Globalisation Sends US Manufacturing Jobs Overseas

You know the subprime collapse has hit the big-time when the guy who sells you coffee in the morning asks you about it. “Did you see that report on Four Corners last night about Cleveland?” we were asked this morning. “Yes. It was pretty sad.”

And it is sad. Cleveland was one of America’s great industrial cities. It became a hub of the iron ore trade when the iron ore from the Mesabi iron range in Minnesota made its way from Lake Superior to Lake Erie and then to the Steel City, Pittsburgh, where the hard anthracite coal of Western Pennsylvania happened to be.

Appalachian coal went from Cleveland back to cities like Chicago and Detroit and Minneapolis. Steel went too, building Chicago’s skyline, Detroit’s factories, and the millions of cars built by GM and Ford in the post-war boom.

All of that trade still takes place, but on a vastly reduced scale. The jobs, the manufacturing, and much of the heavy industry have moved off-shore, where wages are cheaper and the cost of production is lower (and where environmental regulations are less stringent.) Globalisation brought cheap manufactured goods from China, but it cost high-paying manufacturing jobs in America’s Midwest. It was high price, in exchange for everyday low prices.

And now comes the housing bust. A generation of blue-collar workers whose wages are falling now have subprime mortgages that will re-set at higher rates in the coming months—unless the Fed cuts rates dramatically or a bail out is organised. It is strange that the housing bubble should hit America’s Rust Belt as hard as it’s hitting the Sun Belt. But easy money is universally tempting.

For the speculators in the housing boom, we don’t feel any pity. But there’s no denying a lot of Americans, through ignorance and not greed, are going to pay a very steep price for thinking they can get something for nothing. We hope the same doesn’t happen here in Australia. But there are many similarities.

Dan Denning
Markets and Money

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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3 Comments on "Globalisation Sends US Manufacturing Jobs Overseas"

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“We hope the same doesn’t happen here in Australia. But there are many similarities.” Gee, ya think? For a year now I’ve been smacking my forehead over the Australian media’s ostrich approach to the fact that most people here cannot afford the houses they live in. No wonder so many Joes here fell for it, considering how ill-informed they are by the dailies. Going by those, you’d still think the global credit bubble deflating is just “US sub-prime”. “Solvency” might not even cross your mind. Now that the inevitable credit fiasco is happening, the first glimmerings of awareness are hitting… Read more »
William Place

Everyday low prices, more deadly that thermonuclear warheads. Walmart and the Chinese communists have succeeded where the Soviets failed. Khrushchev was right about not having to fire a shot, he was only wrong about who would be the winner.

Steven Capozzola

The bottom line is JOBS. The U.S. lost 46,000 manufacturing jobs in August 2007. More significantly, the ongoing losses are taking a cumulative toll on communities throughout the country. We need to adequately enforce our trade laws, and hold countries like China accountable for illegal trading practices such as currency manipulation. Otherwise, we’ll continue to shed manufacturing jobs.

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