"...Prometheus, torn by the claws and beaks, whose task is never done..."

The first in a series of articles profiling thinkers who were early in predicting global dis-integration.

We begin our series by analyzing an article written by military strategist T.X. Hammes in 2016 titled The End of Globalization? The International Security Implications

Early signs of weakness in globalization

Hammes begins his analysis by pointing to early signs of weakness in the globalization project post-2008 financial crisis.

“Then, the 2008 to 2009 global financial crisis slowed global trade. This led to early speculation that globalization was slowing. Yet global merchandise trade recovered relatively quickly, almost reaching pre-crisis levels by 2011. Speculation about slowing globalization ceased. Unfortunately, manufacturing trade as a percentage of GDP actually flattened and then declined from 2011 to 2014. Services and financial flows followed the same pattern.”

In 2016, the flatlining of manufacturing and services trade as a percentage of GDP was a relatively fresh phenomenon. Hammes stakes his claim that these trends won’t reverse any time soon. His prediction has been borne out so far, as both manufacturing and services trade proportions have trended downward since the 2011 peaks.

“Many analysts contend that these are short term effects and trade will resume and even accelerate. I take a different view. The convergence of new technologies is dramatically changing how we make things, what we make, and where we make them. These technologies combined with trends in energy production, agriculture, politics, and internet governance will result in the localization of manufacturing, services, energy, and food production. This shift will significantly change the international security environment.”

While he admits that the forces driving the reversal of globalization are multi-faceted, Hammes places extensive weight on new possibilities created by technology advancements that support the economic logic of re-shoring production. The following article discusses four key innovations applying to the manufacturing, services, and agricultural sector that Hammes highlights. These innovations impact the production process along several key dimensions including process automation, reduction of complexity, reduction of production constraints, and enhancing the quality of outputs. The article will attempt to summarize how Hammes saw these innovations combining with other economic and political trends to promote a general movement towards dis-integration and re-shoring of global trade.

Automation driving re-shoring logic

A rapid expansion of industrial robot capacity, along with new possibilities created by 3D printing would usher in a wave of automation in manufacturing, according to Hammes. Already, in 2016, new industrial robot installations were accelerating at double-digit rates.

“Between 2010 and 2013, world industrial robot installations increased by 17 percent annually; in 2014 by a further 29 percent. These figures do not include collaborative robots designed to work alongside humans. Very new, these robots represented less than 5 percent of 2015 global sales. But at an average cost of only $24,000, they will appeal strongly to the smaller companies that account for 70 percent of global manufacturing.”

Global growth projections in robot installations made in 2015 have been met and 2021 saw a significant jump in new installations to record levels. The connection between increased roboticization and reversing globalization are straightforward. As automation in the factory increases, labor costs shrink as a percentage of manufacturing cost, directly reducing the labor arbitrage benefits of offshoring production.

Alongside industrial robot growth, Hammes predicted that 3D printing would have profound implications for how things were made in the future. While the impacts of industrial robot growth are straightforward, the potential implications of 3D printing on the global manufacturing space are more nuanced.

The technology allows for more refined control over the design and production of complex machine parts as well as more flexible inventory management for manufacturers.

“The auto, truck, and aircraft parts industries see the potential of 3D printing. Rather than stocking the wide variety of parts in the spectrum of colors and finishes they use, parts makers are looking to maintain only digital files and print on demand.

More revolutionary, designers can now design an object to optimally fulfill its purpose rather than to meet manufacturing limitations. Years ago, Boeing took advantage of 3D printing’s unique capabilities to redesign a cooling duct for the F/A-18 Hornet. Instead of being made from sixteen separate parts, the part is printed as a single unit that is lighter, stronger, and optimized for air flow efficiency. Similarly, General Electric replaced jet engine fuel nozzles made from 18 smaller parts with a single, lighter, stronger, longer lasting, and cheaper 3D printed part.

3D printing can also increase the strength of a product through honeycomb construction, like that of bird bones. Very difficult to make with traditional manufacturing, 3D printing can do this with relative ease. Further, 3D printing can create gradient alloys which expand the material properties of the product. And 3D printing can actually improve the performance of existing materials. Additive manufactured ceramics can have 10 times the compressive strength of commercially available ceramics, tolerate higher temperatures, and be printed in complex lattices further increasing the strength to weight ratio.”

When considering a manufacturing technology’s impact on globalization, its effect on the cost of production is likely the most important factor. 3D printing seems to offer several benefits here. By allowing complex designs to be printed out of a single material substrate, 3D printing could collapse complex supply chain networks for certain kinds of products that today require manufacturing multiple different components separately and then bringing them together. 3D printing can also turn the inventory management process into a digital process from a physical one, allowing manufacturers to simply maintain digital copies of product designs and print as necessary, instead of stockpiling products and components in advance.

