International Trade and International Trade and GlobalizationGlobalization

Impacts on Scale, Distribution, Impacts on Scale, Distribution, Efficiency and DemocracyEfficiency and Democracy

China’s Arms Industry Makes Global China’s Arms Industry Makes Global InroadsInroads

‘‘Airpocalypse’ Hits Harbin, Closing Airpocalypse’ Hits Harbin, Closing SchoolsSchools

A Wave of Sewing Jobs as Orders Pile UpA Wave of Sewing Jobs as Orders Pile Up

What is Globalization?What is Globalization?

The integration of all national The integration of all national economies into one global market, economies into one global market, with one set of ruleswith one set of rules

Global market takes precedence over Global market takes precedence over national autonomynational autonomy

Supporting institutions are IMF, World Supporting institutions are IMF, World Bank, World Trade Organization Bank, World Trade Organization (WTO), NAFTA, etc.(WTO), NAFTA, etc.

WhatWhat’’s a legitimate alternative?s a legitimate alternative?

ArticleArticle

Barriers to Change, From Wall St. Barriers to Change, From Wall St. and Genevaand Geneva According to the W.T.O., 125 of its 153 According to the W.T.O., 125 of its 153

member countries have made varying member countries have made varying degrees of commitments to the financial degrees of commitments to the financial services agreement. Now, these pledges services agreement. Now, these pledges could easily be used to undermine new could easily be used to undermine new rules intended to make financial rules intended to make financial systems safer.systems safer.

What are itWhat are it’’s defining s defining characteristics?characteristics?

Economic growth (increasing Economic growth (increasing material consumption) as sole material consumption) as sole desirable enddesirable end

Privatization and commodification of Privatization and commodification of public services, national and global public services, national and global commonscommons

Corporate deregulation and Corporate deregulation and unrestricted movement of capital unrestricted movement of capital across bordersacross borders

Increased corporate concentrationIncreased corporate concentration Cultural and economic Cultural and economic

homogenizationhomogenization

The Theory Behind International The Theory Behind International TradeTrade

Comparative advantageComparative advantage

One country can be more efficient at One country can be more efficient at producing everything than another producing everything than another country, and still benefit from trade country, and still benefit from trade with the inefficient countrywith the inefficient country

Assumes that trade must be Assumes that trade must be advantageous or else countries advantageous or else countries would not participate. would not participate.

Numerical exampleNumerical example

6 rupiah3 pesosTotal resources

2 C4 rupiah1 pesoclothes

2 F2 rupiah2 pesosfish

Total outputIndonesiaPhilNO TRADE

6 rupiah3 pesosTotal resources

3 C3 pesosclothes

3 F6 rupiahfish

Total outputIndonesiaPhilTRADE

1 rupiah = 5 pesos: Philippines has absolute advantage

Impacts of comparative advantageImpacts of comparative advantage

More total output and freedom of More total output and freedom of choice in consumptionchoice in consumption

More specialization, and less freedom More specialization, and less freedom of choice in production of choice in production Is consumption only desirable end, or Is consumption only desirable end, or

does choice of career matter? does choice of career matter? Some sectors/regions within a Some sectors/regions within a

country will lose out (but winners can country will lose out (but winners can compensate losers)compensate losers)

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How Convincing Is the Case for How Convincing Is the Case for Free Trade?Free Trade? ““one of the economic profession’s one of the economic profession’s

intellectual triumphs: the theory that every intellectual triumphs: the theory that every country gains by unfettered international country gains by unfettered international trade.”trade.”

““Relative to a status quo of no or limited Relative to a status quo of no or limited international trade, permitting full free international trade, permitting full free trade across borders will leave in its wake trade across borders will leave in its wake some immediate losers, but citizens who some immediate losers, but citizens who gain from such trade gain much more than gain from such trade gain much more than the losers lose. On a net basis, therefore, the losers lose. On a net basis, therefore, each nation gains over all from such trade.” each nation gains over all from such trade.”

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Report Lays Out State’s Great Report Lays Out State’s Great Gains and Losses From Gains and Losses From GlobalizationGlobalization But the costs and benefits of globalization have spread But the costs and benefits of globalization have spread

unevenly across the state, with New York City and its unevenly across the state, with New York City and its suburbs reaping most of the rewards and some regions suburbs reaping most of the rewards and some regions of the state failing to adapt to the onslaught of of the state failing to adapt to the onslaught of competition, according to the report, from the competition, according to the report, from the SUNY Levin Institute in Manhattan. Even within the city, in Manhattan. Even within the city, though, most workers have fallen behind as the wages though, most workers have fallen behind as the wages of low-skilled jobs have not kept pace with the cost of of low-skilled jobs have not kept pace with the cost of living. living.

