Chapter 1: The International Economy & Globalization PDF

ECON-UA 238 INTERNATIONAL ECONOMICS CH 01 HANDOUT DR. ANDREW PAIZIS - NYU Chapter 1 The International Economy and...

ECON-UA 238 INTERNATIONAL ECONOMICS CH 01 HANDOUT DR. ANDREW PAIZIS - NYU Chapter 1 The International Economy and Globalization Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1 1 Chapter Outline 1-1 Globalization of Economic Activity 1-2 Waves of Globalization 1-3 The United States as an Open Economy 1-4 Common Fallacies of International Trade 1-5 Is International Trade an Opportunity or a Threat to Workers? 1-6 Has Globalization Gone Too Far? Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2 2 1 ECON-UA 238 INTERNATIONAL ECONOMICS CH 01 HANDOUT DR. ANDREW PAIZIS - NYU Economic Interdependence No nation exists in economic isolation All aspects of a nation’s economy are linked to economies of trading partners through international movements of: Goods and services Labor Business enterprise Investment funds Technology Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3 3 Economic Interdependence High degree of economic interdependence reflects: Historical evolution of economic and political orders Increasing integration into activities of foreign countries Economic interdependence is complex, and its effects are uneven Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4 4 2 ECON-UA 238 INTERNATIONAL ECONOMICS CH 01 HANDOUT DR. ANDREW PAIZIS - NYU Case Study Activity Economic Interdependence: Red Wing Shoe Company Faces Challenges When Producing in the United States What advice would you have given Red Wing before it reversed its movement toward globalization? Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5 5 What Is Globalization? Process of greater interdependence between countries and their citizens Increased interaction of product and resource markets via: Trade Immigration Foreign investment Includes noneconomic elements (ideas, culture, environment) Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6 6 3 ECON-UA 238 INTERNATIONAL ECONOMICS CH 01 HANDOUT DR. ANDREW PAIZIS - NYU Forces Driving Globalization Technological change in: Transport technology Information technology Communications technology Liberalization of trade and investment Development of international financial markets Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7 7 Discussion Activity Diesel Engines and Gas Turbines as Movers of Globalization How did diesel engines and gas turbines promote international trade among nations? Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8 8 4 ECON-UA 238 INTERNATIONAL ECONOMICS CH 01 HANDOUT DR. ANDREW PAIZIS - NYU Table 1.1 Waves of Globalization First Wave Second Wave Third Wave Time Period 1870–1914 1944–1980 1980–Present Technology Steam engine Container shipping Personal computers Telegraph Jet planes Internet Electricity Communication Mobile phones Internal combustion satellites engine Television Political Great Britain United States Multipolar: United Leadership economic leader economic States, leader European Union, China Commerce Initially free trade but Gradually decreasing Freer trade spreading rising protectionism tariffs followed by rising protectionism Capital Free Regulated Free Movements Migration Free migration Regulated migration Regulated migration Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9 9 Waves of Globalization Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10 10 5 ECON-UA 238 INTERNATIONAL ECONOMICS CH 01 HANDOUT DR. ANDREW PAIZIS - NYU Is Globalization in Decline? Fears about job loss, dislocation, deindustrialization, inequality Increased trade barriers and broken free-trade agreements Global economy is rebalancing China and emerging nations moving to the next stage of economic development Driven by digital technology Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 11 11 Table 1.2 Risks of Backpedaling on Globalization U.S. Trade Policy Risks Participating in a trade war with Tariff retaliation harms American exports. Both countries suffer when continuous rounds of escalating the volume of trade falls. Trade wars create uncertainty for tariffs businesses, which causes investment spending to fall, thus lessening the economy’s ability to grow. Withdrawing from free-trade May place America at a competitive disadvantage as other countries agreements such as the Trans- form trade pacts with each other, resulting in rising tariffs on American Pacific Partnership exports that dampen sales abroad. Detracts from America’s role as a leader in international cooperation, making it harder to achieve agreements on the environment, immigration, and national security. Levying tariffs to protect American The few