Globalization Trade Of Goods And Services PDF

Trade of Goods and Services As countries specialize in particular segments of the production process, trade in intermediate (or unfin- International trade of goods and services has played i...

Trade of Goods and Services As countries specialize in particular segments of the production process, trade in intermediate (or unfin- International trade of goods and services has played ished) goods has become an important part of interna- an essential part in this second era of globalization. tional transactions. Simple items like pencils and com- Trade has increased in importance to the economies plex products like airplanes contain components from of many nations, and producers have marketed their multiple countries. A striking example is the Boeing 787 goods and services worldwide. According to the World assembled in the United States near Seattle. Sections of Bank, in just 40 years (from 1960 to 2000), the share of the plane are built across the globe. Parts arrive in Wash- world production that was exported increased from 12 ington from South Korea, Australia, Japan, Canada, the percent to 25 percent. Trade in the second half of the U.K., France, Sweden, Germany and Italy, as well as 20th century has been marked by dramatic increases in multiple states in the U.S. (See diagram on page 5.) the trade of both goods and services. Technology Spurs Services Trade of Goods Evolves While the increase in trade of goods is significant, An incredible array of goods is traded between the growth in trade of services has been remarkable. countries. Food and forestry products are among the This growth can be attributed to the advancement in many traded agricultural goods. Fuels and mining information and communication technologies, which products from many nations are used by producers have resulted in a wide range of services, from call and consumers. These products include metals and center operations to sophisticated financial, engineer- ores, as well as fuels like crude oil and natural gas. ing, legal, medical and entertainment services. Inter- The flow of manufactured goods between coun- estingly, foreign audiences often account for more tries includes both intermediate goods and finished than half of Hollywood’s box-office revenues from products. Steel used in factories around the world is movies, and American programmers design video produced in Europe, North America and Asia. Capi- games that are played all over the world. tal equipment used by businesses is bought and sold in a global market. Cranes and bulldozers move to Other examples of global trade of services abound. construction sites far from the place of manufacture. McDonald’s and KFC might appear to be on every Clothing, textiles and a host of other consumer goods corner, but they have more restaurants abroad than travel internationally to their final destinations. in the U.S. American architects design office towers, airports and stadiums in China, Dubai, Canada and As new production methods have emerged, a new other foreign locales. International students enroll at type of goods trade has become significant. In earlier American universities and create jobs for faculty and periods, manufacturing processes were located in staff at the schools. American forensic experts inves- countries that had industrialized, and trade focused tigate accidents and crimes around the globe. Foreign on importing raw materials and exporting finished tourists visit the United States and create job opportu- products. Today, many different countries are in- nities at hotels, airlines and tourist attractions. volved in the production process. Various parts of many goods are produced in locations throughout But globalization is more than trade—it includes the in- the world and shipped to a final assembly plant. creased flow of money and people across national borders. (Continued on page 8) The first transatlantic telegraph cable The Suez Canal opened and 1858 became operational. Queen Victoria and 1869 linked the Mediterranean Sea President James Buchanan exchanged and the Red Sea, dramatically messages to celebrate. reducing shipping distances between Europe and Asia. 4  A A F N F N A F H N A N N A A N F N H A N A H N N N F F H A N A N A H N A N N A F H N N A A F A N N N H N N H A A F H A F H N H A F N F H N H N N A F H N A N N F N H F H H A N N F H N N H H A H N A F N N Headquarters Locations A F A F N H A N N F H Making Global Tracks N This map shows the locations of four multinational corporations—Adidas, Ford, Honda and Nike—that have facilities throughout the world. Flow of Financial Capital plants in the United States, as U.S. automobile com- panies have built facilities in other countries. These As firms compete to sell goods and services in the firms are seeking both lowest-cost resources as inputs global marketplace, producers search the world to to production and freer access to global markets that find the most cost-effective methods of production. comes from owning a plant in a given region. Some companies import intermediate products from foreign firms, as is the case with the Boeing plane. Many firms build or buy physical capital such Other firms locate their plants or production facili- as buildings, tools and machinery in other parts of ties in foreign countries. Rather than producing food the world. Foreign direct investment refers to these in one plant and exporting it throughout the world, capital expenditures and the money (or financial Kraft, based in the United States, and Nestlé, based in capital) that moves across international borders to Switzerland, have built facilities around the world to pay for these assets. The end of the 20th century saw serve a growing international customer base. Japanese explosive growth in foreign direct investment. United and European car manufacturers have built enormous Nations statistics show that the amount of invest- Transatlantic No. 1 (TAT-1), the The Ideal X became the world’s first 1956 first transatlantic telephone 1956 container ship when it was modified to cable system, began service carry 58 containers from Newark, N.J., and carried more than 700 calls to the Port of Houston. between London and North 8 America in the first 24 hours. ment flowing into countries from outside of International Investment: their borders rose from $54 billion in 1980 to Linking the World $1.4 trillion in 2000. As a