Oil costs eroding globalization: CIBC
Julian Beltrame THE CANADIAN PRESS
The rising cost of energy is undercutting global trade by raising transportation costs to such levels that businesses will be forced to look closer to home for suppliers, says a CIBC World Markets report. "Globalization is reversible," the bank's chief economist, Jeff Rubin, wrote in the study released today.
[...]
In 2000, when oil was US$20 a barrel, the cost of transportation was the equivalent of a three per cent U.S. tariff rate, they say.
Transportation costs are now equivalent to a nine per cent tariff, and at US$150 a barrel for oil, they would amount to an 11 per cent tariff – about the average of tariff rates in the 1970s.
If oil goes to US$200, as the CIBC has forecast, "we are back to the tariff rates not seen since prior to the Kennedy Round GATT negotiations in the mid-1960s."
Tal said in a interview that not all trade liberalization flows are reversible because of transport costs, nor does their analogy hold for all products.
[...]
United Steelworkers economist Erin Weir said the CIBC paper makes sense in theory, since globalization is partially made possible by cheap transportation costs.
[...]
The CIBC says already some niche industries have been affected by energy costs, despite the recent nature of the oil spike, which has seen the price double to over the past year to about US$130.
China's steel shipments to the United States are down by 20 per cent from a year ago, the worst performance in a decade, while U.S. domestic steel production has risen 10 per cent.