International tension could affect future of globalization - East Valley Tribune: Business

International tension could affect future of globalization

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Posted: Sunday, March 23, 2003 7:22 am | Updated: 1:40 pm, Thu Oct 6, 2011.

Thirty years ago, U.S. businesses bragged about having operations "coast to coast."

Twenty years ago, car dealers would appear on TV commercials, urging consumers to "buy American."

Today, consolidation of companies, lowering of trade barriers and linking of electronic information through computers have led to a process called globalization. Globalization makes it possible to eat a McDonald’s burger in Tokyo and fast-food sushi in Mesa, and makes it almost impossible to buy a car that is completely domestic or completely foreign.

American companies such as Intel and Motorola have significant presence in the East Valley — and in Asia.

The globalization of Arizona’s economy is readily apparent in that exports from Arizona to around the world totaled $11.9 billion last year, down somewhat from setting a record in 2000.

Like it or not, businesses are more interconnected than ever. But could the trade framework and volume be interrupted or altered by war and international tensions?

Newsweek went so far as to suggest last month that the United States, viewed in many countries as an unrestrained bully, might be unraveling the fabric of worldwide trade.

Economists Jeffery Williamson and Kevin O’Rourke point out in a recent book "Globalization and History" that the robust international network of the 19 th century receded in the first four decades of the 20 th century.

Trade experts say it’s too early to tell how it will all play out.

In the long run, no country can afford not to trade with the United States, said Paul Rich, principal of the Siegel Rich Division of Rothstein, Kass & Company, in New Jersey.

"We’re too wealthy for anyone to boycott us,’’ he said.

But in the short run there are effects, he said. There’s the cost of security, born by governments or businesses, and the fear of travel that can hinder business relationships and the supply chain.

Whether the ongoing war hurts trade volume depends on how long the war lasts, how expensive it is and how disruptive it might be, said Gilbert Jimenez, director of the Arizona Department of Commerce.

In the meantime, many nations and trade partners are concerned about this country’s unilateral stance on Iraq, he said.

"It’s anybody’s guess at this point as to how that might transcend over the next several weeks," he said.

Although unpopular among some Arizonans because of its stance against the war, France is No. 6, with $443 million in export value last year.

Much of Arizona’s export activity involves semiconductors and integrated circuits, according to Sally Spray, director of international trade and investment at the Department of Commerce.

"We’re the third largest semiconductor manufacturing state in the union and also the third largest exporter of semiconductors and integrated circuits, after California and Texas," she said.

Many of those semiconductors and integrated circuits are transported to high-tech manufacturers in Mexico, Spray said.

"A lot going into Malaysia is the electronic components," she said. "Intel, for example, has a very, very large facility in Penang, Malaysia, as does Motorola, so there’s a lot of componentry that is being manufactured here, then being shipped out to their factories there for final assembly and distribution out into the Asian and European markets."

Aerospace and defense-related products, as well as optics and medical instrumentation, are also big Arizona exports, Spray said.

"Many times it’s because an Arizona company may have a base in (another) country," she said.

Increased security at ports could make exporting products tougher, Jimenez said. As for potential trade obstacles from countries’ opposing the war, those roadblocks would likely be short-lived, he said.

"The other countries, I don’t see any shifting there," Jimenez said. "In fact, I think if anything else, it probably will solidify (some countries’ trade relations with this country). But a lot of this is so unknown at this stage as to what the ramifications will be country by country."

Spray said there could be "some hiccups" because of political differences.

"I’ve seen vans driving around with homemade ‘boycott France’ stickers on the back," she said.

In most cases, however, politics and principals will "often give way in front of business," Spray said.

"No matter how principled a person might be and however political a person might be . . . if it comes down to a basic business decision and basically is this good for my business, I think that will win out in the long run," she said.

Nationally, the trade that’s most in danger of being interrupted is oil, while the nation’s excess capacity now is much less than during the Gulf War, said Tracy Clark, an economist at the Bank One Economic Outlook Center at Arizona State University.

"Significant terrorist activity or a more sustained conflict is more likely to have a negative impact on at least the oil," he said. "It would have to depend on the nature of the terrorist activity or the nature of the extended conflict as to whether it was going to have an impact on most of the rest of the trade that we have.

"The picture changes based on how long the war goes on and how well it goes, and how much of any terrorist activity there is," Clark said. "Under a good scenario of a relatively short active military campaign and, relatively speaking, small amounts of damage to Iraqi oil production, the impacts are going to be minor. It would probably be quite a bit less than what happened with the West Coast dock strike last year."

The conflict could somewhat alter the framework of international trade that exists today, Clark said.

"There is probably a potential for some long-lasting impacts in terms of who our major trading partners are, who we cooperate most closely with," he said. "It’s entirely possible that the bad feelings between the United States and France could have some impacts over several years."

War isn’t necessary to alter the business climate. Last week, shares of Chandlerbased Microchip Technology took a hit. Blaming tension on the Korean peninsula, Steve Sanghi, Microchip’s president and CEO, predicted that chip sales would drop 20 percent in Korea.

One area that is sure to suffer in the coming weeks is international travel. Paul Seifert, owner of Terra Travel in Mesa, Scottsdale and Tempe, said international travel dropped off after Sept. 11, 2001, but last year people began thinking about it again.

But in the past three to four months of "beating of the war drum," people have been pulling back in terms of travel plans.

Still, Seifert maintains a core of business clients and he thinks that business travel will remain important in the future.

For sales and other dealings, "it’s important for you to be in the client’s face," he said.

The airlines, already reeling from the Sept. 11 attacks, will feel the pinch, industry experts have said.

Even domestic carriers such as America West will be hurt, airline officials have said. Visitors who fly here from overseas don’t use the Tempebased airline. But overseas visitors fly on domestic carriers when they travel within the country.

A slim 14 percent of Mesa’s visitors come from other countries, and 85 percent of those are from Canada, said Robert Brinton, executive director of the Mesa Convention & Visitors Bureau. Brinton doesn’t see any short- or long-term effect on international travel to Mesa, other than British Airways flight crews who stay at the Mesa Hilton. If flights are canceled, it would mean fewer crews, and every bit of business helps in a recession, he said.

Gary Sexton, sales director at the Holiday Inn Midtown Phoenix has a fair amount of United Kingdom business on the books.

So far, there are no cancellations, he said Wednesday, but that likely will change as the conflict escalates.

At the Fairmont Scottsdale Princess Resort, international group business dropped off after the terrorist attacks of Sept. 11 and never returned, said Kiaran MacDonald, general manager.

"That business was replaced by Americans, and the business volumes are comparable to last year," Mac-Donald said. "But it’s naive to think that it will be business as usual."

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