Impact of high oil prices -- End of globalization?
August 3, 2008
One of the impacts of high oil prices is a 9% increase in shipping costs worldwide. This has caused many companies to stop outsourcing some portions of their supply chain to reduce those costs and remain competitive. (Source: IHT, Shipping costs start to crimp globalization, August 2, 2008)
What the impact of high oil prices means:
Many alarmists state that today's high oil prices are an indication that the world will soon run out of oil. At that point, goes the theory, civilization as we know it will start to collapse, and only gold will have any value.
However, even the rapid rise in oil prices the world experienced this year has resulted in gradual shifts. Yes, shipping costs are higher but manufacturers adjust. Globalization is a trend that will not end because shipping costs increase 10% or even 20%.
The net result will probably be a decrease in Chinese exports to the U.S., as local goods and services become more competitive in price. This will probably help the sluggish U.S. economy, and its neighbors Canada and Mexico. Others who are close to large markets, such as the EU, will also benefit. Countries such as China may suffer somewhat.
Furthermore, as production moves closer to its markets, demand for oil has started to decline. Expect oil prices to decline even further, although probably not much below $100 a barrel for awhile.
Action steps:
Talk to your financial planner about shifting some of your emerging markets funds back to U.S. funds. Now might also be a good time to take some profits from your commodities funds, as those oil prices could decline somewhat from their all-time highs.
For more on the impact of high oil prices, see the WorldMoneyWatch Top Ten Trend,
Like this article? Sign up for your free email newsletter.
|
