Effects of a global economy



Not too long ago, a flagship Wall Street Journal article opened: “Bottlenecks in the global supply chain feed on each other, with component shortages and soaring critical raw material prices that are crushing manufacturers around the world. Unless you’ve cut yourself off from the rest of the world, you’re aware of the millions of freight containers off the west coast of the United States waiting to be unloaded, threatening stocks of merchandise destined for shelves to fuel demands. of gifts on winter holidays.

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

If implemented, it is estimated that these new rules would generate $ 150 billion in additional revenue for countries that have so far lost that revenue due to the circumvention of corporate tax obligations through loopholes that make ‘disappear’ incomes in places like the Cayman Islands, or where tax requirements are so low (British Virgin Islands, Bermuda, Guernsey) they are luring corporate “headquarters” to lower those obligations. These 140 countries that have accepted this pact must now ratify these rules, but there is a growing consensus that these rules are fair and equitable. Other signs of a globalized economy?

Additional proof? Let’s say you want a new Ford F-150 or a Chevy Blazer. You may have to wait if you want the full functionality of these vehicles as there is a shortage of chips from a Taiwanese company called Taiwan Semiconductor Manufacturing Company (TSMC). It makes the highest percentage of chips in the world. The United States used to make 37% of the world’s chips, now it makes less than 12%. Citizens of America, this is a national security issue and part of the reality of the global economy. Specifically, TSMC is increasing its prices between 10% and 20% to help pay for new factories in the United States and the People’s Republic of China.

As for this iconic Ford F-150 pickup, 46% of the truck’s parts are of foreign origin, according to a report in Fortune magazine. Cars.com and its annual list of “Most Manufactured Cars in the United States” indicate that GM’s SUVs, which are assembled in Dallas, Texas, contain only 41% of the parts for these cars from the United States. .

Corn and soybean prices? These prices depend on a variety of different demand, weather and trade conditions around the world, from Brazil to China to US markets.

Cost of goods in the United States? It 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 is from Italy, and its safety switches which have failed several times now are made in China.

5G networks are coming quickly. The most advanced company in terms of equipment and patents for these 5G network devices is the Chinese company Huawei Inc. The United States has security concerns regarding these advanced modems, but some of our allies think the price is too good to drop, creating tension with our allies.

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

Without India, we would not have the supply of pharmaceuticals in the United States that we need and use on a regular basis.

Without workers in Mexico and Guatemala, American families would find lots of empty shelves in our grocery stores.

A Gallup poll from February 2021 reported that 50% of Americans now say China is the world’s largest economic power, while only 37% of Americans say it is the United States. While this is not yet true, it could be true by the end of this decade.

Then there is the issue of cryptocurrencies. There is nothing the Chinese would love more than to surpass the US dollar when it comes to international finance and global payment for goods and services with a China-based cryptocurrency.

Finally, one of the effects of supply chain bottlenecks is the effect on what is now called “just-in-time” production. Manufacturers like Boeing, Airbus, GM, Ford, and tech companies have embraced this method of inventory management of asking suppliers around the world to ship parts as needed, just in time. (A.) It reduces costs and (B.) It reduces storage costs.

But when the supply chain hiccups, global manufacturing slows down, jobs are lost or suspended, and ultimately consumers suffer. The effects of COVID-19 and the hiccups are turning into a global economic pandemic.

The point of all of this is for the U.S. team to pull itself together, leveraging its economic strength and political prowess to get the best feedback on evolving global economic issues and especially trade issues. If we continue to fight politically, as a nation, then we will lose the global perspective that keeps us at the forefront of economic issues in this increasingly interdependent world.

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

Columnist with Bill Sims


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