Consequences Of Globalization

It is interesting to see the consequences of globalization taking place all around the world today.  People so often in the 90’s talked about how globalization would improve people’s lives across the globe.  To be fair to some degree that has happened in places like China where several hundred million people have been lifted out of poverty by moving from the countryside to the urban manufacturing centers of China.  Other nations like Germany have also benefited greatly from globalization in the form of the EU.  With the barriers to trade removed from the internal European market German companies have proceeded to destroy their fellow European competition and reap the rewards.  Unfortunately these two examples of countries benefiting from globalization have also cast a dark shadow across many other countries who have suffered while China and Germany have benefited.  In China’s case many of the jobs in manufacturing that now power the Chinese economy were once based in America.  The fallout from this in America has been significant because many of the jobs lost to China were some of the best paying jobs a non skilled worker could find in America.  Recently in the last several years there has been a small glimmer of hope in the American manufacturing sector where instead of losing jobs they have actually begun adding some.  It remains to be seen if this is just part of the economy coming back from the lows of the economic meltdown in 2008 or if this is part of a new trend of increased American industrial production over the long term.

The situation in Europe seems more straight forward where there is little doubt that the Euro has made life much more difficult for countries like Greece, Italy, and Spain to compete with Germany since they can no longer devalue their own currency to become more competitive.  The result has been that much of southern Europe chose to use debt to fuel economic growth (much like America has done) instead of trying to make their economies more competitive.  The consequences of this have been tragic for those countries with some like Greece in what can only be described as a economci depression.  One thing is for certain, you don’t seem to hear nearly as many world leaders talking up the benefits of globalization because the real long term consequences have now manifested themselves and it is not a very pretty picture.

US Beats China In Olympic Medal Tally

 

In somewhat of a surprise outcome to many the US got both more gold and the most medals overall beating out China.  The US got 46 gold medals compared to 38 for China.  For total medals the US came away with 104 to China’s 87.  As I said the result was somewhat of a surprise to many including people in the US.  I remember at one point during NBC’s olympic coverage they were discussing the medal tally and a commentator remarked that although the US had passed China for the most medals at one point that people should expect the Chinese to eventually take the lead for good.  I do think it is interesting the US ended up winning because the fact that China has so many more people and the government sponsors many athletes.  Throw in the fact that most athletes are literally hand picked by scouts at very young ages and then shipped off to sports academies to train full time away from their families.  To me having 4 times the population, state sponsorship of athletes, sports academies developing talent from young ages should seem like it would be a system that consistently produced more medals than the US.

Which then raises the question of why China did not beat the US this time?  Obviously China had the home field advantage last olympics because they were the host nation so everyone knew they weren’t going to do as good this time.  Also the US deserves credit for having a great olympic games, especially the US women athletes who ended up winning more medals than the men.  Some Chinese bloggers have speculated that the system China has used to produce olympic athletes may be to blame because the enormous pressure put on the athletes to succeed eventually becomes too much for some.  One Chinese blogger actually went so far as to say that Chinese system produces athletes that are one-dimensional and unprepared for life when he wrote

“The budding young talents are shut up in closed training

schools from a young age and apart from their own events, almost

have no other life skills.”

My personal opinion is that it was a great olympics for Team USA but it will be hard to consistently out do China in the future because of all the previously mentioned advantages China has.  Although some of those advantages like the government backing and extreme dedication come at a heavy price for the individual athletes.  Could you imagine being sent away to one of those sports academies at 5 years old, train for years only to find out you’re not good enough.  Or what if you got injured and could no longer compete and you spent your whole life preparing for something you will never have the chance to do and oh by the way you are totally unprepared on how to handle the rest of your life.  To me that is a price to steep to pay, I almost feel sorry for Chinese athletes.

Chastened
China sees tough road ahead to Rio

Panama Canal, Size Does Matter

In 2014 the Panama Canal will open a new 3rd lane to accommodate ships that are wider, deeper, and longer than were previously able to pass through the older lanes.

“[T]he Panama Canal was always constrained by the size of its locks, permitting no vessel longer than 965 feet, wider than 106 feet and with a draft greater than 39 feet to pass through. Ships suitable for the canal became known as Panamax vessels and could carry nearly 5,000 20-foot shipping containers.

When the third lane opens in late 2014, the canal’s capacity will more than double. Ships as long as 1,200 feet and up to 160 feet wide, with drafts as deep as 50 feet, will be able to transit. The largest vessels will carry as many as 13,200 containers, or at least double the dry weight of bulk cargo that can pass through today.

Panamax vessels are long, slim and require a lot of water ballast to maintain balance. New mega-ships will be wider, more stable and will consume up to 16 percent less fuel – meaning a smaller environmental footprint and lower costs for their operators. Shipyards are seeing a surge in orders for what are called post-Panamax vessels.”