However, 3D printing seems to offer advantages in terms of enhancing the quality of output as well, which will make it even more attractive for companies. Predicting the full extent of the technology’s impact on manufacturing will depend on exactly what specific kinds of outputs can be reliably produced. It is unlikely that all products will be most effectively produced through 3D printing, but the potential use cases range across a variety of industries.

Services and agriculture

Industrial robots and 3D printing will dramatically alter the economic logic of manufacturing throughout the globe according to Hammes. Meanwhile, advancements in artificial intelligence and agricultural technology will push against globalization in the service and agricultural sectors.

Hammes suggests that advancements in natural language processing and speech recognition technologies will begin to replace humans in certain service industries that are prone to outsourcing, like call centers.

“Artificial intelligence is already handling tasks formerly assigned to associate lawyers, new accountants, new reporters, new radiologists, and many other specialties. In short, non-routine tasks — whether manual or cognitive — will still be done by humans while routine tasks — even cognitive ones — will be done by machines. And this is not a new phenomenon, computer technology has been eating jobs since 1990.

With labor costs much less of an issue, better communications links, better infrastructure, more attractive business conditions, and effective intellectual properly enforcement, services are returning to developed nations. The few, more complex questions that require human operators are better handled by native language speakers intimately familiar with the culture.”

A cursory glance at the data shows that most call centers opened or expanded between 2016 and 2021 were in the United States. This would seem to support Hammes’ thesis since it is likely that those call centers are servicing American companies (though it would be useful to compare this to data pre-2016).

SIDE NOTE: However, the same improvements in “communications links and infrastructure” that Hammes cites in the article might also create a new pro-globalization wave in other service sectors that have traditionally been immune to outsourcing. Education and healthcare are just two major examples. Online video conferencing software, improved online collaboration tools, and expansion of internet infrastructure throughout the globe might make telemedicine and online learning more viable. Patients and students can seek services from doctors and educators around the world rather than only those who are nearby.

Agriculture would also see some movement away from globalization due to indoor farming technology according to Hammes. Next to his insights on 3D printing, Hammes’ views on the trajectory of agriculture were some of the most surprising for me. The dependence of agriculture on particular climactic and agricultural circumstances — a specific crop can only be grown in certain types of environments — made it seem particularly prone to globalization. As economies expanded and consumers demanded more choice around the globe, nations would have to source agricultural product from wherever it could be grown.

However, indoor agriculture could “undercut” the trend of globalization in agriculture because indoor environments are more subject to control and less vulnerable to the vagaries of weather. As a result, indoor farmers can grow different types of crops and keep their farms operational year-round regardless of what conditions are outside. Of course, space is a constraint for indoor agriculture and it is unlikely that all kinds of crops can be grown indoors. Hence, it is unlikely that agricultural trade, as a whole, will de-globalize. However, indoor agriculture represents a trend within the sector that pushes against the logic of globalization.

“Agriculture is another area that has seen increased global trade over the last few decades. High value fruits, vegetables, and flowers move from nations with favorable growing conditions to those without. However, indoor farming has begun to undercut this trade by providing locally produced, fresher, organic products. Depending on the product, such farms can produce 11 to 15 crop cycles per year. A facility in Tokyo produces 30,000 heads of lettuce per day and plans a second plant to produce 500,000 head of lettuce daily within 5 years. Now that the concept has been proven, Japanese firms are putting 211 unused factories into food production.

The industry is not restricted to Japan. A firm in the United States is planning to establish 75 indoor factory farms. Growing Underground is exploiting the concept in London. Similar urban farms are being built across Europe and Russia. These indoor farms do not require herbicides or pesticides, use 97 percent less water, waste 50 percent less food, use 40 percent less power, reduce fertilizer use, reduce shipping costs, and are not subject to weather irregularities. Scaled-up, these processes will seriously reduce the market for long-range shipping of high value agricultural products. Japanese firms are even experimenting with growing rice in a number of their facilities.

All of the factors listed above are being reinforced by social pressures to “buy local” to reduce the environmental impact of production. Local production both creates jobs near the consumer and dramatically reduces transportation energy and packaging waste. Indoor farming can almost eliminate the environmental impact of farming on land and waterways.

Technology changes the underlying economics of production

The effects of the various technology trends that Hammes highlighted in 2016 have not been fully realized yet. Their effects on societies and economies around the world will be profound and multi-faceted. Their effects on global trade will also be multi-faceted, but, according to Hammes, their combined effect will be to decelerate the process of global economic integration and perhaps even push it into reverse.

The major impact of automation and 3D printing will be to lower labor costs as a proportion of manufacturing production cost. As the share of labor decreases, the share of costs related to freight and managing complex international supply chains will increase. The ruthless logic of competitive economics will push firms to reduce these costs next, driving more production on-shore and closer to their respective consumer markets.

