The Up-Side to High Oil Prices: It’s a Downer for Globalization

August 16, 2008

This article appeared a few days ago, but thought it was worth a look.  It’s the first analysis I’ve seen of the effects of high oil prices on trade.  I raised this issue a while back when I posted “U.S. Imposes Tariff on Chinese Hangers“, and questioned this very thing – whether it makes sense to consume millions of barrels of oil to ship products around the world that can be made right here at home.  It seems that if we want to cut oil consumption, this is some really low-hanging fruit!

I found the following excerpts particularly revealing:

“Globalization is reversible,” says Jeff Rubin, an analyst at CIBC World Markets in Toronto.

Well, maybe. No one predicts a wholesale return of manufacturing jobs to the United States. And there are other forces at work, including a weak dollar, which boosts exporters. But today’s oil prices act like a tariff on global commerce, discouraging long-distance shipment of some components and finished goods, Rubin says. Shipping a standard 40-foot container from Shanghai to the U.S. East Coast in May cost about $8,000, vs. $3,000 eight years ago, when oil was around $20 a barrel.

If long-term trends push oil prices near $200, as some analysts expect, sending that shipping container halfway around the world would cost a staggering $15,000.

First of all, of course globalization is reversible.  If the U.S. ever admits that it was a mistake to abandon its highly successful tariff policy in favor of an untested and fatally flawed free trade theory, then the reimposition of tariffs would reverse the adverse effects of globalization so quickly that factory managers in overpopulated nations around the world would be closing the doors and wondering what the heck happened!

Secondly, isn’t the second paragraph above a tacit admission that tariffs would breathe new life into America’s economy?  If so, then what are we waiting for?  Let’s impose them now and collect the tariff money ourselves instead of letting the oil exporters collect them!

So perhaps there’s an upside to high oil prices.  Maybe they will do for the American economy what our political and economic leaders don’t seem to have the courage or brains to do themselves!