The world has experienced substantial growth in globalization in the last several decades. National economies have grown while the world economy has grown at a robust pace. The production and trade of goods and services have grown phenomenally during the age of globalization. However, globalization has some negative traits and the rapid pace of globalization has exacerbated these traits. Globalization has led to decrease in the manufacturing base in the developed countries that further lead to diminishing employment in the manufacturing sector in these countries. Rapid globalization and decreasing manufacturing employment have put increased pressure on the middle class and lower income group in the developed countries.
According to the Economic Policy Institute (EPI), “the United States lost 5 million manufacturing jobs between January 2000 and December 2014.” While a significant percentage of these jobs were lost due to increased automation, globalization and increased international trade also had an adverse impact. Domestic manufacturers of various goods and services could not compete with the import of goods and services from low-cost manufacturing destinations. This is particularly true for goods and services that require relatively low skills to manufacture. When domestic manufacturers were forced to shut down their operations, it led to increased unemployment in the manufacturing sector.
According to a research paper by Autor, Dorn and Hanson (2013), Chinese import competition led to loss of employment in the U.S. manufacturing sector of 548,000 workers between 1990 and 2000 and 982,000 workers between 2000 and 2007. This indicates that globalization and increased trade has had an adverse impact on U.S. manufacturing employment. The paper reveals that the value of annual U.S. goods imports from China increased by 1,156 per cent between 1991 and 2007. It adds that the U.S. labour markets that are exposed to increased trade suffer from higher transfer benefit payments for unemployment, disability, retirement and healthcare.
Canada experienced significant reductions in manufacturing employment like other OECD countries. According to Statistics Canada, 322,000 manufacturing jobs were lost between 2004 and 2008 in Canada. While automation played a role in the disappearance of these jobs, increased international trade and globalization also played a role in the decrease of manufacturing employment. Competition from low-cost foreign manufacturers led to the closure of Canadian manufacturing companies as they could not compete on prices with low-cost foreign manufacturers. This contributed to the loss of manufacturing employment in Canada.
Globalization, increased international trade and outsourcing have benefited companies which moved manufacturing to low-cost manufacturing destinations and grew the economy of the developed countries. However, increased trade and globalization contributed to decrease in the manufacturing base and, consequently, manufacturing employment in the developed counties, including Canada and the U.S. While some of the workers who lost jobs could find new employment, the loss of manufacturing employment contributed to unemployment in Canada and the U.S. and put increased pressure on the middle class. Some may argue that it contributed to the hollowing out of the middle class in these two countries. Therefore, globalization has to be readjusted so that it benefits the workers employed in the manufacturing sector in the developed countries. One adjustment is to provide increased tax benefits and tax breaks to companies which decide to manufacture in Canada and the U.S. rather than move their production bases to low-cost manufacturing destinations. This would provide increased financial incentives to companies to manufacture locally than to outsource, which may increase the manufacturing base and manufacturing employment in Canada and the U.S.
Also, initiatives of increasing the local content in the developed countries could increase manufacturing employment. If there are policies which state that there has to be some level of local value addition to goods and services that are sold in Canada and the U.S, it could lead to increased employment in the manufacturing sectors in these countries. For example, a policy that requires certain value addition in Canada to a laptop that is manufactured in China but sold in Canada, would boost manufacturing employment in Canada. When there is a requirement for a local content of all the goods and services that are manufactured abroad but sold in Canada and the U.S, it would increase value addition in the economies of these two countries while generating manufacturing employment. Again, as cost of manufacturing increases in manufacturing destinations, especially China, reshoring of manufacturing to Canada and the U.S increasingly becomes a reality. An increase in the manufacturing sector in these two countries would result in increase in manufacturing employment in these two countries as well.
Globalization has brought significant benefits to the global economy, including developed countries’ economies. However, it has led to decrease in the manufacturing base and employment in the developed countries, including Canada and the U.S. If policies that require local content are introduced, it could lead to increase in the manufacturing sector in these two countries that would boost the respective economies as well as boost employment in the manufacturing sector. An increase in employment in the manufacturing sector would reduce the pressure and, possibly, expand the middle class in Canada and the U.S.