It also remains to be seen how the greater capacity will influence global trade once the new lane becomes operational.  Ports in the US have been told by the US government to prepare accordingly by expanding capacity to meet what seems to be coming.  Beyond the assumed increase in trade there also are questions that need to be answered about how this will change trade relationships?  It now might become more economically feasible to ship certain items to new destinations.  The original story mentioned that coal from Columbia could now be shipped to China, which is just one example how this will impact global trade relationships.  It will be interesting to see what else comes about.  Oddly enough I did not hear any mention on whether or not the largest US Navy ships would now be able to use the canal.

 

This picture illustrates the dramatic impact the new lane will have on shipping.

What
does a wider Panama Canal mean for you?

Panama Canal Expansion – Diagram of Panama Canal Locks

China vs. America The Olympic Edition

 

Since we are at roughly the half way mark of the 2012 London Olympics I thought it might be interesting to see who would win the battle for olympic supremacy.  There are only two countries that can win China or America.  As of August 4 the Chinese held a slight lead in overall medals with 48 to 46 for the US, although the US had the most gold medals with 23.  The olympics is now shifting to track and field now that the swimming and other events are wrapping up today.  Although the US is not nearly as dominant in track as it once was with the recent emergence of Jamaica as a sprinting superpower, it should be able to win more medals than China.  The question will be will it be enough to pass China for the total medal count?  With the recent emergence of China as a sporting superpower it does raise some questions that should be addressed.  First, is it realistic for America to think that we can beat China when they have roughly four times the population as the US.  Coupled with the fact that in China the state sponsors athletes while in the US athletes are left to either fend for themselves or be sponsored by private organizations?  Second, is the US in decline as a sporting nation?  The US no longer dominates track and field like it used to and the trend looks to continue this olympics with the best sprinters coming once again from Jamaica.  It’s not just in track and field where the US no longer dominates.  Since olympic boxing went through scoring changes that now make it different from professional boxing the US has gone from the nation who had won the most boxing medals to only being able to bring back one bronze medal in Beijing.  Should China win the most medals at the London Olympics there should be no doubt that their government will use it as further proof to help legitimize their authoritarian rule.

 

Medal
Tracker

American boxers falling in droves at Games

China Militarizes Disputed Islands

 

In a move sure to raise tensions with neighboring countries China has announced that it will establish a military base on disputed islands in the South China Sea.  Several countries including Vietnam, the US, and the Philipines all denounced the move.  The area in question was actually annexed by China after a skirmish with Vietnam back in the 1970’s.  What this does signal to the rest of the world is all the Chinese propaganda about a peaceful rise to great power status was only to keep the world at bay while China finished modernizing so it could soon begin to wield its new-found might.  The real question becomes what can anybody actually do about the great Chinese land grab that is about to get underway?  Unfortunately the answer is not that much.  The only country with power to check Chinese aggression would be the US but I would think it highly unlikely that the US would risk an open confrontation over the issue.  The US could mop up the Chinese military in the South China Sea in short order.  However, the cost economically would be unbearable.  This is why you should never be indebted to a foreign power, and under no circumstance be indebted to a foreign power who happens to be your chief strategic competitor in the world.  The situation the US finds itself in with China today will in the future be a case study of how not to conduct a nation’s policy at the military, political, and economic level.

Spratly Islands Conflicting Claims

Claims by Country
Country	South China Sea	Spratly Islands	Paracel Islands	Gulf of Thailand
Brunei	UNCLOS	no formal claim	no	n/a
Cambodia	(n/a)	n/a	n/a	UNCLOS
China	all*	all	all	n/a
Indonesia	UNCLOS	no	no	n/a
Malaysia	UNCLOS	3 islands	no	UNCLOS
Philippines	significant portions	8 islands	no	n/a
Taiwan	all*	all	all	n/a
Thailand	n/a	n/a	n/a	UNCLOS
Vietnam	all*	all	all	UNCLOS
UNCLOS = UN Convention on the Law Of the Sea
n/a = not applicable
*excluding buffer zone along littoral states (calculations for buffer unknown)

  http://www.globalsecurity.org/military/world/war/spratly-conflict.htm

US Concerned about Chinese Troops Plans on Disputed Island

http://yume.vn/hotrungnghia/article/viet-nam-or-china.35A6114A.html

North Korea Talks Of Using EMP Weapons In A War With South Korea

Recently word came out of North Korea that said the regime was planning on using EMP (electro magnetic pulse) weapons in any future war with South Korea.  EMP blasts have the ability to knock out most if not all electronic circuitry in the blast radius.  Some of you may recall that this blog has done several stories about the effects of EMP blasts.  Recently Newt Gingrich compared the power outages around the 4th of July as similar to what a small EMP blast would do.  To sum it up an EMP blast can send the target area back to the stone age.  North Korea already has nuclear weapons ( which when detonated produce a massive EMP blast wave) so the threat has to be taken seriously.  However, for now it does not seem clear if they have a safe, effective way to deliver the nuclear warhead to the upper atmosphere to detonate it where it could cause the most damage to the south.  This is because of their recent missile test failure, which has done real damage to the credibility to the North’s threats.  The fact that China neighbors North Korea might actually keep them from using this until they can accurately fire the missile, can you imagine the Chinese reaction if the missile veered off course and detonated above their country sending half of China back to the dark ages?  Having said that the North has had successful missile launches in the past so this is cause for concern.

