Effects of a global economy

Bill Sims Contributing columnist

Bill Sims Contributing columnist

Not too long ago, a lead story in the Wall Street Journal opened with this: “Global supply-chain bottlenecks are feeding off one another, with shortages of components and surging prices of critical raw materials squeezing manufacturers around the world.” Unless you’ve shut yourself off from the rest of the world, you are aware of the millions of cargo containers sitting off the west coast of the United States waiting to get unloaded, threatening inventories of goods destined for shelves to feed demands for gifts over the winter holidays.

Recently, nearly 140 nations agreed to a new set of global corporate tax rules. Put simply, these rules would require a minimum corporate tax of 15 percent on companies with annual revenues of $870 million or more. Why? To thwart corporations from seeking low or no-tax jurisdictions to avoid tax liabilities. Some have called this avoidance syndrome a “race to the bottom.”

If implemented, it is estimated that these new rules would generate an additional $150 billion in revenues for countries that heretofore have lost these revenues due to corporate circumventions of revenue obligations through loopholes that either make revenues “disappear” in places like the Cayman Islands, or where taxation requirements are so low (British Virgin Islands, Bermuda, Guernsey) they attract corporate “headquarters” to lower these obligations. These 140 countries that have agreed to this pact must now ratify these rules, but there is a growing consensus that these rules are fair and just. Further indications of a globalized economy?

Further evidence? Let’s say that you want a new Ford F-150 or a Chevy Blazer. You may have to wait if you want all of the functionality in these vehicles because there’s a shortage of chips from a company in Taiwan called the Taiwan Semiconductor Manufacturing Company (TSMC). It makes the biggest percentage of chips in the world. The U.S. used to make 37 percent of the world’s chips, now it makes less than 12 percent. Citizens of America, that is a national security issue, and a piece of the reality of the global economy. More to the point, TSMC is upping its prices between 10 and 20 percent to help pay for new factories in the United States, and the People’s Republic of China.

Regarding that iconic Ford F-150 pickup, 46 percent of the truck parts are foreign sourced, according to a report in Fortune Magazine. Cars.com and its annual list the “Most American Made Cars” says that GM’s SUVs, which are put together in Dallas, Texas, have only 41 percent of those cars’ parts coming from the United States.

Corn and soybean prices? Those prices depend on a variety of different demand, weather and trade circumstances around the globe from Brazil to China to the U.S. markets.

Cost of goods in the United states? That all depends on bilateral and multilateral trade agreements, trade sanctions and trade wars.

My New Holland tractor evolved from the Ford brand but today, New Holland comes from Italy, and its safety switches which have failed several times now are made in China.

5G networks are coming on fast. The most advanced company in terms of equipment and patents for these 5G network devices is China’s Huawei Inc. The U.S. has security concerns about these advanced modems, but some of our allies think the price is too good to turn down creating tensions with our allies.

Germany wants Russian oil and natural gas despite our expressed concerns about how it might affect western economic and security cohesion.

If it weren’t for India, we wouldn’t have the supply of pharmaceuticals in the United States that we need and use on a regular basis.

If it weren’t for workers from Mexico and Guatemala, American families would find a lot of empty shelves in our grocery stores.

A February 2021 Gallup Poll reported that 50 percent of Americans now say that that China is the leading economic power in the world, while just 37 percent of Americans say it’s the U.S. While it’s not true yet, it could be true by the end of this decade.

Then there’s the issue of cryptocurrences. There’s nothing the Chinese would like more than to overtake the U.S. dollar when it comes to international finance and the payment globally for goods and services with a Chinese based cryptocurrency.

Finally, one of the effects of supply-chain bottlenecks is the effect on what has come to be known as “just-in-time” production. Manufacturers like Boeing, Airbus, GM, Ford, as well as tech companies have adopted this inventory management method of having suppliers from around the world ship parts on an as-needed, just-in-time basis. (A.) It keeps costs down and (B.) It reduces inventory holding costs.

But when the supply chain hiccups, global manufacturing slows, jobs are lost or put on hold, and at the end of the day, consumers suffer. Fold in the effects of COVID-19 and hiccups turn into a global economic pandemic.

The point of all of this is that team America needs to get its collective act together, leveraging its economic strength and policy prowess to get the best return on evolving, global economic issues and especially trade matters. If we continue to beat each other up politically, as a nation, then we will lose the global perspective keeping us at the vanguard of economic issues in this increasingly interdependent world.

Bill Sims is a Hillsboro resident, retired president of the Denver Council on Foreign Relations, an author and runs a small farm in Berrysville with his wife. He is a former educator, executive and foundation president.

Bill Sims Contributing columnist
https://www.timesgazette.com/wp-content/uploads/sites/33/2021/10/web1_Sims-Bill-mug-2.jpgBill Sims Contributing columnist