April 16, 2012
GLOBALIZATION OF CAPITAL:
THE RISE OF THE MULTINATIONAL
Challenges of Globalization:
Economic Globalization
Cambridge Forum Conference
Robert E. Scott
Economist, Economic Policy Institute
Growth of Foreign Direct Investment has
propelled globalization process
• The growth of international capital flows has played a key role in
the globalization process. For the United States:
• Real U.S. GDP growth averaged 3.2% per year between 1980
and 2010
• U.S. – owned assets abroad increased 8.7% per year, nearly
three times as fast.
• Real Foreign Direct Investment (FDI) by U.S. Multinationals
increased 6.1% per year, or twice as fast as GDP.
• Real FDI in the U.S. by foreign MNCs has increased 9.5% per
year, three times as fast as U.S. GDP.
• The growth of daily trading in foreign exchange and derivatives has
exploded over the past three decades. Daily average foreign
exchange market turnover reached $4 trillion in April 2010, 20%
more than in 2007 (vs. annual world GDP of $63 trillion).
Changing roles of Multinationals in
international trade and development
• In the past, U.S. MNCs invested abroad to gain market access.
Overall, they exported more than they imported. For example, in
1999, U..S. MNCs had exports of $442 billion, imports of $391
billion and generated a trade surplus of $51 billion. The United
States had an overall trade deficit of $329 billion in 1999. Primary
destinations for U.S. FDI were wealthy countries.
• Over the past decade, U.S. MNCs outsourced large amounts of
manufacturing work to low-wage countries. As a result they have
become net importers of goods. In 2009, U.S. MNCs had exports
of $578 billion, imports of $703 billion and a trade deficit of $125
billion, 25% of the total U.S. trade deficit.
Foreign MNCs in the United States
• Foreign MNCs invest in the United States to increase
access to U.S. markets and gain access to U.S.
technology.
• Foreign MNCs had U.S. imports of $484 billion in 2009 and
generated exports of $220 billion, for a trade deficit of $264
billion, 53% of the total U.S. trade deficit.
• U.S. exports support domestic employment, and U.S.
imports displace production that could support domestic
jobs, so trade deficits displace U.S. employment. I’ve
estimated that the U.S. non-oil goods trade deficit
displaced 5.6 million U.S. jobs. Overall, U.S. and foreign
MNCs were responsible for nearly 80% of the U.S. goods
trade deficit in 2009.
Foreign MNCs and insourcing
• Federal and state officials and private businesses have extolled
the benefits of insourcing, such as the Hyundai “transplant” auto
assembly plants in Georgia and Alabama and new GE appliance
factories.
• However, these plants import large quantities of parts:
• The U.S. trade deficit in auto parts has nearly tripled over the
past decade,
• Since 2007, Korea’s share of the U.S. auto parts deficit
increased 4.5 percentage points.
• The U.S. Department of Commerce noted that over the past 14
years, for each new employee added to foreign-owned transplant
facilities, U.S. companies have laid off 6.1 employees.
• Between 1990 and 2005, insourcing displaced 4.0 million U.S.
jobs.
Global trends in FDI
• The Euro countries and the United States are the top hosts to
FDI in the world, with $5 trillion and $2.7 trillion, respectively in
total inward FDI.
• FDI in China has grown rapidly over the past decade and played
a key role in its economic development. Total FDI in China
increased from $369 billion in 2004 to $1.5 trillion in 2010.
Globally, China is now the third largest host to FDI, and Hong
Kong ($1.1 trillion) is number 5.
• Among developing countries, after China, Brazil ($675 billion)
and Mexico ($299 billion) are two of the largest hosts to FDI.
FDI and trade in China
• Growing trade surpluses have played a key role in China’s
very rapid growth and development over the past decade.
• MNCs (or Foreign Invested Enterprises, as they are known in
China) have been engines of growth, technology transfer and
exports in China.
• In 2010, China reported a global trade surplus of $183 billion.
MNCs were responsibly for more than half of China’s imports
and exports, and for 68% of its trade surplus in 2010.
China’s entry into the WTO and FDI
• China entered the WTO in 2001. China’s entry into the WTO
promised to increased market access and increased security for
foreign investors.
• China has also offered many benefits to foreign investors, such as
access to free or low cost land, facilities, and capital. China also
subsidizes the costs of many basic inputs including energy, steel,
glass and paper. China also prohibits free and independent trade
unions and suppresses wages. Finally, China has suppressed the
value of its currency by approximately 30%. This acts as a subsidy
to all of China’s exports, and a tax on exports to China.
• Many of China’s trade and industrial policies conflict with its WTO
obligations.
• The rapid growth of China FDI and trade has contributed to rapidly
growing trade deficits and job loss in the United States.
U.S. – China trade and job loss
• The U.S. trade deficit with China increased from $84 billion
in 2001 to $278 billion in 2010. U.S. imports exceeded
exports by more than 4-to-1.
• The growth of the U.S. trade deficit with China between 2001
and 2010 displaced 2.8 million jobs.
• FDI in China by U.S. and foreign MNCs has played a key
role in growing trade deficits and job displacement.
• China also sustained growing global trade surpluses in the
1990s, and massive capital outflows. These contributed to
imbalanced growth in countries with chronic trade deficits
(such as the United States) and the growth of housing
bubbles (by lowering global interest rates.
• NAFTA has had similar effects on FDI in Mexico, and on
U.S. trade and employment.
FDI and the North American Free Trade
Agreement
• NAFTA took effect in 1994. It was the template for more than a
dozen FTA’s the United States has negotiated since that date.
• NAFTA provided a secure business environment and offered many
benefits to foreign investors. It required Mexico (and Canada) to
eliminate trade-related industrial policies such as local content,
export requirements and minimum levels of local management
employment.