North Korea builds EMP munNorth
Korea’s Taepodong 2 Nuclear Missileition

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US To File WTO Complaint Against China

China and US Trade by Paresh Nath, The Khaleej Times, UAE from http://www.caglecartoons.com # 84545

The Obama administration is set to file a trade complaint against China because of Chinese import duties on cars assembled in America.  Everyone here knows that I am not the biggest fan of Obama but on this he deserves at least some credit, unfortunately the administration won’t do more.  According to administration officials the WTO complaint is meant to get China to “play by the rules”.  Like I said at least give Obama some credit for trying but in reality this will have little effect.

Currently China is a bad trade partner because it does things like keeping their currency artificially low so exports to America are cheaper than what they should be.  They also do not give fair access to the Chinese market.  For example, China requires US automakers to partner with a Chinese company in order to sell cars there.  In essence the US automakers are training their future competitors.  Does that sound like free trade to you?  Oh, did we also fail to mention that the Chinese are always stealing intellectual property from western companies, guess who ends up paying for this in the end, the American consumer.  Although it is nice to see somebody actually call the Chinese out with a WTO complaint realistically it does not even begin to address our dangerously dysfunctional trade relationship China.  Unfortunately neither Obama or Romney have articulated a vision on improving our trade relations with China, here is to hoping that will soon change.

U.S. filing trade complaint against China for auto tariffs

http://www.whatamimissinghere.com/archives/10359/84545_china-and-us-trade-by-paresh-nath-the-khaleej-times-uae

China Cooks The Books

 

The www.newyorktimes.com claims that Chinese officials are lying about economic data in the country trying to make the slow down in the Chinese economy appear to be less severe.  I often wondered years ago how an authoritarian government could run an economy at least attempting to be an open market.  Information is critical in free market economies because it helps companies decide on future investments from whether or not to hire workers or to buy new equipment.  Apparently it is not a new problem in China, in 2007 Lee Keqiang, believed by many to be the future leader of China was reported to have said that he himself did not trust official economic data.  Hey, at least he is honest.

Chinese Data Mask Depth of Slowdown, Executives Say

Saudi Arabia Pumps It Up

In a very informative article over at www.foreignpolicy.com by Steve Levine entitled The Coming Oil Crash he details the problems petro states like Russia, Iran, and Venezuela among others face with the recent fall in oil prices.  The article gives estimates on what each state needs the price of a barrel of oil to be to balance their budgets.  Russia, for example, is said to require a price of $110 per barrel to stay in the black, oil was going for around $96 a barrel on Monday.  In fact many of the other petro states are in a similar position to Russia, so our gain is their pain so to speak.  Many analysts expect the pain to go up for the petro states for the obvious reasons: global economic slowdown reducing demand, US and Canadian shale oil deposits, and Saudi Arabia insisting on producing 10 million barrels a day when all they appear to be doing is hurting themselves by producing so much.

  All of the reasons seem to make sense except for the Saudis, why on earth would they purposely drive down the price of oil when all it does is take money out their own pockets?  Well, that is where it gets interesting.  According to the article the Saudis are intentionally trying to drive the price of oil down for several different reasons.  First, they believe cheaper oil will help the global economy weather this rough patch.  They also apparently liked all the prestige they gained by driving down the price of oil in the late 90’s during the Asian financial crisis.  Second, they feel threatened(the original article used the word terrified to describe how they felt) by the shale oil deposits in the US and Canada.  They recognize that shale oil is harder and more expensive to obtain than normal liquefied deposits.  Because of that oil has to be at a certain price to make going after shale oil worth it.  Last but certainly not least, the Saudis are trying to impose their will on both Russia and Iran on two key issues.  The first would be Iran’s attempt to get the bomb.  The Saudis and Iran are natural competitors because one is Sunni and the other is Shia.  The Saudis feel that a nuclear armed Iran would be unacceptable so they are purposely driving down the price of oil to put the squeeze on Iran to force them to give up the pursuit of the bomb.  The second issue is with Russia blocking a deal being made on Syria.  The Saudis once again feel they can pressure Russia into playing ball on Syria by driving down the price of oil.  It will be interesting to see how long and how painful the Saudis are willing to make this.  As the article points out they have one of the largest financial reserves in the world at around $700,000,000,000 so suffice it to say that they can keep this up for some time.  If I was Russia and Iran I would be worried.

The Coming Oil Crash