GLOBALIZATION

GLOBALIZATION

GLOBALIZATION

1Joe Smith started the day early having set his alarm clock (MADE IN JAPAN) for 6 a.m. While his coffeepot (MADE IN CHINA) was perking, he shaved with his electric razor (MADE IN HONG KONG). He put on a dress shirt (MADE IN SRI LANKA), designer jeans (MADE IN SINGAPORE) and tennis shoes (MADE IN KOREA). After cooking his breakfast in his new electric skillet (MADE IN INDIA) he sat down with his calculator (MADE IN MEXICO) to see how much he could spend today. After setting his watch (MADE IN TAIWAN ) to the radio (MADE IN INDIA) he got in his car (MADE IN GERMANY) filled it with GAS from Saudi Arabia and continued his search for a good paying AMERICAN JOB. At the end of yet another discouraging and fruitless day checking his computer (MADE IN MALAYASIA), Joe decide to relax for a while. He put on his sandals (MADE IN BRAZIL) poured himself a glass of wine (MADE IN FRANCE) and turned on his TV (MADE IN INDONESIA), and then wondered why he can't find a good paying job in America.....

Actually this is a good thing. We get more choices, lower prices, & because more is bought, more jobs are created.Is This A Bad Thing?APPARENTLY, SOME PEOPLE THINK SO!!

3SWEATSHOP LABOR AND BELOW SUBSISTENCE WAGES ARE WHAT MOST PEOPLE ENVISION

4Globalization can be defined as: Widening and deepening of international flows of trade, finance and information in a single, integrated local market. Increasing linkages between the world's people as natural and artificial barriers fall. Transformation of the world into a global village, as borders disappear, distances shrink and time shortens. Impact of GlobalizationThe Good News Increased market access e.g. trade flows increased 12-fold in the past 50 years as a result of the removal of natural and artificial barriers. Increased access to capital. The General Agreements on Tariff and Trade (GATT) is expected to increase global income by an estimated US $ 212 - US $ 510 billion - from trade and efficiency gains and higher rates of return on capital. Increased movement of people due to tourism and migration. Greater access to information and increased long distance communication The Disturbing News Gains are not equally distributed between countries. Gains are not equally distributed within countries. Financial volatility because of a globally integrated market. Contagion and threat of worldwide recession. More human insecurity such as crime (trafficking in drugs, weapons, women, international syndicates), spread of diseases such as HIV/AIDS, and loss of cultural identity.

5 The world is becoming a smaller place. What happens in Tokyo affects what happens in New York and Dallas, Texas. There is over $12 trillion in world trade. Volume of TradeExports as % of GDPPanama 80%Belgium 87%Netherlands71%Kuwait55%Norway45%Canada38%[If we sneeze, Canada catches a cold]South Korea44%Germany40%China 35%[1/3 bought by U.S.]United Kingdom26%Spain25%Italy27%France26%Mexico25%[80% of Mexicos exports are sold to U.S.]Japan13%United States11%[$1.6 trillion in 2007]World25%

In 2007, we had a trade deficitin goods of $815 billion.We had a trade surplus in services of $104 billion. ($711)The importance of trade has grown.

16%2008Global Trade180

160

140

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100

80

60

40

20

0313

Canada322

China148

Japan211

Mexico137

Mexico249

Canada66

Deficitof$256

China

200

180

160

140

120

100

80

60

40

20

0IMPORTS95

Germany38

Taiwan57

UK45

Korea42France50

UK50

Germany32

Korea26

Taiwan25Singapore33Netherlands27FranceEXPORTS60

Japan

Who Are Our Trade Partners?2007

China - the "World's Factory"After a series of product recalls, from pet food to tires, American regulatorsare paying more attention to goods exported to the U.S. from China.

Who Buys Chinese Goods?The U.S. accounts for 1/5 of all Chinese export destinations, 2007.FDA ordered recall after a poisonousingredient was found in toothpaste.1.5 mil imported toy trains were made using lead paint.450,000 tires were recalled because of tire separationproblems.

More than 60 billion cans of cat and dog food were recalled.$56 billionIn goods from U.S. to China10 million toys including Big Birdwere recalled because of leador magnets that tear the intestineswhen swallowed by children.

675,000 Barbie doll accessories Keep The Money At Home

Point: When I buy a coat in England, I have the coat and England has the money. But when I buy a coat in America, I have the coat and America has the money. America is more wealthy because it has both the coat and the money. Abe LincolnCounterpoint: Money is not wealth in and of itself,it merely facilitates trade. If America sends dollars toEngland, England will eventually use those dollars tobuy American goods. If we dont buy goods fromother countries, then other countries will not be ableto buy goods from us.

Point: Protecting businesses from foreign competition preserves American jobs.