• The NAFTA Investment chapter provided unprecedented legal
protections under the Investor-State dispute resolution mechanism,
which established special tribunals where foreign investors could
sue foreign governments that imposed costly regulations.
• NAFTA dispute resolution panels have awarded $hundreds of
millions in awards to MNCs, which has had a chilling effect on
regulation of many parts of the economy.
U.S. – Mexico FDI, trade and job loss
• FDI in Mexico tripled after NAFTA took effect, with annual
inflows rising from 1% of GDP in the decade before NAFTA
took effect to 3% between 1994 and 2007.
• The U.S. had a small trade surplus with Mexico in 1993,
before NAFTA.
• By 2010 the U.S. had developed a trade deficit of $97 billion
with Mexico.
• The growth of the U.S.-Mexico trade deficit displaced
683,000 U.S. jobs between 1993 and 2004.
• Outsourcing to Mexico and FDI by foreign multinationals has
contributed to the rapid growth of exports from Mexico to the
United States and to the loss of manufacturing jobs. Job
displacement has been concentrated in the upper Midwest—
aka the rustbelt.
Rebalancing global trade and investment
• The G-20 has agreed that, large, chronic global imbalances
must be eliminated.
• China and other Asian currency manipulators need to
appreciate 30 to 40 percent, relative to the dollar.
• Other unfair trade practices must be eliminated, and new
approaches to trade and industrial policy must be adopted in
the United States.
• The United States needs to dramatically increase
investments in infrastructure, education and training, R&D,
clean energy and green technologies, and in health care and
the safety net.
• In the long run, after full employment is achieved, we must
also rebalance spending and employment, to eliminate
budget deficits and raise national savings.
Total foreign Direct Investment, 2010
(billions of dollars)
Top Twelve, Developing.
Top Ten, Globally
Rank
1
2
3
4
5
6
7
8
9
10
United States
Luxembourg
China,P.R.: Mainland
United Kingdom
China,P.R.:Hong Kong
France
Germany
Belgium
Brazil
Spain
$2,658.9
$1,865.5
$1,476.4
$1,227.1
$1,089.9
$1,008.4
$910.4
$901.0
$674.8
$621.8
Rank
1
2
3
4
5
6
7
8
9
10
11
12
China,P.R.: Mainland
China,P.R.:Hong Kong
Brazil
Russian Federation
Singapore
Mexico
Hungary
Poland
India
Turkey
Indonesia
South Africa
Source: EPI analysis of International Monetary Fund (2010) International Financial Statistics (CD ROM) April (2012)
$1,476.4
$1,089.9
$674.8
$493.4
$461.4
$298.5
$209.3
$201.0
$198.4
$181.6
$154.2
$153.1
Foreign Direct Investment in China, 2004-2010
China world trade figure
China's world trade, total and by FIE, billions of USD
2009
2010
Exports
1,201.8
1,577.9
Imports
1,005.6
1,394.8
Trade Balance
196.1
183.1
Growth
31.3%
38.7%
-6.6%
trade of FIEs
Exports
Imports
Trade Balance
2009
672.2
545.2
127.0
2010
862.3
738
124.3
Growth
28.3%
35.4%
-2.1%
FIE shares of total China
trade
Exports
Imports
Trade Balance
2009
56%
54%
65%
2010
55%
53%
68%
Growth
-2.3%
-2.4%
4.8%
U.S. China trade and job displacement, 2001–10
U.S. trade with China ($billions, nominal)
* Domestic exports are goods produced in the United States, and exclude re-exports, i.e. goods produced in other countries and
shipped through the United States. Total exports as reported by the U.S. International Trade Commission include re-exports. Total
exports were estimated to be $91.9 billion in 2010 while U.S. re-exports to Mexico represent 6.67% of total exports. The employment
estimates shown here are based on domestic exports only. See text, note 5 for further details and references.
Source: EPI analysis of data from the U.S. Census Bureau (2009), U.S. International Trade Commission (2011), and Bureau of Labor
Statistics (2010a and 2010b). For a more detailed explanation of the data sources and computations, see the appendix.
Foreign direct investment in Mexico
tripled after NAFTA, 1980–2007
U.S. Mexico trade and job displacement, 1997-2010
U.S. trade with Mexico ($billions, nominal)
U.S. domestic exports*
U.S. imports for consumption
U.S. trade balance
Average annual change in the
trade balance
1997
$68.4
85.0
-16.6
2000
$100.4
134.7
-34.3
2007
$119.4
210.2
-90.8
2010
$131.6
228.8
-97.2
Changes in:
($billions)
1997-2010
2007-10
$63.2
$12.2
$143.8
18.7
-$80.6
-6.4
-6.2
-2.1
Percent
change
1997-2010
92%
169%
485%
14.6%
U.S. trade-related jobs supported and displaced (thousands of jobs)
U.S. domestic exports
U.S. imports for consumptionjobs displaced
U.S. trade deficit-net jobs lost
1997
523.7
2000
767.1
2007
780.7
2010
791.9
626.3
102.6
966.7
199.6
1,347.2
566.5
1,474.8
682.9
Changes in:
(thousands of jobs)
1997-2010
2007-10
268.2
11.2
848.5
580.3
127.6
116.4
Percent
change
1997-2010
51%
135%
566%
Domestic exports are goods produced in the United States, and exclude re-exports, i.e. goods produced in other countries and
shipped through the United States. Total exports as reported by the U.S. International Trade Commission include re-exports. Total
exports were estimated to be $163.3 billion in 2010 while U.S. re-exports to Mexico represent 19.4% of total exports. The
employment estimates shown here are based on domestic exports only.
Source: EPI analysis of Census Bureau, United States International Trade Commission and the Bureau of Labor Statistics public
data series