2. Globalization has three major components:
a. Barriers to trade—rules that limit trade with another country
b. Tariffs—trade allowed but fee must be paid to importing government. Discourages purchase and protects local production
c. Immigration—rules about importing workers. Limit protects local workers but if skills needed can be harmful to economy.
3. When David Ricardo first postulated Comparative Advantage theory, the resources needed to produce goods were not easily moved across international borders let alone overseas. Those resources include land, labor, entrepreneurship and capital. Is comparative advantage undermined when these factors of production can relocate with relative ease? Add technology to these basic factors and yes, they are quite moveable.
4. Thomas Friedman’s GREAT BOOK—The World is Flat—describes our era as Globalization 3.0 (1.0 was 1492-1800—explorers and trade) (2.0 was 1800-2000 (I would make it more like the mid 1800)—multi-nationals and transportation improvements and telecommunications began to shrink the world.
5. He says that 10 factors led us into Globalization 3.0
a. Berlin Wall coming down in 1989
b. Netscape—the first public internet browser in 1995
c. Workflow software in the late 90s—common web-based standards (e.g. Windows)
d. Open source software that allowed computer fanatics to access and improve programs and websites.
e. Outsourcing—India for the most part—moving back office jobs—not physical plants
f. Off-shoring—that’s China and actual movement of manufacturing facilities
g. Supply chaining—inventory control that reduces need to stockpile products
h. Insourcing—UPS handling orders and deliveries for smaller operations.
i. In-forming—Google, Yahoo, etc.
j. “Steroids”—wireless devices that all accessing internet anywhere
6. Few facts from our readings
7. Advantages of Global Trade:
a. COMPARATIVE ADVANTAGE
b. Reduce worldwide poverty
c. Increase democracy worldwide
d. More business opportunities
e. Economies of scale—bigger = less costly
f. Faster specialization
g. Better for small firms (e.g. auto parts producer need not make entire car)
h. Larger markets = more innovation
i. Workers benefit from specialization pay premiums—higher skill= better pay
i. Export related jobs pay 18% more
j. Gender equality—more opportunities, global platforms less subject to gender bias
i. Gender gap wider in concentrated industries
k. Reduced prices have lowered inflation from the 70s and 80s (= increase in REAL wages)
l. # of goods has doubled
m. Better products
n. Faster diffusion of innovations
o. Competition drives out less productive firms
p. Huge opportunities in energy and environment
q. Thomas Friedman is an advocate for globalization in principle
i. Efficiency produces wealth, increases in income and spending-human wants and needs are infinite.
a. Reform Wholesale—Legal System:
b. Reform Retail- :education, infrastructure, culture of tolerance openness to new ideas from outside
c. Two reforms combine to create environment that makes it easy to start business, raise capital, innovate AND easy to close businesses to free up capital—GLOCALIZATION—
iii. Over the last century those countries that have tried to preserve their systems, jobs, cultures, traditions by keeping the rest of the world out have suffered.
iv. Goal is to get bigger, faster.
v. Another benefit: No two countries that are part of a major global supply chain have or will ever fight a war against each other
a. Increased transportation = increased carbon emissions
b. Exacerbates inequality –big vs. small—larger companies can take greater advantage
c. Detrimental to middle class—job loss and wage competition
d. Recessions now worldwide due to interconnectivity
e. US share of world economy was 36% in 1970—now 24%–competitors are catching up
f. Inequality among countries is less under globalization BUT inequality within countries increases.
g. Reduced national sovereignty –a key factor in the Lasurain article. Increased democracy and national sovereignty cannot coexist. He discussed the Global Economy Trilemma :
i. If countries opt for globalization, SUPRAnational democratic organizations end up making the rules These organizations are from large, developed countries.
ii. If opt for national sovereignty, democracy must be limited.
iii. SHOCK DOCTRINE
a. Milton Friedman
b. Chile, Argentina, Uruguay, Brazil, Asian Contagion, Russia
9. General Agreement on Tariffs and Trade (Bretton Woods)—morphs into World Trade Organization—1995
a. The WTO and its agreements are permanent.
b. GATT dealt with trade in goods. The WTO covers services and intellectual property as well.
c. The WTO dispute settlement system is faster, more automatic than the old GATT system. Its rulings cannot be blocked.
9. Today the WTO has grown 164 members. But since the WTO was created,
a. Many developing countries believe that their industrialized trading partners have not fully granted them the benefits promised when the WTO was formed.
b. there is concern that the WTO focuses on corporate interests
c. Environmental and labor groups (especially those from wealthier countries) have claimed that trade liberalization leads to environmental damage and harms the interests of low-skilled unionized workers.
d. that the WTO has failed to handle China’s abuses
e. that intellectual property protection is too weak
f. that it can overrule national laws and harm national sovereignty
g. that labor standards are “protectionism in disguise” by large countries—just the reverse of the argument that it harms interest of unionized workers
h. and, of course, that it has cost US jobs and hurt wages
10. Let’s talk about the US, China and the WTO. China joined the WTO at the end of 2001. Clinton began the process while he was President. He claimed that opening up Chinese markets and that huge population would create substantial profits for US firms..and it did for some—Apple and agriculture profited nicely and prices were lowered for American consumers.
11. BUT—1 million manufacturing jobs were lost—2.4 million in total, according to the Council on Foreign Relations.
12. China, on the other hand profited hugely.
13. Here are the main complaints against China within the WTO:
a. Illegal state subsidies, tax breaks and cheap bank loans
b. Undervalued currency makes exports cheaper
c. still discriminate against foreign goods with stringent local content rules, required partnerships with Chinese firms, and forced technology transfers–2017 Chinese National Intelligence Law.
d. Control over supply chains—they do not want to export materials or parts—they want to export finished products.
14. Helberg’s article about Deindustrialization equaling disarmament is powerful and full of warnings about China. He says that we CANNOT AFFORD NOT TO BRING BACK MANUFACTURING.
15. Helberg says that we need to get busy FAST with artificial intelligence, robotics, computer and cell phone manufacturing. We need to develop key natural resources, skilled industrial workers, and foster innovation or else we will have effectively DISARMED ourselves in the 21st century world.
16. NAFTA and TPP:
NAFTA—The North American Free Trade Agreement with Canada and Mexico was approved in 1993 and became effective on January 1, 1994. NAFTA set out to:
a. Eliminate all tariffs between the three countries by 1998.
b. Liberalize financial services trade
c. facilitate cross border travel for business
d. expand size of government procurements available to all countries—especially for energy
e. tri-national panel to resolve disputes
f. set North America content %s that would encourage use of each other’s supplies and materials
g. Some provisions, although weak, for intellectual property
h. rules for transporting goods in all countries
17. For the U.S. in particular, here’s what has changed:
18. NAFTA was revised in 2019 as the US-Mexico-Canada Agreement————-USMCA
19. It made several key changes from NAFTA
b. LABOR STANDARDS:
f. TRADE SECRETS
g. INTELLECTUAL PROPERTY:
20. Lastly, the Trans-Pacific Partnership (TPP). This was a deal with 10 countries on the Pacific Rim in Asia plus Australia, New Zealand, Mexico and Canada. Not China—the purpose was to get a deal with these countries before China did. Trump pulled us out immediately upon taking office. It wasn’t just Trump—the left was against it, too.
21. The agreement was designed so that it could eventually create a new single market, something like that of the European Union and NAFTA, but we were not in the mood back then for more trade deals that COULD cost jobs like NAFTA did.