It’s localization, not globalization, for the health of the US economy

In 2023, the U.S. experienced a trade deficit of $773 billion, with China as its largest trade creditor. The U.S. trade deficit has steadily grown since 2009, regardless of which party held the presidency. Yet this data obscures a new reality: The U.S. is undergoing a transformative shift away from the full embrace of globalization, toward a more deliberate focus on localization. 

Localization is defined as an economic approach aiming to produce goods and services closer to home, preferably in one’s own country. This shift is evident in the economic priorities of both Kamala Harris and Donald Trump through tariffs or industrial strategy. Despite the contrasting methods by both candidates, localization has become a bipartisan approach to economic nationalism. This shift is beneficial for the U.S. and its economy for three reasons.

First, this evolution stems from a growing recognition of the vulnerabilities exposed by global interconnectedness, particularly during crises such as the COVID-19 pandemic, the Russian-Ukrainian war and the ongoing Middle East conflicts. Disruptions in international supply chains have revealed the risks of overreliance on distant manufacturing centers and emphasized the need to secure domestic production capabilities. These supply shocks have increased national interest in strengthening local industries, revitalizing manufacturing and improving infrastructure to support a more resilient U.S. economy. 

For example, initiatives under President Biden’s administration, such as the Inflation Reduction Act, prioritize investments in critical infrastructure, clean energy and smart manufacturing. These initiatives create jobs and reduce dependence on foreign goods. The Inflation Reduction Act specifically focused on reshoring essential industries like semiconductors and incentivizes businesses to invest in domestic production.

A key provision of the Inflation Reduction Act included tax incentives and grants, which encourage companies to boost their domestic production capabilities, promote job creation and increase wages. Additionally, the Inflation Reduction Act addressed supply chain vulnerabilities by improving logistical infrastructure within the U.S. to increase efficiency and reliability by connecting local and regional suppliers.

Second, the shift toward localization reflects broader concerns about income inequality and the equitable distribution of economic benefits. Income inequality in the U.S. has been on the rise for decades, with the Gini coefficient, a common measure of inequality, increasing from 0.43 in 1990 to approximately 0.48 in recent years. This growing disparity is partly attributed to globalization, which has led to the outsourcing of jobs and the stagnation of wages in several key sectors, particularly manufacturing. By enhancing domestic production capabilities and supporting small businesses, localization fosters more inclusive growth, benefiting communities across the country.

According to the U.S. Small Business Administration, small businesses account for 44 percent of U.S. economic activity and employ nearly half of the U.S. workforce. Policies aimed at supporting these enterprises, especially in rural and underserved communities, can help reduce regional disparities in economic development. A 2021 study by Deloitte found that investment in advanced manufacturing technologies could create up to 2.1 million jobs by 2030. Moreover, many of these jobs require high-skill labor and tend to pay above-average wages, helping to address wage stagnation in sectors that have historically been affected by offshoring and global competition.

Third, localization positions the U.S. economy as a leader in innovation and sustainable development. The U.S. Department of Energy estimates that the clean energy sector could generate more than double the rate of overall employment as the country transitions to renewable energy sources. Initiatives such as the IRA, which prioritizes investments in clean energy and domestic production, aim to reduce carbon emissions while creating high-quality jobs in green industries such as solar energy, electric vehicles and battery manufacturing. 

For example, research by BlueGreen Alliance suggests that the clean energy sector and the IRA will create over 9 million jobs over the next decade. Furthermore, localization efforts in the semiconductor industry, supported by the CHIPS and Science Act, are expected to reduce reliance on foreign technologies and inputs while creating thousands of well-paying jobs in high-tech fields. This will solidify the U.S. as a global leader in the green transition through innovation and sustainable growth.

The shift from globalization to localization addresses supply-chain vulnerabilities and economic inequality by fostering more inclusive and equitable growth. It also strengthens the foundation for the U.S. to lead in key sectors, such as advanced manufacturing and clean energy. 

The presidential election offers two different paths for getting there, but it is clear the destination is the same for both candidates. By investing in local industries and technology, the U.S. can create a more resilient, innovative and sustainable economy that benefits a broader spectrum of society.

Christine Ngoc Ngo is an associate professor of economics at Bucknell University. She is the author of “Rent Seeking and Development: The Political Economy of Industrialization in Vietnam.” Her recent research focuses on the impacts of COVID-19 on rural America.