Innovation & Wealth › The information age
Globalization and offshoring
c. 1980–2008· Event· Society: who gained, who lost
Mostly agreedGood evidence; some details uncertain.
From about 1980 to 2008, trade, money and factories spread across borders on a record scale as companies moved production abroad.
See it on the Innovation & Wealth map →What happened
Container shipping, cheap telecoms and falling tariffs let firms split production across countries. World trade rose from under 40% of world output in 1980 to about 60% by 2008, by World Bank figures. NAFTA (1994) and the World Trade Organization (1995) set rules; China joined the WTO in 2001. Firms like Apple and Nike designed at home and manufactured in Asia. Shoppers got cheaper goods; owners and skilled workers gained most; many factory towns lost jobs.
Impact on society and the economy
It cut prices and helped lift poor countries, but concentrated gains and hollowed out factory regions, feeding today's backlash and tariffs.
How we know
Trade and investment statistics from the World Bank, WTO and UN, company supply-chain records, and studies such as the 'China shock' research on job losses.
Still debated
Whether globalization peaked around 2008 or is only reshaping around new tariffs and 'friend-shoring' is debated.
Inside this (4)
Connections (5)
▸First globalization: trade, migration, empire was not matched in scale until Globalization and offshoringMostly agreed
The connection
Before 1914, steamships, telegraphs and the gold standard pushed trade and capital flows to record levels, and tens of millions migrated. Two world wars and the Depression shut much of that down. By common measures, trade as a share of world output only regained its 1913 level around the 1970s, then surged far past it.
When and how
A Britain-centered world economy, 1870–1914; the new wave from about 1980, led by the US, China and global supply chains.
How sure are we?
Trade and capital-flow data compiled by economic historians such as Kevin O'Rourke and Jeffrey Williamson show the rise, collapse and recovery.
Debates
Whether today's tariff wars mean globalization is reversing again, as it did after 1914, is a live debate.
▸Container shipping (Malcom McLean) slashed the shipping costs behind Globalization and offshoringMostly agreed
The connection
Containers cut dock handling costs by over 90%, curbed theft and breakage, and cut ships' time in port from days to hours. Shipping became cheap enough for firms to split production across continents: design in California, parts from Korea and Taiwan, assembly in China, sales everywhere. That supply-chain world is much of what globalization means.
When and how
Spread from US coastal routes in the 1960s to transpacific and Asia–Europe trade in the 1970s; giant hubs like Singapore, Hong Kong and later Shanghai followed.
How sure are we?
Port throughput statistics, freight-rate data, Levinson's The Box, and trade economists' estimates of containerization's effect on trade volumes.
Debates
How much containers, versus tariff cuts, cheaper telecoms and China's opening, drove globalization is debated; most economists see these forces working together.
▸Deng Xiaoping's reform and opening joined China to Globalization and offshoringMostly agreed
The connection
Opening to foreign investment and trade offered global companies a vast pool of low-cost, disciplined workers. Foreign factories poured into coastal zones like Shenzhen, and China's share of world goods exports rose from about 1% in 1978 to about 14% by 2015, making it the hub of offshored manufacturing.
When and how
Coastal China from 1980; Deng's 1992 southern tour sped it up, and WTO entry in December 2001 locked it in.
How sure are we?
Trade data from the WTO and Chinese customs, and records of foreign direct investment, show the rise.
Debates
Whether China's rise came mainly through markets or through state subsidies and currency management that bent trade rules is disputed.
▸Globalization and offshoring hollowed out factory towns in Deindustrialization and the Rust BeltDebated
The connection
From the 1980s, US firms moved production to Mexico, Asia and elsewhere where wages were lower, helped by trade deals like NAFTA (1994) and cheap shipping. Factory towns that depended on one industry lost plants, suppliers and tax base. Consumers and shareholders gained from cheaper goods and higher profits; displaced workers bore concentrated losses.
When and how
Midwestern and Northeastern industrial towns, about 1980–2010; NAFTA took effect in January 1994; China gained permanent normal trade relations with the US in 2000.
How sure are we?
Plant relocations and import data are documented, but separating trade's effect from automation and other causes is hard, and studies differ widely.
Debates
Many economists credit automation with more job loss than trade; others argue trade's concentrated local damage was underestimated for decades. NAFTA's net effect on jobs remains disputed.
▸Deregulation, privatization and 'shareholder value' accelerated Globalization and offshoringMostly agreed
The connection
Removing capital controls, opening stock markets to foreigners, privatizing state firms and cutting tariffs let money and factories move across borders freely. The 'shareholder value' push also rewarded managers for cutting costs by moving production to cheaper countries.
When and how
Worldwide, 1980s–2000s; the 1989 'Washington Consensus' of the IMF, World Bank and US Treasury promoted such policies in developing countries.
How sure are we?
Indexes of financial openness and trade policy, and the timing of capital-control removal, track with rising trade and investment flows.
Debates
How much technology, such as shipping containers and the internet, versus policy drove globalization is debated.