M. Barnett]

Louis, dude, you're talking too fast here. Say it again using English appropriate for non-experts.

I think I tracked it logically, but you need to spell out your DUH! vehemence more so we're sure of what you're saying.

[louis Heberlein]

DOD had to know the parts manufacturing modernization methods it helped US to pioneer and promote with international standards and global logistics partners would have profound impacts at home and abroad. All Presidents since George Herbert Walker Bush were informed promoters of the process.

A US equivalent initiative today involved DOD support of modest cost but high temperature superconductivity which is a key factor in long distance low cost energy distribution in efforts like large region wind farms, solar and nuclear power plants. American companies pioneered the technology with DOD first customers, then shared the technology with China, Asian and European companies. Now we get media and political complaints on how foreign energy parts manufacturers are beating American workers in providing components for Obama type Smart Grid initiatives.

Sorry for the excess details. I did it because I'm often accused elsewhere of having naive conspiracy ideas when I react to the politicians and media making misleading statements about the background and status of globalization initiatives.

[Critt Jarvis]

Twitter pointers, cogent pieces on the blog, and "This Week in Globalization"...

Perfect.

(and nobody had to get out of their chair :))