result of this inter- national investment, a new type of business called the multinational, or transnational, International investments fall into four corporation has emerged. These global com- primary categories. panies own facilities and employ workers throughout the world. In addition to foreign direct investment, investors have increasingly diversified their Commercial loans—loans generally investment portfolios to include financial as- initiated by banks to foreign businesses or sets such as stocks and bonds that originate governments. outside of the buyer’s country of residence and are valued in a foreign currency. These investors might be banks, pension funds or private individuals seeking the highest return for their investments in both domes- tic and international financial markets. This Official flows—financial assistance that type of global investment is called foreign developed nations give to developing ones portfolio investment. Foreign portfolio in- to help with their economic development. vestment is somewhat different from foreign direct investment because the ownership of these financial assets does not imply a controlling interest or a majority stake in a foreign business. Foreign direct investment—the purchase of a productive asset in a foreign country. Some fear that foreign portfolio invest- Buying a company or constructing a new ment can be volatile and lead to financial plant are examples of FDI. Because FDI panics. When a company builds and owns involves controlling interest in the business a firm or a production facility in another and ownership of physical assets, it is not as country, the firm has made a longer-term easily traded as other types of investments. commitment with the investment. This type of foreign direct investment is difficult to sell quickly; the types of financial assets as- Foreign portfolio investment—the sociated with foreign portfolio investment COM M STO ON purchase of financial assets such as foreign can be sold almost instantly. At the first CK 10 shar stocks, bonds and currencies in amounts sign of economic downturn in a particular es that do not result in a controlling interest. FPI economy, international investors can sell off is easily traded and thus can be volatile. financial assets rapidly. This can result in a Airlines in the U.K. and The Fairland sailed from the 1958 U.S. began scheduled 1966 U.S. to the Netherlands with trans-Atlantic jet service 236 containers on the first between New York and international voyage of a European capitals in the container ship. 9 same month. dramatic fall in the country’s financial markets and family or friends in another country. Often, this mon- can worsen the downturn. ey comes from immigrants who send money back to their country of origin. This is a significant source of Foreign direct investment, foreign portfolio invest- money for some developing nations. In some cases, ment, and international trade in goods and services remittances from U.S. residents outpace foreign aid require a specialized financial market called the for- provided to that country by the U.S. government. eign exchange market, where currencies from around the world are bought and sold. This market allows Movement of People multinational corporations to operate efficiently and companies to invest across the world. It allows The movement of people across national borders, consumers and businesses to buy goods and services sometimes referred to as migration, has long shaped from producers in any country. Investors who wish the world. People have moved around the globe for to buy financial assets that are valued in a currency centuries in search of opportunity, as well as safety other than their own must acquire that currency to and security. complete the transaction. People often leave one country and move to an- For example, if Americans want to buy Japanese other in search of economic opportunity. During the products, they must pay the Japanese firm with yen, first era of globalization, people moved from Europe, the Japanese currency. In the foreign exchange mar- where labor was plentiful and opportunities were ket, Americans buy the necessary yen using U.S. dol- limited, to the United States, where a small labor force lars. This means Americans sell U.S. dollars to buy was matched with a rapidly growing economy and yen. On the other hand, Japanese who wish to buy numerous jobs. In the second era of globalization, stock in an American company must first buy U.S. people have moved from countries of origin to grow- dollars. To do so, they must sell yen. The number of ing economies around the world. Saudi Arabia and the U.S. dollars required to buy yen (or the number of United Arab Emirates employ significant numbers of yen required to buy a U.S. dollar) is called the ex- workers from Egypt and India. Immigrants to the U.S. change rate. (A more in-depth discussion of foreign come from around the world, including Mexico and currency exchange is presented on pages 6–7.) the nations of Europe. Many U.S. immigrants come from the Philippines, India and China. However, the The foreign exchange market is the largest financial size of these migrations is small compared with the market in the world, and it operates 24 hours a day. levels seen at the end of the 19th century. While most transactions can be accomplished electroni- cally, trading is often centered in cities with a significant Other reasons for migration vary. Some people concentration of banks and other financial services. leave a country to escape a repressive political regime Important foreign exchange markets can be found in or a humanitarian crisis. Millions of students move to London, New York, Chicago and Tokyo, among others. other countries seeking educational opportunities. Another important channel of international mon- Whatever the motivation for the movement, migra- etary flows has been remittances by immigrants. A tion has important effects on the economy and social remittance is money that is sent by an individual to structure of both the country of origin and the des- Martin Cooper of Motorola Walmart completed a private satellite 1973 made the first public telephone 1987 network that linked stores, distribution call placed on a portable centers and the corporate office with cellular phone. He called his voice, data and video communication. rival at AT&T’s Bell Labs from the 10 streets of New York City.