If oil hits 200 USD/barrel…

Niranjan Rajadhyaksha writing for LiveMint points out to some interesting implications of high oil price with respect to the future of Globalisation. Fortunately, the poster boy of India’s growth i.e., the IT industry is somewhat insensitive to these aspects.

…..There is one other factor that most people forget to mention when they discuss the success of globalization: low transport costs. It makes sense to make components in Korea, assemble them in China, and then ship them to consumers in the US only if the costs of moving widgets across the world are a minor part of overall production costs.

…..The regular talk about the threats to globalization hovers around the usual suspects, from the Doha deadlock to the wave of rising protectionism in the West. Few have bothered about rising transport costs till now. Rubin and Tal estimate that, at current prices, transport costs are equivalent to a 9% import tariff.