What Has Been the Main Drawback of Globalization for the US?

Globalization refers to the increasing interconnectedness of economies worldwide, characterized by the expanded flow of goods, services, capital, and labor across national borders. For the United States, globalization has brought about various economic shifts, creating both opportunities and challenges. This article explores some of the significant drawbacks that globalization has presented for the U.S. economy and its workforce.

Transformation of Domestic Employment

Globalization has profoundly altered the landscape of domestic employment in the United States, particularly by contributing to a notable decline in manufacturing jobs. Companies have increasingly moved production facilities overseas, drawn by lower labor costs and less stringent regulations. This outsourcing strategy, estimated to affect approximately 300,000 American jobs annually, directly impacts domestic employment.

The shift of manufacturing jobs has been a long-term trend, accelerating in recent decades. Between 2000 and 2017, the U.S. shed about 5.5 million manufacturing jobs. Overall, manufacturing employment peaked at 19.6 million in June 1979 but fell to 12.8 million by June 2019, a 35% reduction. This decline was not evenly distributed, with industries like apparel, textiles, and computer and electrical products experiencing substantial reductions.

Increased imports, often produced in countries with lower manufacturing costs, have also displaced domestically manufactured goods, further reducing the demand for U.S. labor in these sectors. For instance, the U.S. trade deficit with China alone is estimated to have resulted in the loss of approximately 3.82 million American jobs since 2001, with manufacturing sectors bearing a substantial portion of this impact.

As manufacturing jobs decreased, there has been a noticeable shift towards service-sector positions, which generally offer lower wages and fewer benefits compared to their manufacturing counterparts. This transformation has particularly affected workers without college degrees, who once relied on well-compensated manufacturing jobs for a pathway to the middle class.

Impact on Wages and Income Distribution

The increasing global competition fueled by globalization has exerted downward pressure on wages for certain segments of the U.S. workforce. Workers in less-skilled or easily offshorable positions often face competition from labor markets where wages are considerably lower.

This dynamic has contributed to wage stagnation for many non-college-educated American workers, while simultaneously increasing the wage premium for college-educated workers. For example, in 2011, international trade was estimated to have depressed wages for non-college-educated workers by 5.5%, costing the average worker approximately $1,800.

Globalization has also played a role in exacerbating income inequality within the United States. As labor-intensive industries move to developing nations, the demand for less-skilled labor in the U.S. decreases, leading to reduced wages for this group.

Conversely, globalization can increase the demand for professionals, skilled labor, and capital, thereby increasing incomes for college-educated workers and widening the income gap. Research indicates that rising trade with lower-wage countries accounts for a substantial portion of the widening gap between more and less educated workers.

The phenomenon of wage stagnation is not solely attributable to globalization, as technological advancements and the decline of labor unions also play a role. However, the ability of companies to depress wages due to reduced competition for workers, often linked to outsourcing and increased imports, has been identified as a contributing factor. Globalization’s impact on income distribution is complex, with some studies suggesting it creates pressure for greater inequality, a trend particularly pronounced in the United States.

Trade Imbalances

A persistent trade deficit represents another drawback of globalization for the United States, reflecting a situation where the value of imports significantly exceeds the value of exports.

The U.S. has maintained substantial trade deficits since the late 1990s, particularly with countries in Asia. In 2021, the U.S. goods trade deficit reached $1.1 trillion.

These sustained imbalances have economic implications, including a net outflow of wealth from the country. When the U.S. imports more than it exports, more money leaves the country to pay for foreign goods and services than comes in from American exports. This outflow of capital can lead to an accumulation of foreign debt, as the U.S. borrows from abroad to finance its consumption and investment needs. By the end of the fourth quarter of 2024, persistent trade deficits contributed to a net foreign debt totaling approximately $26 trillion.

Moreover, large and persistent trade deficits can create vulnerabilities in supply chains. The reliance on foreign production for many goods, a consequence of decades of manufacturing decline and outsourcing, has exposed the U.S. economy to disruptions in the global market. Events like the COVID-19 pandemic highlighted how external shocks to these global supply chains can lead to acute shortages and higher prices for consumers within the United States.