Globalization: Who Wins, Who Loses?
Economists focus on free trade in goods, services,
labor, and capital, and the institutional rules that make
this possible between (rather than just internal to)
countries.
There are also issues of cultural homogenization (e.g.,
a “race to the bottom” of a mass consumption society).
Examples of baby milk powder, McDonald’s, and clean
bathrooms.
Larger corporations tend to be more involved in
international trade, and some worry about monopoly
power. However, competition between large
corporations in different countries reduces monopoly
power.
International Trade and Finance is Important
Specialization and exchange improves efficiency.
International finance is just trade in asset ownership
instead of goods and services.
The flow of goods, services, and capital between
countries favors higher returns and lower costs. As a
result the forces of supply and demand tend to lead
towards an equalization of prices, wages, interest rates,
and policies across nations, and thus tends to lead
towards increasing economic convergence.
Governments of countries which engage in global
competition are pressured to reduce government
intervention, since markets punish countries with high
taxation, excess debt, or unstable monetary policies.
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Facts about Trade
About a fourth of all goods and services produced in the
world are exported to another country.
The world’s GDP was about 60 Trillion USD (in official exchange
rates) in 2009.
Total merchandise exports were about $12.2 Trillion, and export of
commercial services totaled $3.4 Trillion.
Of the merchandise traded, about 10% was agricultural, 15% was
fuels or mining, and 75% was manufactures.
The six largest economies, which together account for 3/5
of world output, are also the world’s leading traders,
accounting for 2/5 of merchandise exports and imports.
Smaller economies tend to trade more as a share of their GDP,
while larger economies trade more within their own borders.
3
Who Trades?
The European Union accounts for over 40% of the world’s
merchandise exports and imports, but more than 2/3 of this
trade is intra-EU.
Asia accounts for 30% of exports and 26% of imports.
China, Germany, and the U.S. are the largest exporters.
The U.S. is – by far – the largest single importer, followed
by Germany and China. The U.S. has the largest trade
deficit.
South America, Africa, the former USSR, and the Middle
East all combined account for only 16% of exports and 13%
of imports.
In commercial services, the U.S.A. is by far the largest
exporter and runs a substantial surplus.
4
2
Intra- and inter-regional merchandise trade, 2009 (Billions of USD)
South &
North
Central
Destination America America
Europe
CIS
Middle
East
Africa
Asia
World
Origin
North America
769
128
292
9
28
49
324
1,602
South & Central America
115
120
90
6
13
11
96
459
Europe
366
75
3,620
147
162
154
426
5,016
Commonwealth of
Independent States (CIS)
23
5
239
87
7
14
63
452
Africa
66
9
149
1
45
12
85
384
Middle East
60
5
76
4
34
107
357
690
627
95
641
57
102
163
1,846
3,575
2,026
437
5105
311
391
510
3,197
12,178
Asia
World
5
Leading Trading Economies, 2009
Rank
Exporters
Value
Annual
percentage
Share change
Rank
Importers
Value
Annual
percentage
Share change
1
Extra-EU (27) exports
1528
16.2
-21
1
Extra-EU (27) imports
1673
17.4
-27
2
China
1202
12.7
-16
2
United States
1605
16.7
-26
3
United States
1056
11.2
-18
3
China
1006
10.5
-11
4
Japan
581
6.2
-26
4
Japan
552
5.7
-28
5
Korea, Republic of
364
3.9
-14
5
Hong Kong, China
352
3.7
-10
6
Hong Kong, China
329
3.5
-11
91
0.9
-8
17
0.2
-1
domestic exports
re-exports
retained imports
6
Canada
330
3.4
-21
313
3.3
-12
7
Canada
317
3.4
-31
7
Korea, Republic of
323
3.4
-26
8
Russian Federation
303
3.2
-36
8
India
250
2.6
-22
9
Singapore
270
2.9
-20
9
Singapore
246
2.6
-23
domestic exports
138
1.5
-21
114
1.2
-28
re-exports
132
1.4
-19
retained imports
10
Mexico
230
2.4
-21
10
Mexico
242
2.5
-24
11
Taipei, Chinese
204
2.2
-20
11
Russian Federation
192
2.0
-34
12
Saudi Arabia
192
2.0
-39
12
Taipei, Chinese
174
1.8
-27
6
3
World Growth:
In spite of the current worldwide recession, economic growth
of the past fifty-sixty years is unprecedented.
