The United States and the Global Economy
The United States and the Global Economy
GLOBALIZATION AND
THE GLOBAL ECONOMY
HOW DO COUNTRIES CONDUCT TRADE IN THE GLOBAL ECONOMY?
Objectives:
Analyze the effects of protectionism and free trade on individual countries and the global economy.
Evaluate the role of multinational organizations in promoting and protecting global trade.
Examine how currency is traded on the foreign exchange market and analyze what causes currency to appreciate and depreciate.
Asses global trading practices.
WHY IS GLOBAL TRADE GROWING IN IMPORTANCE?
The global economy refers to the system of markets and trade that links the countries of the world. Global trade has grown dramatically since the end of WWII as a result of advances in transportation, improved communications, and a shift in the types of goods being produced and traded.
A country has a comparative trade advantage when it can produce a good or service at a lower opportunity cost than its competitors. Comparative advantage is based on such factors as differences in climate, factors of production, and technology.
WHAT GOODS AND SERVICES DO COUNTRIES TRADE?
The U.S. is the world’s largest importer and one of the world’s top exporters.
The U.S. trades with most countries in the world. Canada, Mexico, and China are its top trading partners.
Foreign trade
gives US consumers access to a greater variety of goods and services, makes things cheaper, and improves Americans’ standard of living. Global trade also increases competition among producers and enhances the flow of ideas around the world.In the short term, global trade can have negative effects on US workers. In the long run, specialization increases economic activity and promotes economic growth.
HOW AND WHY DO COUNTRIES REGULATE TRADE?
Protectionists
and non-protectionists continue to debate the pros and cons of free trade. Few countries engage in true free trade, the unrestricted movement of goods and services across borders. Most countries resort to protectionism, restricting imports to shield domestic markets form foreign competition.There are four main types of trade barriers:
Protective tariffs
- are taxes placed on imported goodsImport quotas - are limits on the quantity of a particular good that can be imported during a specified period of time.
Trade embargoes - impose a ban on trade with a country or group of countries, usually for political reasons.
Voluntary export restraints - (VER) set limits on the quantity of goods that can be exported from a country during a specific time period.
HOW IS GLOBAL TRADE FINANCED?
Foreign exchange
is the process of converting one currency to another.Each currency traded on the market has an exchange rate, a value in terms of another currency. Depreciation occurs when one currency loses value relative to another. Appreciation occurs when one currency gains value relative to another.
A strong dollar has a higher exchange rate and trades for more foreign currency than a weak dollar.
When exchange rates fluctuate based on supply and demand, the system is said to have a floating exchange rate. Some countries establish a fixed exchange rate with which the government pegs its currency to another major currency to maintain a rate. Both types of exchange rates have pros and cons.
A balance of trade is the difference between the values of a country’s exports and imports. A trade surplus occurs when a country exports more than it imports; a trade deficit occurs when a country imports more than it exports. Economists differ on the significance of a trade deficit to a country’s economy.
WHAT IS "OUTSOURCING?" AND IS IT GOOD OR BAD?!
Outsourcing is when companies based in one country subcontract business activities to workers in other countries. This is done to reduce labor costs by hiring foriegn workers who will work for lower wages.
Companies typically outsource a wide array of functions. Some of the business activities include human resources and payroll management, call center operations (think computer troubles), technology, public relations, and marketing. However, many companies have outsourced their manufactoring production to low wage workers in third world countries. Often times, these workers are women and children working long hours, in dangerous conditions for low pay.
The human rights violations of "outsourcing" has become controversial.