jobs that are saved come at a high cost to domestic manufacturing jobs at particular consumers. firms Violating rules of the World Trade Weakens the rules-based trading system that many countries rely on Organization to protect America to settle trade disputes and maintain open markets. interests Restricting imports from particular Trading partners may retaliate. Reductions in bilateral trade deficits countries in an attempt to decrease are not a good indicator of economic development. bilateral trade deficits Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 12 12 6 ECON-UA 238 INTERNATIONAL ECONOMICS CH 01 HANDOUT DR. ANDREW PAIZIS - NYU Trade Patterns: Examples Supermarket Imports Other Imports Good Country Good Country Coffee Colombia Shirts Bangladesh Pineapples Costa Rica Paper products Canada Bananas Ecuador Steel China Wine and cheese France Computer programs India Olive oil Italy Cameras and cars Japan Apples New Zealand Oil Kuwait Tangerines South Africa DVD players South Korea Cinnamon Sri Lanka Semiconductors Taiwan Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 13 13 Openness Rough measure of the importance of international trade in a nation’s economy Nation’s exports and imports as a percentage of its gross domestic product (GDP) Openness   Exports  Imports  GDP Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 14 14 7 ECON-UA 238 INTERNATIONAL ECONOMICS CH 01 HANDOUT DR. ANDREW PAIZIS - NYU Openness Large countries Lower measures of openness Less reliant on international trade Companies can attain optimal production size without having to export due to the population and economic size Small countries Higher measures of openness Economies are significantly tied to international trade Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 15 15 Table 1.4 Exports and Imports of Goods and Services as a Percentage of GDP 2018 Country Exports as a Imports as a Exports Plus Percentage of Percentage of Imports GDP GDP as a Percentage of GDP Netherlands 84 73 157 Germany 47 40 87 Canada 32 34 66 United Kingdom 30 31 61 China 20 19 39 Japan 18 17 35 United States 12 15 27 Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 16 16 8 ECON-UA 238 INTERNATIONAL ECONOMICS CH 01 HANDOUT DR. ANDREW PAIZIS - NYU Trend of Openness of the U.S. Economy Late 1800s Openness relatively high Rise in world trade 1890-World War II Less open Reduced dependence on trade After World War II Increasing openness Negotiated reductions in trade barriers Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17 17 Table 1.5 Top Eight U.S. Trading Partners, 2018 Country Value of U.S. Value of U.S. Total Value of Exports of Goods Imports of Goods Trade (in Billions of (in Billions of (in Billions of Dollars) Dollars) Dollars) China 120.1 539.7 659.8 Canada 298.8 318.8 617.6 Mexico 265.4 346.1 611.5 Japan 75.2 142.4 217.6 Germany 57.8 125.8 183.6 United Kingdom 66.3 60.8 127.1 South Korea 33.0 45.7 78.7 France 36.6 52.4 89.0 Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 18 18 9 ECON-UA 238 INTERNATIONAL ECONOMICS CH 01 HANDOUT DR. ANDREW PAIZIS - NYU Labor and Capital Labor mobility has not risen for the U.S. in recent decades U.S. increasingly tied to the rest of the world through capital (investment) flows Foreign ownership of U.S. financial assets increasing Concerns over rising cost of debt International branches of U.S. banks U.S. securities are increasingly globalized Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 19 19 Globalization and Competition Globalization Forces Kodak to Reinvent Itself Kodak had 90% of camera market; did not address competition with new technology Fuji entered U.S. market with lower-priced film and supplies; Kodak ignored them By mid-1990s, Fuji had 17% of market; Kodak, 75% Kodak finally developed digital camera but was undercut by smartphones; filed for Ch 11 bankruptcy Kodak now a small, digital imaging company Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 20 20 10 ECON-UA 238 INTERNATIONAL ECONOMICS CH 01 HANDOUT DR. ANDREW PAIZIS - NYU Globalization and Competition Bicycle Imports Force Schwinn to Downshift Schwinn bicycles once standard Competitors produced mountain bikes and racing bikes; cheap imports entered market Schwinn moved production to nonunion state; obtained foreign parts Uneven quality; Schwinn declared bankruptcy Today Schwinn manufactures in China Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 21 21 Globalization and Competition Stanley Black & Decker Moves Back to the U.S. In 2017, Stanley acquired Craftsman from Sears Holdings Corp In 2019, Stanley moved production of Craftsman wrenches from China back to the U.S. as tariffs had increased the cost of imports Stanley encountered rising costs because of higher wages paid to American workers To offset cost increase, Stanley increased automation at its Fort Worth factory Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22 22 11 ECON-UA 238 INTERNATIONAL ECONOMICS CH 01 HANDOUT DR. ANDREW PAIZIS - NYU Case Study Activity COVID-19 and Globalization “Many observers believe that the coronavirus pandemic will have long-lasting effects on global trade, technology, finance, and economic policy.” Do you agree or disagree? Why? Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 23 23 Misconceptions Trade is a zero-sum According to the principle of game comparative advantage, both partners can benefit from trade Imports result in Source of fallacy is failure to unemployment and consider connection between burden the economy, imports and exports while exports enhance economic growth and jobs for workers Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 24 24 12 ECON-UA 238 INTERNATIONAL ECONOMICS CH 01 HANDOUT DR. ANDREW PAIZIS - NYU Misconceptions Import restrictions Fails to recognize that a reduction result in more jobs in imports does not occur in for domestic isolation workers Jobs promoted by import barriers tend to be offset by jobs lost from falling exports. Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 25 25 Threat Not all workers gain from international trade Some jobs are lost to cheap imports Concern over mass immigration for low-wage work Particular threat to unskilled workers in developed countries Hurts unskilled workers in import-competing industries Wages increase for skilled workers Workers—more productive Imports do NOT decrease the total jobs in nation Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 26 26 13 ECON-UA 238 INTERNATIONAL ECONOMICS CH 01 HANDOUT DR. ANDREW PAIZIS - NYU Opportunity International trade provides both an opportunity and a threat for firms and workers International trade increases total productivity Wages paid by exporters higher than non-exporters Exporting industries require more educated workforce Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 27 27 Table 1.6 Millions of American Jobs Supported by Exports: Total, Goods, and Services Year Total Goods Services 2016 10.7 6.3 4.4 2015 10.9 6.4 4.5 2014 11.3 6.8 4.5 2013 11.2 6.7 4.5 2012 11.2 6.8 4.4 2011 10.7 6.6 4.1 2010 10.0 6.2 3.8 Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 28 28 14 ECON-UA 238 INTERNATIONAL ECONOMICS CH 01 HANDOUT DR. ANDREW PAIZIS - NYU Advantages of Globalization Productivity increases faster when countries produce goods and services in which they have a comparative advantage Living standards can increase more rapidly Global competition and cheap imports keep a constraint on prices, so inflation is less likely to disrupt economic growth An open economy promotes technological development and innovation with fresh ideas from abroad, which promotes economic growth and more jobs Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 29 29 Advantages of Globalization Jobs in export industries typically pay up to 18% more than jobs in import-competing industries Unfettered capital movements provide the United States access to foreign investment and maintain low interest rates Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 30 30 15 ECON-UA 238 INTERNATIONAL ECONOMICS CH 01 HANDOUT DR. ANDREW PAIZIS - NYU Disadvantages of Globalization Americans have lost jobs because of imports or shifts in production abroad; most find new jobs that pay less Americans fear getting laid off, especially those operating in import-competing industries Workers face demands of wage concessions from their employers, who often threaten to export jobs abroad if wage concessions are not accepted Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 31 31 Disadvantages of Globalization Besides blue-collar jobs, service jobs and white-collar jobs are increasingly vulnerable to operations being sent overseas American employees can lose their competitiveness when companies build state-of-the-art factories in low-wage countries, making them as productive as those in the United States Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 32 32 16 ECON-UA 238 INTERNATIONAL ECONOMICS CH 01 HANDOUT DR. ANDREW PAIZIS - NYU Summary Now that the lesson has ended, you should have learned how to: Define economic interdependence. Discuss how the world’s economies have become increasingly interdependent. Discuss the importance of international trade for the U.S. economy. Analyze international competitiveness. Identify the advantages and disadvantages of globalization. Robert J. Carbaugh, International Economics, Eighteenth Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 33 33 17