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The Good and Bad of Globalization

So, what do you do when business decisions made more than 30 years ago come back to haunt you? Well, you either acknowledge there's a problem and adjust accordingly — or deny there's a problem at all and cover it up.

When it comes to the topic of globalization, opinion about the efficacy of the political and economic forces that encouraged the industry to embrace free trade and globalized supply chains has become more contentious than ever. Some may write off questioning of globalization as merely a detour wrought by Trump; others may blame the pandemic; while others may continue along as if nothing has happened at all, ignoring the economic realities of our times and merely muddling along.

The good and bad of globalization

Indeed, globalization has brought about many good things: lower prices, greater product diversity, and often higher quality than would have otherwise been possible. However, globalization has also brought about many negatives: labor abuses, environmental harm, stepped up tensions between countries -- and nationalism.

Gosh, that last item drives home the point: globalization was supposed to shrink the world with free trade as the glue of a system bringing economic cooperation amongst nation-states. After all, the planet had its brush with nationalism in the 20th century. That resulted in World War II, and no one wished to repeat the mistakes that led to that conflagration. Remember Smoot-Hawley?

So, the story of globalization is a bit of a mixed bag. It was an experiment that yielded both good and bad.

But for many, the globalization of our industry beginning in the 1980s represents hard to reverse decisions. The horse has already left the barn. So many sunk costs, so many long-term relationships -- it's hard to undo. Here we are faced with a new paradigm in the industry: global supply chains don't work like they used to.

The myth of sustainability

Consumer tastes are changing, as are expectations for our industry. Sure, some of this is a result of the pandemic. But to be honest, such pressures were building long before the pandemic. All the pandemic did was to highlight the faults of the system and expose the fragile nature of global supply chains amid an actual emergency.

For instance, it takes months to develop and procure products from halfway around the globe. On top of that, now we have rising costs for shipping, blockages at ports, and even new customs regulations to halt the importation of products suspected of containing cotton made with slave labor.

When viewed through the prism of globalization, it's easy to become cynical about sustainability. No one can define it, but they sure know it when they see it. Sounds like a myth. And all of these industry sustainability programs. Everyone's soundbites vary -- and often conflicted. Everyone wants to be "better," but the results are so confusing.

What's more, as groups struggle to gain the high ground on sustainability, folks are calling for complete transparency. But in a world of conflicting messages, it's hard to find genuine openness. The room is full of smoke: the harder one looks, the more obscure goals become. My point is: until there is a single universally accepted definition of sustainability, then all we have is smoke. And a lot of marketing that exaggerates claims of success coming perilously close to being deceptive.

Time for a reevaluation

It makes no sense for me to rant without suggesting some solutions. So what would it take to get brands, retailers, farm groups, NGO's, industry influences, and all-around do-gooders to agree on a common standard? Other industries have common standards. Why can't we?

For too long, the industry has used sustainability as a shill, a bait and switch means of obscuring the truth. For some, it's simply a cover, a dodge, for firms to talk a good game while not changing the fundamentals of doing business across carbon-spewing supply chains that wrap the globe.

And when criticism gets too harsh, many merely blame cotton for what ails them. When an industry makes its way on razor-thin margins, all that remains is marketing and obfuscation -- and pushing blame elsewhere in the supply chain.

Further, many people talk about transparency, but it goes far beyond that. Global supply chains are slowly and inevitably wrecking the planet. And all the certification programs -- "better" this or "greener" that -- don't amount to a hill of beans. That is, other than to create a class of organizations in constant competition with one another for resources and brands' attention while propping up a system that is in and of itself not sustainable.

We've been living through a pandemic that's far from over. But this experience has helped many to see holes and weaknesses in our previous ways of doing business. Consumer attitudes have changed, as had the functionality of global supply chains. What worked before may not anymore once the fever of pandemic breaks and economies return to some semblance of normalcy. It's time for a reevaluation.

All of the so-called sustainability, transparency, better programs, pseudo-governmental initiatives will never amount to anything as long as the fundamental problem, global sourcing, remains intact. Oh, if one could wave a magic wand ...

Balancing on a tightrope

Guess what? Cotton prices are back up. Curiously, though, market fundamentals don't support higher prices. For example, large segments of the U.S. crop last year were hit by multiple hurricanes, which affected fiber quality. At the same time, global inventories of cotton remain elevated due to the effects of the Covid-economy.

