The geography of the global economy is very different today
We all knew this was coming though
I’m gonna start this weekend post with a big caveat. I am NOT an economist. I took an economics class in high school, an economics class in college, and a more functional city economics classes when I was earning my masters degree. Despite all that education, I can say, without a shred of doubt in my mind, that I do not know how the economy of a country works or functions. So I won’t waste your time (or mine) by trying to explain any of the small details associated with economics. That said, I am a geographer and I absolutely can help explain what the global impact of Trump’s new tariffs will be.
There’s this really fun geographic theory that I quite enjoy explaining. In fact, when I taught at the university level a few years back, I made a habit of bringing it up as much as possible. In my opinion, if you can understand this theory, you can understand much of how the world works, geographically speaking. This is the time-space compression theory. Basically, it goes like this: as transportation and communications technologies have increased, the amount of space between us gets smaller.
To put it another way, 200 years ago to go from the east coast of the US to the west coast of the US (which didn’t really exist yet but bare with me) would take months of hard travel. 100 years later, with the advent of trains that connected the coasts, it took a week, maybe two depending on connections and the like. Today, it takes 4 hours. Maybe 5 hours? Regardless its a negligible difference. But that’s just transportation, communication is also key here. In which case, you can follow the same line except communication has generally always moved faster. Today, obviously, you can speak with someone over a video call as if they were in the room with you. It’s as if the world is physically smaller than it was 100 or 200 years ago. It’s not, but you get the idea.
You may be thinking at this point “what’s the point here?” and “How does this tie into the global economy?” Well let’s get to that.
While the time-space compression theory sounds good overall, and it is, it’s had some unexpected results as it relates to global economics and trade. In the 1800s and early 1900s, as the world was industrializing, many things we purchased was made locally, or maybe regionally. Shirts, tools, furniture, appliances, etc. were all made nearby and purchased by locals, mostly. This is because the time-space compression at the time meant that it was impossible to outsource the making of your goods to someplace far away where, perhaps, there was cheaper labor or more relaxed labor laws. If you tried that, the shipping costs would be astronomical and you would never be able to make a profit. But, as had happened in the past, and will continue to happen in the future: transportation and communication technologies got faster and the world got even smaller. Which is when the word “globalization” enters the mix, a key term in understanding time-space compression theory today.
Globalization is basically the geographic and economic state we find ourselves right now. Because transportation and communication technologies are so advanced and freight logistics have become so efficient, it’s now easier and cheaper to make your product in one place, package it in another completely different place, and sell it in a third completely different place and make a nice profit off it all. Again, there are economic theories underpinning all of this, which I do not have the expertise to explain, but the geography here is pretty clear.
Unfortunately, globalization, while it has enabled wealth and cheap goods (more often than not due to the exploitation of others), it also caused entire industries to be upended in wealthier countries. Manufacturing plants, to use the most obvious example, was decimated beginning in the 1950s and 1960s because it became cheaper and easier to build things abroad. First in Mexico and then Japan and then China and now Vietnam and the list goes on and on. There’s always a cheaper place to make things, as it turns out. But there is one thing that can at least put globalization on hold, if only for a little bit: tariffs.
To be clear, tariffs have existed for longer than globalization as we know it today has. Tariffs have kind of always been a thing! The Boston Tea Party, which set in motion the steps to the original 13 colonies revolting against Great Britain and eventually becoming the United States we know today, was about a tariff! So this has been a thing for a very long time. But you would be forgiven if you haven’t really heard about them because, as far as history and economics has taught us, tariffs don’t really work. At least not as a sledgehammer. Maybe you could make an argument for using it as a precision scalpel. Often times, it can be of national interest to protect a key industry such as aeronautics manufacturing. To blanket launch a bunch of tariffs though is, economically speaking, crazy.
Which leads us to today: the United States and, specifically, Donald Trump, has enacted sweeping tariffs on basically every country in the world. Some of these tariffs are very high. A 46% tariff was levied on Vietnam, a country that many companies were trying to rely on to get away from the China-US trade wars of the past. 32% tariffs on Taiwan, a country that the US relies on for semiconductor manufacturing. 49% on Cambodia which I just don’t even understand here. This means that any good that comes in from these countries (or any of the other ones) will need to pay an extra 20-30-40-50% based on the value of the good. A $100 item becomes $120 or $130 for example, depending on the tariff levied. If reports are true, it sounds like the Trump administration asked ChatGPT how the balance trade deficits with each individual country and these were the tariffs amounts spit out by an AI that is consistently incorrect. Again.... Crazy!
Here’s the geography of it all though: tariffs don’t solve anything anymore. Maybe at one point they would have been effective (though the Smoot-Hawley Act BEGS to differ) and maybe in a surgical setting they can be, but global trade is like a very large river. If you throw a tariff sized boulder in it, the water will be disrupted but it’ll find the path of least resistance and go around it. In this case, the United States has thrown itself into the global trade river as an admittedly VERY large boulder. But it’s not a dam and the global economic waters will simply go around it. The geography here is pretty plain to see: if it’s no longer profitable to sell to the United States then companies will sell elsewhere where it is profitable.
If the new Nintendo Switch 2, which was just announced (yes I love Nintendo and yes I’m a nerd), is suddenly too expensive for American consumers and it doesn’t sell here, Nintendo won’t just sell at a loss, they’ll just stop selling in the United States. It’ll hurt them in the short term but they’ll find other markets to sell in and readjust their priorities accordingly. Apply the same logic to basically anything and you can see the pattern.
So the geography of the global economy is different today. Mostly because trade used to flow through the United States relatively freely. Today, however, it’s anything but. Countries that once relied on the United States to sell their manufactured goods or their grown crops or their mined materials will now look to sell their goods to other countries where the profit margins are better. Maybe not as good as they once were with the United States before today, but certainly better than they are today. The geographic implications of all this is intense, to say the very least. And I have no idea where it all goes from here.
This week, I’m hitting Vietnam’s historic French resort town to explore the country’s unique history of French colonization! If you’re interested, you can check it out right here:
Or over on the GeoLex Substack where it’s available ad-free.
My mother and my aunt were sent to school at the Convent des Oiseaux in Dalat for a couple of years 1946-47. She described it as a bit of an ordeal, with fierce nuns and unappetizing food. Apparently, my grandmother was horrified to find a white tiger roaming the grounds when she visited. “This is where I’m sending my daughters to school?” They were sent back to Bangkok when conditions in Dalat began to deteriorate. I understand that the school and convent are a museum now.
Since the pilgrims landed in America, to now 450 years since a normal economic cycle of about 350 for a large economy to come into fruition and triggered by an old fashioned idea into recession.
Like Redfern says, will only affect the US more than other trading countries. Most major economics are sufficient diverse now.
The US problem is gigantic public debt, and to gain an even more playing field with major global trading partners, is one to one trade negotiation. This futuristic way towards is best demonstrated by the United Kingdom.