Let’s Admit It: Globalization Has Let’s Admit It: Globalization Has LosersLosers FOR the typical American, the past decade has been FOR the typical American, the past decade has been

economically brutal: the first time since the 1930s, according economically brutal: the first time since the 1930s, according to some calculations, that inflation-adjusted incomes declined. to some calculations, that inflation-adjusted incomes declined. By 2010, real median household income had fallen to $49,445, By 2010, real median household income had fallen to $49,445, compared with $53,164 in 2000. While there are many culprits, compared with $53,164 in 2000. While there are many culprits, from declining unionization to the changing mix of needed from declining unionization to the changing mix of needed skills, globalization has had the greatest impact.skills, globalization has had the greatest impact.

A typical General Motors worker costs the company about $56 A typical General Motors worker costs the company about $56 per hour, which includes benefits. In Mexico, a worker costs the per hour, which includes benefits. In Mexico, a worker costs the company $7 per hour; in China, $4.50 an hour, and in India, $1 company $7 per hour; in China, $4.50 an hour, and in India, $1 per hour. While G.M. doesn’t (yet) achieve United States-level per hour. While G.M. doesn’t (yet) achieve United States-level productivity in China and India, its Mexican plants are today at productivity in China and India, its Mexican plants are today at least as efficient as those in the United States. least as efficient as those in the United States.

ArticlesArticles Standard of Living Is in the Shadows as Standard of Living Is in the Shadows as

Election IssueElection Issue At the top of the list are the digital revolution, At the top of the list are the digital revolution,

which has allowed machines to replace many which has allowed machines to replace many forms of human labor, and the modern wave of forms of human labor, and the modern wave of globalization, which has allowed millions of low-globalization, which has allowed millions of low-wage workers around the world to begin wage workers around the world to begin competing with Americans.competing with Americans.

One of the more striking recent developments in One of the more striking recent developments in economics has been economists’ growing economics has been economists’ growing acceptance of the idea that globalization has held acceptance of the idea that globalization has held down pay for a large swath of workers. The public down pay for a large swath of workers. The public has long accepted the idea, but economists has long accepted the idea, but economists resisted it, pointing to the long-term benefits of resisted it, pointing to the long-term benefits of trade. “That is starting to change only in the face trade. “That is starting to change only in the face of very strong evidence over the past decade,” of very strong evidence over the past decade,” said Edward Alden of the Council on Foreign said Edward Alden of the Council on Foreign Relations.Relations.

Global Markets are good for everyoneGlobal Markets are good for everyone Markets will end povertyMarkets will end poverty

““The real losers in SeattleThe real losers in Seattle”” Markets will solve environmental Markets will solve environmental

problemsproblems Environmental KuznetEnvironmental Kuznet’’s curves curve Population growth and povertyPopulation growth and poverty

Economic growth is essentialEconomic growth is essential Humans are insatiableHumans are insatiable ““The Moral Consequences of Economic The Moral Consequences of Economic

GrowthGrowth”” (B. Friedman) (B. Friedman)

Comparative or Absolute Comparative or Absolute Advantage? Advantage?

What if capital can flow between countries?What if capital can flow between countries?

Numerical exampleNumerical example

33 pesosTotal resources

11 C11 pesoclothes

11 F22 pesosfish

Total outputIndonesiaPhilCapital flows

6 rupiah3 pesosTotal resources

3 C3 pesosclothes

3 F6 rupiahfish

Total outputIndonesiaPhilNo capital flows

1 rupiah = 5 pesos

Absolute advantageAbsolute advantage

There will be more fish and clothesThere will be more fish and clothes What about employment in What about employment in

Indonesia? Can people flow across Indonesia? Can people flow across borders?borders?

Is efficient economic production all Is efficient economic production all that matters?that matters?

Can winners compensate losers?Can winners compensate losers? If trade is voluntary, how could this If trade is voluntary, how could this

happen?happen?