Indeed, demand remains somewhat erratic. Moreover, relations between the U.S. and China remain strained. The new Biden Administration has not provided a lot of detail concerning trade relations with China other than saying that current tariffs remaining from the trade war between the U.S. and China will stay in place for the moment.

Presumably, this is the case as Biden focuses more on domestic issues at the outset of his administration, mainly dealing with the Covid situation regarding vaccination distribution and bolstering the economy via renewed economic stimulus.

Xinjiang and U.S.-China relations

Complicating international relations is evidence of brutal forced labor and accusations of genocide (cite) in China's Xinjiang province. So far, the Biden Administration has not refuted these claims. In the interim, the Chinese military practiced mock drills against a U.S. carrier group in the Taiwan Strait as a show of force. All these actions have done is to add fuel to an already blazing fire.

Caught in the middle of this is lowly cotton. The Xinjiang province produces about 20% of the world's production of cotton. Psychologically, cotton grown in this region has been largely excluded by the market, creating a perceived shortage of available supply as companies scramble to avoid directly using cotton grown in this area. Hence, this has created upward pressure on cotton prices.

It has been a tricky balancing act for the U.S. cotton industry, which has been relatively quiet on the Xinjiang situation, not wishing to alienate a large buyer of American cotton. But this does underscore the importance China plays in the role of the major consumer of cotton globally.

Further, there are no political, let alone economic gains for American growers by weighing in on the Xinjiang situation. So, it makes more sense to stay out of the political rhetoric for the moment as the Biden Administration figures out its next course of action regarding the Xinjiang problem and relations with China in general. However, if evidence continues to come to light of persistent Chinese atrocities in Xinjiang, the luxury of any party from U.S. growers to retailers and brands to remain on the sideline will fully evaporate.

Interestingly, however, as the world's largest producer of cotton, India has become a significant market for U.S. lint. On the surface, this is counterintuitive when considering the size of the domestic Indian cotton crop. But India typically exports much of its best cotton to China in the form of yarn. In turn, Indian mills, deprived of their best domestically grown cotton, are compelled to import cotton from elsewhere, where the U.S. is a direct beneficiary.

Indeed, the same goes for Pakistan. Although such gyrations are nothing new (after all, China does maintain a global import quota on raw cotton), the yarn workaround results in new trading patterns and priorities for the American cotton industry.

Some claim polyester will replace Xinjiang-origin cotton, a strategy that is always available to companies looking to distance themselves from the region, but polyester prices, which tend to track cotton, are on the rise in line with recent gains by cotton. What's more, oil prices are moving up, too.

Further complicating the situation is China's apparent underperformance in its stage 1 trade agreement with the former Trump Administration. In particular, China has underperformed on agreed to purchases of agricultural products such as cotton. Although China purchased more cotton from the U.S. in 2020 than in previous years, they failed to hit the agreed-upon target. How the Biden Administration proposes to handle this matter, whether negotiating a new trade agreement or other means, remains to be seen.

Local decisions, global effects

It's a delicate situation. The slash and burn approach to trade exhibited by the Trump Administration has not only left many countries — whether traditional allies or not — angry at the U.S. Only time will tell how Biden will unwind these tensions and if relations are repairable. The media has suggested that Biden will defuse tensions with China and allies and build new international coalitions to mitigate China's ambitions in Asia. Such international coalitions are notoriously difficult to assemble and even harder to keep together. Let's see.

Throughout the global pandemic, countries have printed lots of money to prop up their economies during lean times. In many cases, this has sustained an economic floor under what would be badly faltering economies.

However, while the printing presses have been kept busy, there may be early signs of inflation beginning to creep into the system via higher commodity prices. It's not just cotton and oil that have witnessed higher prices in recent months. Prices for other commodities have also increased.

If there's anything that globalization has taught us, countries tend to import each country's problems. For instance, forced labor in China ends up in the cotton unwittingly bought by so many consumers in the west, while poor economic conditions in the west force brands to slash or cancel orders from suppliers in Asia. And the circle goes round and round -- only over tens of thousands of miles, reinforcing a system that's not environmentally sustainable.

Perhaps that will be the legacy of globalization: your problems are my problems.

Note: This article was originally published on on February 16, 2021


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