If there's a single company that illustrates the huge range of opportunities and challenges facing the U.S. economy today, it might be Caterpillar, the heavy-machinery giant based in Peoria, Ill. Like most other firms, Cat took a hit following the financial crisis. But since then, it's bounced back--and how. After a strong second quarter, the firm is on track for a second record-breaking year in a row and will likely sell $70 billion of its famous yellow earthmovers, tractors and mining equipment globally.
As products roll off the line at the recently expanded East Peoria factory, every one is marked with a flag that designates its final destination. There are a lot of Chinese, Indian and Australian flags. But there are plenty of American ones too, and their numbers are growing. "We put those flags on a few years back. I wanted our workers to understand that globalization isn't necessarily about someone taking your job," says Caterpillar CEO Doug Oberhelman. Indeed, Caterpillar thinks less about a single world market than many regional ones. The company is global, but where it can, it sources and produces locally, which is a natural hedge against everything from oil prices to currency risk to changing customer tastes. The bottom line: jobs and growth are split more or less equally between the U.S. and the rest of the world.
This isn't how globalization was supposed to work. Until quite recently, it was seen as a one-way street. American companies, which led the charge four decades or so ago into growing global markets, were its ambassadors, and American workers, whose wages and upward mobility were flattened, were the victims. The core idea was that globalization, technological innovation and unfettered free trade would erase historical and geographic boundaries, making the world ever more economically interconnected and alike. (Foreign-affairs writer Tom Friedman famously encapsulated this notion with the title of his book The World Is Flat.) In this vision, all nations would be on an even playing field, and the U.S. would come under more and more competitive pressure from eager upstart nations. It worked something like that from the mid-1980s to 2008, a period of unprecedented market calm that economists call the Great Moderation. Not so much anymore.
The truth is that the world was never as flat as we thought, and it's getting bumpier. The flaws in the premise are coming into focus. Consider the following: when energy prices and political risk go up, far-flung global supply chains make less economic sense. Low-wage workers in China look attractive--until robots operated by highly skilled laborers at home are able to do their jobs even more cheaply. Unfettered free trade seems great until the world's fastest-growing economies won't play by the rules of the game.