Essay of the Day: Why Localization is Inevitable in a Resource-Scarce World
* Article: The New Geography of Trade: Globalization’s Decline May Stimulate Local Recovery. By Fred Curtis, David Ehrenfeld. Solutions Journal, Volume 3 | Issue 1 | Page 35-40 | Jan 2012
Introductory Citation
“It is an article of faith that global trade will be an ever-growing presence in the world. Yet this belief rests on shaky foundations. Global trade depends on cheap, long-distance freight transportation. Freight costs will rise with climate change, the end of cheap oil, and policies to mitigate these two challenges. At first, the increase in freight costs will be bad news for developed and developing nations alike but, as adjustments in the patterns of trade occur, the result is likely to be decreased outsourcing with more manufacturing and food production jobs in North America and the European Union. The pattern of trade will change as increasing transportation costs outweigh traditional sources of comparative advantage, such as lower wages. The new geography of trade will not result from policy or treaties but from the impact of changing environmental conditions due to the growth of the human economy. … Many goods will be manufactured closer to where they are consumed, as supply chains become more regional and local.”
Excerpts from Fred Curtis, David Ehrenfeld:
1.
“Climate change undermines global trade directly by its effects on transportation infrastructure and indirectly by its impact on energy infrastructure and prices. A 2010 Lloyd’s report stated, “Environmental change (extreme weather events,…changing sea levels and melting glaciers) will generate great threats to critical infrastructure and to transport routes.” Though reduced during the recession, CO2 emissions rose dramatically in 2010 to the highest recorded level. One manifestation of climate change is increased intensity and frequency of major storms. Hurricanes and typhoons damage low-lying coastal rail lines, airports, oil and gas pipelines, highways used to connect ports and distribution networks, and port facilities—all essential parts of global supply chains. They seriously affect ships and planes in transit. Heavy rainfall events are increasing in many parts of the world. Insurance claims for flood damage are rising faster than those for other natural disasters. Rising sea levels will submerge coastal highways and port facilities.
The damage to roads threatens global trade: roughly 40 percent of the U.S.-China supply chain consists of roads from factories to ports and from ports to distribution networks.7 If freight transport is significantly interrupted, rerouted, or slowed, costs will rise for both manufacturers and retailers using distribution systems that require goods to arrive as they are needed in production or on retail store shelves. The heat effects of climate change also reduce engine efficiency, increase cargo refrigeration needs, and therefore raise fuel costs for trucks, trains, ships, and planes. Climate change is thus expected to interrupt and slow freight transportation and make it more expensive.
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Manufacturers may relocate production closer to either suppliers of key raw materials or major markets to minimize transportation miles and costs.42,43 In 2008 some steel mills in the United States increased domestic production by directly importing iron ore from Brazil. This system bypassed the expensive trans-Pacific shipment of iron ore from Brazil to China and then of steel from China to the United States.
The resurgence of domestic manufacturing in developed nations could provide employment growth, especially for blue-collar workers. However, employment may decline in current low-wage manufacturing exporters as rising transportation costs make them less competitive. ”
2.
“There is, however, a second, more local, noncorporate response. This response is found in the Relocalization and Transition Towns movements now springing up in many developed countries. It is a bottom-up response that includes individuals and municipalities planning for a post-peak-oil future and altering their way of life, buying locally made products as much as possible, reducing consumption and acquisition, and increasing self-sufficiency within communities that produce many of the goods and services they consume. The resurgence in the numbers of young people going into farming in the United States is an example.
Relocalization strategies include local currencies, community land trusts, decentralized alternative energy development, water conservation and reuse, local food production, and new, locally oriented business networks.
Patterns of adaptation will differ from place to place. Initially, there will be heavy and unpredictable impacts on many developing nations that currently depend on foreign cash earned for commodity exports, or that import much of their food. Yet every country is different.
Even large urban complexes can provide a surprising quantity of their own food. In China, concerns over rising food prices (and food safety) have caused a boom in online sales of vegetable seeds.45 Shanghai now produces much of its own vegetables within its urban limits, as do cities in sub-Saharan Africa.46
If a developing country imports many goods and services, it has to pay for them, probably in part with money earned from commodity exports. When those exports are reduced by high shipping costs, some countries will have the capacity to rapidly increase local production of essentials for local consumption. Others, less fortunate, will take longer.
It is now critical for economic planners, laypersons, and governments to recognize that long-term energy and climate realities will impose limits on the global movement of goods. Trade pacts, like the U.S.-Korea Free Trade Agreement, and business models, like Walmart with its transoceanic supply chains, will make less sense as the foundations of global trade are undermined. This is not the result of either ideology or policy. Only when we accept these realities can we design and rebuild less vulnerable patterns of production and trade throughout the world. Nearly every country has existing examples of sound, regional development that can be used as models.
Global trade will not disappear, but as it wanes and as supply chains shorten, the importance of regional and local economies will increase. Manufacturing and food production for domestic consumption in the United States and other developed nations (and regions within nations) will regain an importance not seen since the first half of the twentieth century. Security strategies will be adjusted to reflect the increased role of domestic production in national affairs. We should plan now for these inevitable changes. Crises bring more than trouble—they bring opportunities.”
