Globalized Trade Being Destroyed by Robotics and 3-D Printing

Newport Beach, CA

New winners and new losers are being created as intelligent robots and 3-D printers shrink the payoff from international trade and global outsourcing.

Change can be very rapid, and can take us in very surprising directions.

For example, innovations in logistics and supply chain management during World War II paved the way for the modern era of globalization.  The June 6, 1944 D-Day invasion involved supply chain buildup and movements for 2.5 million tons of military supplies and the 1.3 million troops in less than one year. War planners pioneered ocean-going containers that could be transported from ship to rail or truck. An American company in 1958 built the world’s first container ship to carry 58 containers, modern ships can now carry up to 20,000 containers. Surging globalized demand for transportation led to the rapid development of Middle East energy supplies.

These changes created new economic incentives. The explosion of container shipping meant that goods and parts no longer had to be made in the proximity to their users, according to Stratfor’s Rebecca Keller.  As location became less of a factor in production, the importance of other considerations such as labor costs rose. As low-end manufacturing took off in Asia, supply chains also became longer and more complex.

Keller argues that the “creation of the World Trade Organization accelerated globalization by regulating the new economic environment and helping to link producers with their buyers. A number of industries, including the automobile and electronics sectors, were able to take full advantage of the sweeping changes the container ship had wrought.”

Globalization encouraged companies to take advantage of factors such as inexpensive labor and government subsidies, rather than manufacturing near the final market. Coupled with a strong pro-commerce environment, global trade increased tenfold between 1980 and 2007.

Raw materials to create laptops are now be sourced from six continents. The LCD screens can come from South Korea, computer chips from Malaysia, other components from Vietnam, and final assembly performed in China. Even the extremely high-tech Boeing 787 is now pieced together by nine different countries in North America, Europe and Asia.

But this multi-decade process of globalization is being reversed by the next wave of technology.

Advanced robotics, artificial intelligence and additive manufacturing are dramatically lowering the costs of production.

Robotics have been around for decades, but innovations in the complexity of programming is allowing increased robotic dexterity to perform assembly of more intricate products, such as those involving complicated wiring and circuitry. Automating away manual assembly processes whose comparative advantage for outsourcing was cheap labor, threatens to undo the biggest driver underpinning globalization and convert extended supply chains into costly legacies.

Additive manufacturing, commonly known as “3-D Printing,” is further degrading the cost savings from globalization. Traditional “batch” manufacturing practices require a series of separate molds and multiple steps to achieve economies of scale cost reductions.

But 3-D printers can produce multiple designs and perform multiple steps on the same machine. Consequently, batch manufacturing can have “diseconomies of scale” costs. Manufacturers moving to 3-D printing threatens to reverse many of globalization’s cost advantages from supply chain specialization and standardization, encouraging more parts to be made in fewer locations.

Manufacturing plastic and composite parts with 3-D printers is already competitive for a growing number of products. But 3-D printing of metal parts is still generally less reliable and more expensive than globalized parts making. But in a decade, 3-D Printing will be cost advantageous.

This new industrial revolution will not eliminate all the benefits of cheap labor, but it will shrink the number of countries that can industrialize, diversify and grow their economies. This will make trade more regionalized as production migrates back toward consumer countries.

Stratfor suggests that trade blocs such as NAFTA could become virtually self-sufficient over the next couple decades. Regionalization of trade has clear benefits for the United States as a highly-educated and high-wage nation and Mexico as a less-educated and lower-wage nation.

But poor nations in East and Central Africa, as well as parts of Southeast Asia, that thought globalization would allow their cheaper labor to eventually replace China as the world’s next manufacturing bases, could face continued stagnation.