Besides broad-based cost reduction, new technologies can also create additional advantages in certain niches. For example, 3D printing can reduce the complexity of manufacturing certain types of machine parts and improve the quality of certain kinds of products; indoor agriculture can liberate farmers from ecological constraints for certain kinds of crops.

Compounding de-globalization

Hammes views the aforementioned technology changes as part of the “first step” in the de-globalization process. Other forces like the shifting energy mix of the world and the changing political narratives surrounding globalization also appear aimed at slowing the globalization process. These various forces will evolve in parallel and reinforce one another.

“The reduced demand for transportation fuels, alternative energy technologies, and increased energy efficiency are reducing the global movement of coal and oil. While starting from a small base, renewable energy — wind, solar, thermal — is growing very rapidly. In 2014, 58.5 percent of all new additions to global power systems were renewables. In 2015, 68 percent of the new capacity installed in the United States was renewable. As vehicle fuel efficiency, hybrids, and all-electric vehicles improve, the source of transportation energy will also move from petroleum to electric energy. Wood Mackenzie suggests that U.S. gasoline demand could fall from 9.3 million barrels/day to 6.5 million barrels/day by 2035. Fracking, alternative energy, and new efficiencies have already dramatically reduced the U.S. need for imported energy. If other nations can make similar advances in these areas, it will slow and then reduce the global trade in gas and oil.”

“Political campaigns in the United States and Europe reveal the growing popular opposition to international trade treaties. Donald Trump and Hillary Clinton both oppose the Trans-Pacific Partnership. Its Atlantic counterpart, the Transatlantic Trade and Investment Partnership, is still being negotiated but faces growing political opposition on both sides of the Atlantic and may have been dealt a fatal blow by the Brexit vote.

While the assumption that global trade is good may still exist among American policymakers and economists, it is rapidly fading among the general population. In 2002, Pew Research found that 78 percent of Americans supported global trade. By 2008, the percentage had fallen to 53 percent. In 2014, when Pew changed the questions from whether trade was good for the nation to whether trade improved the livelihood of Americans, favorable ratings plunged. Only 17 percent of Americans thought trade leads to higher wages, only 20 percent believed it created new jobs.”

The net result of these changes will culminate in a fundamentally new posture of the United States regarding its role as the guarantor of safe and free global trade. Hammes claims that, since 1945 the United States employed its power to protect and promote globalization for both economic and security reasons. If advances in technology and shifting political opinion create a scenario where the U.S. no longer sees globalization as a source of economic advantage, then employing U.S. resources to protect globalization will appear as a waste. If the U.S. no longer uses its strength to underwrite the security of international trade, this will kick the process of global dis-integration into overdrive as nations struggle to engineer new trade and security relationships at great speed.

“Since 1945, the United States has pursued globalization for both economic and security reasons. However, for economic and domestic political reasons, whichever party wins the next election it will likely encourage each of the trends discussed in this paper with tax breaks, trade policy, and administrative actions. The cumulative effect will be to discourage and undermine the case for globalization while potentially strengthening the U.S.-Canada-Mexico trading bloc. Similar pressures may drive nations across the globe to regional trade blocks.

In turn, if globalization no longer has major economic benefits for the United States, then employing U.S. power in an effort to maintain global security will be seen purely as a cost. This will create a very different domestic environment for the practice of U.S. foreign policy. Deglobalization will reduce the American people’s interest in propping up global stability at exactly the time the widespread dissemination of smart, cheap weapons will significantly increase the costs of doing so. Faced with growing social and infrastructure needs, Americans may no longer be willing to underwrite international security with their tax dollars. Under these conditions, the United States public may demand a return to a limited strategic concept of defending the hemisphere and assuring access to the global commons. The U.S. military’s primary mission may revert to the punishment of bad behavior (gunboat diplomacy) rather than engagement to stabilize a region.”

The advance of technology is a creative-destructive process. T.X. Hammes, in 2016, saw a confluence of advances in technology leading to the destruction of a global economic paradigm that had evolved and persisted for decades. The technology would change the economic equation, which would in turn change the political equation, which would ultimately change the security equation for the world, profoundly altering international relationships that had been cultivated over generations.

Next up?

I will leave it to the reader to determine how much of Hammes 2016 thesis has played out in the ensuing years. I personally believe much of what he predicted seems to have unfolded, though a much deeper analysis is required to understand the current trajectories of the various technology trends that were discussed.

Hammes’ thesis places a great emphasis on the impact of technological innovation on changing the calculus of globalization. The next analyst we’ll discuss comes at the issue of globalization from the starting point of geopolitics and develops a thesis from there.

I’m not an expert in this subject by any means, just a curious student. Please share your thoughts, comments, or questions. Would love to start a discussion.