Counterpoint: Few are helped by protective policies, but they are more visible and more vocal than the many who are hurt. Protecting jobs in import competing industries raises prices to consumers and costs jobs in industries that use imported inputs. America and consumers pay dearly each time protectionist measures save jobs.

Jobs, Jobs, JobsIndustry Yearly LossEmploymentAnnual Cost To Economy Loss If Barriers Per Job From Barriers Were Removed SavedTextiles $15,850 billion 71,639 $221,258Dairy Products 1,630 million 2,378 685,233

Sugar 657 million 2,040 322,059Peanuts 74 million 397 187,223

Meat 177 million 928 190,733Non-rubber 170 million 1,377 123,456 footwear

Orange Juice 307 million 609 635,103Canned Tuna 100 million 390 257,640

Saving Jobs Costs Money

Counterpoint: Low wages, combined with low productivity, will result in high unit costs. High wages in the U.S. result from the high productivity of American workers, aided by the availability of raw materials, massive capital equipment, sophisticated management, and elaborate infrastructure.

Point: If we trade freely with low wage countries,U.S. businesses will flee to those countries and U.S.wages will plummet.

Low Wage competitionGLOBALIZATION LEADS TO LOWER FERTILITY RATES WHICH LEADS TO MORE OPPORTUNITY FOR GROWTH AND DEVELOPMENT, ESPECIALLY FOR WOMEN

What is the Global Economy? An international marketplace (in a very broad sense)Trade in GoodsFinal and intermediate goodsTrade in ServicesOutsourcingVacationTrade in LaborImmigration legal and illegalTrade in CapitalForeign direct investmentFinancial flows: stocks, bonds, currencies

14Economic Background: Why are economists in favor of free trade?Should Wisconsin grow oranges? Should Florida make cheese?No and No!Wisconsin should specialize in cheeseFlorida should specialize in orange productionThen trade cheese for oranges

15Econ Lingo: Opportunity costWisconsinFloridaCheese productionLow opportunity costHigh opportunity costOrange productionHigh opportunity costLow opportunity costHow much orange production does WI give up to produce one more unit of cheese? Very little, because oranges dont grow well in WI.How much cheese production does WI give up to produce one more unit of oranges? A lot!16 More Econ Lingo: Comparative advantageWisconsinFloridaCheese productionLow opportunity costHigh opportunity costOrange productionHigh opportunity costLow opportunity costThe country with the lower opportunity cost in producing one good has a comparative advantage in that good.Wisconsin has a comparative advantage in cheese production => specialize in cheeseFlorida in orange production => specialize in orangesComparative advantageComparative advantage17U.S. Trade Flows (exports + imports of goods and services) as % of GDP

Recessions in yellow

More trade is associated with economic expansionTrade expanded 3 times faster than GDP, since 195018Does the trade deficit cause unemployment?

Trade deficit expandsUnemployment dropsMost of the expansion in the trade deficit occurred during the roaring 1990s!Since2000Before200019U.S. manufacturing output hurt by imports?

1990s: Surge in imports and manufacturing output2000-2002: Manufacturing drops, imports slowSince 2000: Both recoveringManufacturing output expands despite imports20Loss of manufacturing jobs:Only in the U.S.?

Manufacturing jobs: 1993 normalized to 1003m jobs lost in the U.S.Its a worldwide phenomenon!21The U.S. financial sector in a global economy. Some facts:Intl financial flows are the flip side of the trade deficit: Countries that have a trade surplus with the U.S. are net purchasers of our assets.There is a trend toward more international financial integration.This has coincided with less volatility in U.S. GDP.22U.S. International Investment Position(in $b)

$365b more assets$2,546b more liabilities: accumulated trade deficits!27% of GDP14% of GDP92% of GDP112% of GDPNotice the difference in scale!23

2 times standard deviation around the meanGDP has become less volatile since the mid 1980s.Some economists argue that international diversification has been a contributing factor24Labor movements: ImmigrationHistorical perspective of immigrationWho are the immigrants?Why does immigration work?

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Immigration is high compared to mid-1900s, but low compared to pre WW-I era!!!Drops after 1914Drops again during the Great DepressionPeak demand for IT workers in the mid 1990sA lot of immigrants came in the late 1800s, early 1900sCurrently about 1m immigrants per year (0.3% of total population)26

Who are the immigrants? Whats their age? What's their education? How much money do they make?

Do immigrants assimilate or do they present a burdenon society and the economy for generations?27

Immigrants are young compared to the overall population!28

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Large fraction of uneducated individuals among immigrants30

First generation immigrants have low income (they are younger, less educated), but consequent generations catch up!31Summary on ImmigrationLarge flow of immigrants, though not as large as in the 1800s and early 1900sImmigrants tend to be young: They help alleviate impending problems of baby boomers retirement (but cant solve the problem either)Immigrants become more economically like the native population over timeImmigration helps the economy balance growth in labor demand with supply32POST-TEST3334353637