In the complex networks of globalization, nodes can simultaneously become “choke points,” notes Wharton School business professor Stephen J. Kobrin. When any one of them fails, it threatens the entire network—a reality that became almost comically apparent this week when a container vessel the length of the Empire State Building wedged its bulbous nose into a bank of the Suez Canal, blocking the waterway and causing a shipping backup north to the Mediterranean, south to the Red Sea, and beyond.
Puny by comparison, the image of a digger trying to extricate the colossal vessel became an instant social media meme. More prosaically, the stranded Ever Given has become an apt symbol for the fate of globalization, the latest wave of which was spurred—somewhat ironically—by the invention of the shipping container in 1956. (The Ever Given can transport up to 20,000 of these big metal boxes, each of which can fit on a tractor-trailer.)
If the 2008 financial crisis exposed the risks of contagion as a result of global financial integration, the pandemic has highlighted the perils of unbridled interdependence in trade. The first shock helped immiserate the middle classes across the industrialized West and led to a populist backlash against globalization. Covid-19 has damaged the globalization project even further by highlighting the fragility of supply chains, as well as the mounting risks of viral contagion in an interconnected world.
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A digger clears the area around the bow of the stuck Ever Given on March 25.
Source: Suez Canal Authority
This week in the New Economy
Global manufacturing has become over-concentrated, reflecting a corporate obsession with cost and efficiency over safety and sustainability. When the coronavirus took off in the U.S., it exposed the fact that almost half of the country’s personal protective equipment is made in factories in China. Suddenly, those production nodes became choke points.
Now that an unexpectedly swift economic recovery seems to be taking hold, nodes are seizing up everywhere. Semiconductor foundries can’t keep up with demand from carmakers. Ports are congested, especially at America’s largest in Los Angeles, and shipping containers are in short supply. The Japanese-owned Ever Given has exacerbated these problems by severing a critical artery that usually carries 12% of global trade.
Advocates of globalization tend to focus on linkages enabled by digital technologies, like Zoom video conferencing, that have kept office workers busy during Covid lockdowns. “I am a technological determinist,” declared Tom Friedman, the New York Times author of “The World is Flat.” He adds that “technology is not just interconnecting the world: it’s actually making the world interdependent.”
Excessively so, caution the skeptics. And while the march of technology may be inevitable, the way production has become ultra-specialized is fueling dangerous uncertainties.
A chip wafer made by Taiwan Semiconductor Manufacturing Co.
It turns out that almost 90% of the most advanced semiconductors are assembled by one company—Taiwan Semiconductor Manufacturing Co.—which makes the island nation a strategically important choke point (it’s already a political one) in the technological Cold War between the U.S. and China. Beijing has deliberately created a chokehold over the production of rare earths used in a wide array of high tech products, and has talked about restricting their export to the U.S.
The Suez Canal blockage, meanwhile, has underscored China’s own vulnerability to maritime node disruptions. As my Bloomberg News colleagues David Fickling and Anjani Trivedi report, China imports amost three-quarters of the oil it consumes, as well as about four-fifths of the iron ore behind its frantic infrastructure buildout.
The insecurity these facts generate is in part driving the nation’s destabilizing efforts to assert control over the South China Sea.
In the latest installment of our Bloomberg New Economy Conversations series this week, we highlighted how there is no future for our planet without the kind of globalized effort that produced breakthrough Covid vaccines. Scientists and researchers all over the world have worked together to develop diagnostics and therapies that will (hopefully) soon return the global economy to something approaching normal.
A smaller, yet similar international effort is underway in the Suez Canal to refloat the Ever Given.
In too many ways, globalization is coming to be defined more by its risks (the choke points) than its benefits (the linkages). Fixing that, as Professor Kobrin argues, will mean finding a better balance between economic independence and integration. The challenge will be to find that harmony without upsetting the project altogether.
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OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
