No. of Recommendations: 11
"America's Growing Trade Deficit Is Selling The Nation Out From Under Us. Here's A Way To Fix The Problem--And We Need To Do It Now.
(FORTUNE Magazine)
By Warren E. Buffett, Carol J. Loomis
November 10, 2003
(FORTUNE Magazine)"
Wow, that was one wildly fascinating read! From sentence to sentence you have to stop and ask yourself "was he right about this?". I'm far from an economist but one thing I don't think Warren could see at that time was just how early we were in the Globalization phase and just how much that would play out. In particular discussing the US selling off assets as our dollar depreciated. There were two times in particular that was a looming threat- in the eighties with Japan and in the early/mid aughts with China. Both did buy up large US assets but it didn't end up happening on the scale we all feared so that begs the question, why? I will posit the following in my Jr. high school understanding of economics through the example of Nike since it's high profile and a poster child of globalization although there are countless other companies where this can be replicated......
- No one to this day still understands the impact of globalization. It is so complex and so intertwined that it is going to be impossible to completely unwind (which we are kind of figuring out in real time). Did our trade deficits continue to go up? It sure did but I would argue that the old metrics of international economics didn't apply in the era of globalization. Nike may not have made any shoes in the US but through complex structures (due to Chinese law) they either owned or leased the factories where they produced in China. In turn they expanded their workforce greatly in sales and marketing, two professions that would show up as a blank slate in terms of manufacturing output. So while we lost the manufacturing numbers we did account for the increase in our new services economy but never really digested the fact that our manufacturing losses were really completely offset by our new services economy jobs. The one downside was our hollowed out manufacturing towns.
- Nike exploded in the era of globalization. That explosion includes jobs created in the financial sector as they too were forced to grow with American companies growing at crazy rates. John Q. Citizen shared in this great economic expansion through owning share either directly in Nike or some version of mutual funds they put in their nest eggs. This too offsets the loss of our manufacturing base except of course in in our hollowed out manufacturing towns.
- Nike was able to produce shoes all the way through today for roughly the same price as it did in the 80's. They had started leaving the US before globalization really took root but none the less we as a society benefited greatly in the form of low inflation as they started producing overseas. That's why Warren's inflation fears in the article never materialized. He didn't realize how beneficial moving everything overseas would be for the American consumer except of course for our hollowed out American towns.
- Nike owned their own stores overseas in which they got the benefits of their real estate holding increases. So did Apple, McDonald's, Starbucks, KFC, The Gap and I could go on and on. This all increased shareholder value in which we all benefited from. Except of course for you know who.....
So in short, Warren's fears that others would rise because they would own what we failed to produce didn't happen because he couldn't account for how we replaced it. I mention the hollowed out towns because that was the one thing we continually neglected through the era of globalization. For me it causes cognitive dissonance because I have no answers for what we could've done other than probably helping them through good fashioned socialism. That of course is a major no no in the US but that's a different story. Our failure to deal with this led to the opioid crisis and the rise of Trumpism. And that's where we find ourselves today!
