The drought this year has reduced China's normal rainfall by 40 to 60 percent. Photo: otrocalpe (flickr)

Crisis is lurking on the world's most valuable commodity: water. The answer, a former U.S. official says, is raising its price.

Peter Orszag, President Barack Obama's former budget czar, tells the story in a Bloomberg View column by looking closely at China. That nation's water goes mainly to its coal and hydroelectric power plants. As China’s Ministry of Water Resources says, "In 2010, coal-fired electricity in China used more than 30 trillion gallons of water, or about 20 percent of the country’s total consumption." The problem with this is that water sources are limited. While China is using its available water for electricity, climates are changing and reducing the amount of available fresh water. The drought this year has reduced China's normal rainfall by 40 to 60 percent, and the water that's left is going to crops and people, not coal plants. This, in turn, has rattled global diesel markets as China has grasped for alternatives to coal energy by relying more on diesel powered generators. Disturbances in the water market ripple throughout the world economy.

To fix this, Orszag suggests a three-step process for China and the rest of the world to follow when thinking about the way we use our water.

First, China needs to do a better job blocking pollution and expanding awareness of the dangers of climate change. According to the World Bank, "about 90 percent of the aquifers underneath major cities in China are polluted. More than 300 million Chinese lack access to safe drinking water." The first step to using water more efficiently is making sure the water we have is water we can use.

Second, China needs to allocate its water more productively. Currently, the water in China is not evenly divided between regions. Orszag explains that 80 percent of the country's water supply is south of the Yangtze River, though only about half the population lives there. The rest live in the North China plain, which encompasses Shanghai, Beijing, and less than 15 percent of the nation’s water. With such an imbalance, the per-capita amount in the North evens out to only about one-quarter the level considered to be the minimum amount to live on. Plans are underway to balance this with a desalination plant in the Tianhin-Binhai development zone and a re-routing plan to channel more water from the South to the North, according to The Guardian.

Third, China and other nations need to raise their water prices. At a first glance, this seems impractical. Reactions from comments on Orszag’s article were primarily negative. They argued that water is not a commodity, but a natural right for each person, and therefore shouldn’t be marked with a price. Orszag, anticipating this, suggests giving everyone a set amount of free, fresh water for basic necessities. Any water desired beyond that point would come with a tariff. This way, people will use water carefully, avoiding waste.

Orszag finds that this three-step strategy can be applied to almost any nation. The strategy could be used in the U.S. where water is heavily subsidized and in Europe where water pricing systems vary between countries that lack water and those that have an abundance.

"Just as we need to price carbon in order to avoid a climate crisis, we need to price water to avoid a water crisis," Orszag writes.

Globalization may be giving way to local production due to shipping costs. Photo: Think Panama

Americans can forget about avocado salads in January. The price of oil isn’t just hurting consumers at the pump — record oil prices are changing the way globalization works.

In the past three decades, the world economy has become so integrated that most products travel the world before coming home from the store. Illogical supply chains have emerged — and fossil fuels are wasted — because of price-driven production. From cars to processed foods, raw materials and labor from different countries, even different continents, are part of the production process of much of what we buy.

But cheap oil is now a thing of the past, and the cost of oil changes everything.

Higher prices are upsetting the global supply chains that until now considered cheap labor and raw materials more important than geography. Decades ago, Wal-Mart set the industry standard with this global supply chain model, but now industries that have made their fortunes through outsourcing are in trouble. Shipping a 40-foot container from Shanghai to the U.S. costs $8,000 now, compared to $3,000 earlier this decade. This increased shipping cost is the equivalent of a 9 percent tariff on all global trade, according to a recent report by Canadian investment bank, CIBC World Markets. The report states, “The cost of moving goods, not the cost of tariffs, is the largest barrier to global trade today” and “has effectively offset all the trade liberalization efforts of the last three decades.”

Globalization, economists are now saying, is changing rapidly. The “neighborhood effect,” or putting factories and suppliers as close as possible to the consumer, is the newest trend. People are now becoming increasingly interested in trying to grow, produce and shop as locally as possible, particularly food and goods which take little time to make or package or are heavy and expensive to transport. Electronics companies lured to Asia by lower wages and lax environmental standards are returning to Mexico, and furniture, footwear and toy industries are returning to the United States.

A shift to local growing will cause a change in what food is available and affordable. Consumers will now be economically encouraged to eat with the seasons, given the prohibitively high costs of exotic items, like avocado or peaches during the winter.

Perhaps most significantly, American steel production is rising after decades of decline, while China’s steel exports have fallen more than 20 percent this year. Motors, machinery, car parts and appliance industries will all be affected. As Chinese factory orders plunge and its export growth slows, the Chinese economy is already slowing. Economists expect growth to slip from double digits to 9 percent this year alone.

Globalization isn't dying — just changing. Products that are light and inexpensive to transport, products that are labor-intensive and products that don't require transportation, like telecommunication and Internet-based industries, will continue to be outsourced. But the change in global trade is shifting who profits and on what. These changes will impact both labor markets and trade balance, lessening the US trade deficit with China.

In an ironic demonstration of the power of globalization, China’s troubles will be felt worldwide. Their dampened economy is one reason gas prices have recently fallen in the United States.

With this change, though, environmental economists have something to celebrate. After all, with the U.S. Energy Independence Act of 2007 setting measly policy goals — reducing U.S. emissions by just 4 percent by 2020 (compared to the EU’s goal of 20 percent) — and the lack of any international climate treaty, the imperative move to green living will have to be driven by the consumer.

Regardless of your opinion of globalization, growing, shipping and shopping local is now the option that is most affordable - and sustainable- and option.