"It is a very common clever device that when anyone has "It is a very common clever device that when anyone has attained the summit of greatness, he kicks away the ladder attained the summit of greatness, he kicks away the ladder by which he has cllimbed up, in order to deprive others of by which he has cllimbed up, in order to deprive others of the means of climbing up after him…Any nation which by the means of climbing up after him…Any nation which by means of protective duties and restrictions on navigation means of protective duties and restrictions on navigation has raised her manufacturing power and her navigation to has raised her manufacturing power and her navigation to such a degree of development that no other nation can such a degree of development that no other nation can sustain free competition with her, can do nothing wiser than sustain free competition with her, can do nothing wiser than to throw away these ladders of her greatness, to preach to to throw away these ladders of her greatness, to preach to other nations the benefits of free trade, and to declare in other nations the benefits of free trade, and to declare in penitent tones that she has hitherto wandered in the paths penitent tones that she has hitherto wandered in the paths of error, and has now for the first time succeeded in of error, and has now for the first time succeeded in discovering the truth." discovering the truth."

-Friedrich List, 1885 (German economist known as father of modern 'infant -Friedrich List, 1885 (German economist known as father of modern 'infant industry' theoryindustry' theory

""For centuries England has relied on For centuries England has relied on protection, has carried it to extremes and has protection, has carried it to extremes and has obtained satisfactory results from it. there is obtained satisfactory results from it. there is no doubt that it is to this system that it owes no doubt that it is to this system that it owes its present strength. After two centuries, its present strength. After two centuries, England has found it convenient to adopt free England has found it convenient to adopt free trade because it thinks that protection can no trade because it thinks that protection can no longer offer it anything. Very well then, longer offer it anything. Very well then, gentlemen, my knowledge of our country gentlemen, my knowledge of our country leads me to believe that within 200 years, leads me to believe that within 200 years, when America has gotten out of protection all when America has gotten out of protection all that it can offer, it too will adopt freethat it can offer, it too will adopt freetrade" -Ulysses S. Granttrade" -Ulysses S. Grant

What empirical results would we What empirical results would we expect under absolute advantage?expect under absolute advantage?

Rich get richer, poor get poorerRich get richer, poor get poorer Headlines:Headlines: Number of Hungry Rising, Number of Hungry Rising,

U.N. Says U.N. Says By ELIZABETH BECKER By ELIZABETH BECKER Published: December 8, Published: December 8,

20042004 Number of hungry and number of poor at Number of hungry and number of poor at

record levels (though not when measured in record levels (though not when measured in percentage terms, especially if we include percentage terms, especially if we include China)China)

Income of poorest countries is falling Income of poorest countries is falling (World Bank statistics)(World Bank statistics)

Richest countries accumulating greatest Richest countries accumulating greatest share of new wealthshare of new wealth 1% of GNP growth in US = GNP of 24 poorest 1% of GNP growth in US = GNP of 24 poorest

nationsnations

IMF Working Paper: Rising Income IMF Working Paper: Rising Income Inequality: Technology, or Trade Inequality: Technology, or Trade and Financial Globalization?and Financial Globalization?““The limited overall impact of globalization The limited overall impact of globalization

reflects two offsetting tendencies: whereas reflects two offsetting tendencies: whereas trade globalization is associated with a trade globalization is associated with a reduction in inequality, financial reduction in inequality, financial globalization —and foreign direct globalization —and foreign direct investment in particular — is associated investment in particular — is associated with an increase.”with an increase.”

How does a country get an How does a country get an absolute advantage?absolute advantage?

Race to the bottomRace to the bottom EnvironmentEnvironment WagesWages

We would expect the countries with the We would expect the countries with the lowest wages and most lax environmental lowest wages and most lax environmental standards to exhibit economic growth and standards to exhibit economic growth and atrocious environmental degradationatrocious environmental degradation Headline 9/1/2004: Rivers Run Black, and Headline 9/1/2004: Rivers Run Black, and

Chinese Die of CancerChinese Die of CancerBy JIM YARDLEY, NYTBy JIM YARDLEY, NYT

How does a country develop domestic markets for How does a country develop domestic markets for domestic production?domestic production?

Unavoidable Environmental Unavoidable Environmental Costs of TradeCosts of Trade

• TransportationTransportation– Global warmingGlobal warming– Oceanic pollutionOceanic pollution– Dependence on fossil fuelsDependence on fossil fuels

• Spread of weed species (especially Spread of weed species (especially aquatic)aquatic)– Asian longhorn beetleAsian longhorn beetle– San Francisco BaySan Francisco Bay– Salmon bacteriaSalmon bacteria