For millennia, per-capita income barely grew, and
population grew very slowly.
After 1750, beginning in the Netherlands and then the
United Kingdom, sustained growth began, at rates of
about 1% per-capita, and 2% overall.
After 1950, average per capita growth rates then doubled,
as did population growth rates.
Since 1950, world GDP has risen by a factor of 7, at an average
annual rate of 3.8%.
This is historically fast, though not as fast as international trade.
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Real Income per Person
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
0
500
1000
1500
2000
Years
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Summarizing the Literature
International trade improves the incentive to increase
productivity, to invest, and to improve your skills, all of
which take time but have long-term effects.
Hundreds of studies show predominantly positive and
statistically significant results.
The average estimated effect is that 1% higher growth
in trade leads to a 0.25% increase in economic growth.
Thus, a typical East Asian country with exports and
imports growing at 12% per year will grow 2.5% more
per year than a typical country in Sub-Saharan Africa
where trade grows by 2% per year.
A growth rate of 2.5% means a doubling in less than 30
years.
For the United States…
Since WWII, average tariff rates have fallen dramatically.
Foreign trade a much larger share of the economy.
Trade deficits a problem as Americans spend more than
they produce.
International capital flows have grown dramatically, with
high inflows of private foreign savings in the 1990s, and
foreign central bank reserve purchases 2001-2010.
The Curse of the Dollar: Desirability as a safer
investment vehicle leads to seignorage (via lower
interest payments), but also overvaluation. May be past.
Export growth is currently hampered by continued
recession/instability in Europe and elsewhere.
5
20%
U.S. Exports and Imports
Share of GDP
1947-2011
15%
Globalization
OPEC
Oil Crisis
10%
Marshall
Plan
Great
Recession
End of Fixed
Exchange Rates
5%
0%
1947
1951
1955 1959
1963
1967
1971
1975
1979
1983
1987
1991
1995 1999
2003
2007
2011
-5%
-10%
6
U.S. Merchandise Trade
The U.S.A. trades most
with NAFTA, Asia as a
region.
The U.S.A.’s largest
export markets are, in
order, the EU, Canada,
Mexico, China, Japan,
Korea, Brazil, Singapore,
Hong Kong, Australia,
and Taiwan.
We import most from, in
order, China, the EU,
Canada, Mexico, and
Japan, Korea, Taiwan,
Venezuela, Malaysia,
Saudi Arabia, and India.
Region:
Destination
/ Origin
Share
Of U.S.
Exports
Share
of U.S.
Imports
Canada & Mexico
32%
25%
Asia:
27%
39%
Japan
5%
6%
China
7%
20%
15%
13%
Europe
Other Asia
24%
20%
Rest of World:
18%
16%
Middle East
4%
4%
Latin America
10%
7%
Africa
2%
4%
CIS (former USSR)
1%
2%
100%
100%
Total
13
15%
U.S. Savings Outflows and Inflows
Share of GDP
1960-2011
10%
5%
0%
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
U.S. Savings Abroad
Foreign Private Savings in U.S.
Foreign Central Bank Savings in U.S.
-5%
7
The Dollar floated in 1973, hit peaks in 1985 and
2002, and is now near an all time low -- in real
terms against other major currencies.
Appreciation
1981-1985
Depreciation
1985-1988
Appreciation
1995-2002
Depreciation
2003-2008
15
Who wins and who loses?
Overall, the world economy benefits, and most countries
benefit, both rich and poor.
In richer countries, blue-collar and less-skilled labor tends to
lose, while skilled labor usually wins. The income gap widens.
Every firm faces increased competition, some grow but others
go out of business.
Kofi Annan: The problem for most poor third-world countries is
not that the international trading system is making them
poorer. It is that they are not part of the system that is making
other countries richer.
But increased interdependence also makes countries
susceptible to financial crises. Sometimes markets punish
even the virtuous.
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