Maybe globalization wasn’t such a great idea after all.
That’s been the rallying cry for every political entrepreneur since 2015, when a tidal wave of populism swept across Western democracies, forcing centrist politicians to reckon with the unintended consequences of two and half decades spent pursuing an ever “flatter” world.
As shareholder capitalism took hold in America, the C-suite increasingly viewed profitability not just as the primary concern, but as the only concern — and stock owners as the only stakeholders who mattered. That went hand in glove with globalization: Outsourcing and offshoring were a fillip to corporate bottom lines.
Globalization’s thus generally viewed as a boon to large multinationals, almost by definition. But what if that’s wrong. Or what if it were possible to flip the argument such that de-globalization can be part of a bull case for the very same companies which benefited from cheap labor and the many miracles of a more open world?
That’s just what BofA’s Savita Subramanian argued in the course of making the case that the S&P 500, despite trading at nosebleed valuations on virtually every metric, isn’t necessarily a ticking time bomb.
“Globalization was a risky source of margin expansion,” she said, editorializing around the figure below, which breaks down a near doubling of net margins over the last two decades.
As you can see, falling cost of goods sold and lower taxes played an important role in margin expansion.
Intuitively then, an end to the era of global cost arbitrage would be bearish for profits. But not if you spin it right.
“Multinationals’ margins benefited from lower COGS, wages and taxes by shifting to cheaper regions,” Subramanian said. “This drove record growth, but was finite and geopolitically risky.”
Although she conceded that re-shoring is “hard work,” Subramanian said it’ll pay off in the end. Corporates, she wrote, “are combatting inflation through efficiency” and while growth “may be less dramatic” going forward, it’s “likely to be more durable.”
I’m afraid I can’t myself. I have to re-run the Chinese re-shoring propaganda video. Enjoy it. Again:
That and Chapelle two best videos I’ve seen this year
The Bulls say “Heads I win, Tails you lose”.
We shall see………………………………………………….
If COGS reduction through globalization worked for 30 years, how risky was it really?
More importantly, if COGS reduction through reshoring is going to work, then companies will probably have to do to American workers what they did to Chinese, Indian, Malaysian, Vietnamese, Mexican, etc workers: pay them as little as possible and work them very hard.
But there aren’t enough American workers to do that too.
Maybe they can automate manufacturing so that they don’t need all those American workers. I don’t think we seen a big surge in factory automation orders, but an investor can always hope.
I saw a video where Chinese workers were complaining about low wages in their country recently. One man said menial jobs in the city were paying 14-15 yuan. That’s about $2 an hour. Good factory jobs paid about 26 yuan, or $3.70 an hour. I don’t care what your politics are, that simply cannot be replicated here. At 40 hours-per-week, that equates to $4,160 per year (at $2 an hour), and $7,696 a year (at $3.70 an hour). Chinese workers average almost 50-hours per week, and I believe a six-day work week is quite common there as well.
That can’t happen here (lol) because the Federal Minimum Wage is $7.25/hour which is twice the $3.70 figure. Throw in working 60 hours/week instead of 40 the American Workers will be happy eating their peas (that the “starving children in China” were supposed to have wanted).
THIS!!!
Let’s call it what it is — $7.25 an hour is legal slavery, especially on an inflation-adjusted basis. You work a whole week and here’s your $250 clear? Good luck with that. You can “afford” a $250/month apartment assuming you want to eat (do you want/need to eat?).
So flee to the under the table gig economy. Come clean my house for $100 cash for 3 hours – I’ll look out for ICE for you. Ooops — sorry about that $125 ticket you got for parking in front of my house on street cleaning day and no, I can’t help you with that, I mean there are signs all up and down the street.