I. International Monetary
Relations
A. The International Economy and Globalization
1. Introduction
- Globalization - increasing interdependence among
countries and people
- Trade - goods and services
- Finance - debt, investment, exchange rates
- Business - multinational corporations, global
production
- Non-economic elements - culture, environment
- Technological improvements in production,
communication, and transport
- Multilateral trade negotiations
- Liberalization of trade and investment
- Development of international financial markets
.
2. Waves of globalization
a. First Wave (1870 - 1914)
- Decreases in tariff barriers
- Reduced transportation costs - railroads, steamships
- Largely European and American oriented
.
b. Second Wave (1945 - 1980)
- Continued drop in transportation costs
- Rich countries specialized in certain areas
- Economies of agglomeration - lower cost due
to firms locating near one another, either same products or vertical links
- Poor countries left behind
- No barriers against agricultural products, resources
- Sizeable barriers against manufactured products
- Unfavorable investment climate and antitrade policies in
developing countries
.
c. Latest Wave (1980 - present)
- Some developing countries prospered, others
marginalized
Ex. - Asia vs. Africa
- International capital flows grew in importance
- Outsourcing - manufacturing and other
activity sent to where it is cheapest to do
- Developing countries had competitive advantage in
labor-intensive industries
Ex. - China, India, Bangladesh, Indonesia, Thailand,
Philippines, Mexico
-
Outsourcing of white-collar work in 2000s - accounting,
software, customer service, tech support, financial analysis, engineering,
basic research
- Made possible by digitization, Internet, high speed networks
.
3. The U.S. as an open economy
a. Trade patterns
- Openness = (Exports + Imports) / GDP
Ex. - 2013
Country |
Exports as
% of GDP |
Imports as
% of GDP |
Openness |
Netherlands |
87 |
79 |
166 |
South Korea |
56 |
54 |
110 |
Germany |
52 |
46 |
98 |
Norway |
41 |
27 |
68 |
United Kingdom |
32 |
34 |
66 |
Canada |
30 |
32 |
62 |
France |
27 |
30 |
57 |
United States |
14 |
18 |
32 |
Japan |
15 |
16 |
31 |
.
- Leading trading partners of the U.S. (2012)
Country |
Value of U.S. Exports ($billions) |
Value of U.S. Imports ($billions) |
Total Value of Trade Goods ($billions) |
Canada |
292.5 |
323.9 |
616.4 |
China |
110.5 |
425.6 |
536.1 |
Mexico |
215.9 |
277.6 |
493.5 |
Japan |
70.0 |
146.4 |
216.4 |
Germany |
48.8 |
108.7 |
157.5 |
United Kingdom |
54.9 |
55.0 |
109.9 |
South Korea |
42.3 |
58.9 |
101.2 |
Brazil |
43.8 |
32.1 |
75.9 |
France |
30.1 |
41.7 |
71.8 |
Taiwan |
24.4 |
38.9 |
63.3 |
.
b. Labor and capital
- Labor relatively stable for the U.S. - foreigners
14 percent of labor force
- Major investment flows into U.S. financial markets,
real assets
- Growth in international banking
.
4. Why globalization is important
a. Overall
standard of living is higher
-Access
to raw materials & energy not available at home
- Access
to goods & components made less expensively elsewhere
- Access
to financing and investment not available at home
-
International competition encourages efficiency
b. Curtails
inflationary pressures at home
c. Limits
domestic wage increases
d. Makes
economy vulnerable to external disturbances
e. Limits
impact of domestic fiscal policy on economy
.
5. Fallacies of international trade
a. "Trade
is zero-sum" - one country gains at another's expense
- Trade
can bring benefits to both partners
.
b.
"Imports bad, exports good" - bad if you buy from overseas;
sending money out of the country
- If
nothing bought from other countries, they have no income to buy from you
.
c. "Tariffs
and quotas save jobs" - prevent competing products from overseas from
entering country
- Cutting
imports makes it harder to export, so other jobs are lost
.
6. Backlash against globalization
-
Benefits corporations at expense of average citizens
-
Environmentalists - undemocratic decisions made by
organizations like the World Trade Organization (WTO)
-
Unions - trade leads to unfair competition
-
Human rights activists - sweatshops, governments bailed
out at expense of local economies
.
7. Advantages and disadvantages of globalization
Advantages |
Disadvantages |
Higher productivity when producing according
to comparative advantage |
Lots of workers lose jobs and take new jobs
at lower wages |
Global competition and cheap imports reduce
inflation |
Workers fear getting laid off, particularly
in import-competing industries |
Promotes technological development and
innovation due to ideas coming from abroad |
Employers demand wage concessions from
workers |
Jobs in export industries pay more than jobs
in import-competing industries |
Service and white collar jobs increasingly
vulnerable |
Free capital movement provides U.S. with
access to foreign capital and low interest rates |
U.S. employees lose competitiveness due to
state-of-the-art investment overseas |
|