International Economics: Integration Of Global Trade Cycle Essay

Question:

Discuss about the International Economics for Integration of Global Trade Cycle.

Answer:

Globalization is the process of increasing integration and environment of co-operation among different economies. It results in inter-related and integrated world economies. The benefits of globalization is realized in forms of greater free trade, increased capital flows, increased movement of labor, integration of global trade cycle, growth of multinational companies and improved means of transport and communication that removes barriers among countries. Free trade allows specialization to the countries. When countries specialize in goods, in which it has a comparative advantages then it enjoys several benefits (Baylis, Owens & Smith, 2017). The consumers get goods at a lower price in the world market; trade enables a greater choice of goods and a wider market for exporters, increased competition in the world market enhances efficiency in production and the countries enjoys economies of scale. The free movement of labor comes with advantages for both the countries and workers. The increasing specialization reduces average cost and makes good cheaper. Globalization comes along with the benefit of increased investment. The flow of funds from developed to developing nations contributes to economic growth of these nations.

The anti-globalization arguments are related to effects of trade on labor standard, workers and environment. In contrast to the benefits of free trade arguments, there are two widely held controversies against free trade. The supporters of government intervention states that there are some industries remaining underfunded in the free market environment (Mander, 2014). Other forms of imperfect competition dominate these markets. The globalization effect on environment, workers and sovereignty warrant the support from government. The free trade resulted from globalization harms developing countries. The developing countries face difficulty to compete with developed nation. The industries in developing nation often need protection to develop fully. One major problem of globalization is increased use of non-renewable resources. A byproduct of this is the increased pollution and problem of global warming. The globalization fails to set a desirable environment standard. The free movement of workers creates the problem of labor drain. It becomes difficult for low paying countries to retain their skilled workers.

Globalization has a mixed impact on growth of world economies. Free trade that resulted from globalization allows specialization based on comparative advantage (Stiglitz, 2017). The comparative advantages foster growth contributed from country’s openness in the world market. The resulted Foreign Direct Investment affects economic growth and has a positive impact in developed nations leading to higher growth rate. Globalization boosts technological development that has promoted unparalleled development of economies. In some countries, globalization increases human welfare and eliminate poverty and underdevelopment. However, the benefits of globalization can be reaped only by countries having capacity of exploring new opportunities and have potentials to absorb the adverse impact of the process. However, growth impact of globalization on underdeveloped and developing nations remain ambiguous. The effect of globalization on economic growth depends on the structure of economics in globalization process (Rodrik, 2014). The growth impact changes depending on policy set for improvement of financial system and human capital.

Trade balance of a nation keeps record of country’s export and import. Trade deficit is a situation where country’s import exceeds its imports. The trade deficit in US has become a cause of concern for the US government because of its adverse impact on the domestic economy (Kim, 2014). Trade deficit affects US economy through three direct channels. First, the growing trade deficit since past two decades has destroyed many manufacturing jobs. As U.S. mostly exports manufacturing goods, trade deficit resulted from declining exports depressed manufacturing sectors and causes significant job losses. Transition is observed from highly paid manufacturing jobs to low paid jobs in the service sector. In addition to job losses, the adverse impact of trade deficit is observed in a depressed wage of workers (Irwin, 2015). The problem of unemployment can be countered with active policies taken by the government such as decline in the interest rate or increased government expenditure. However, the effect on job composition cannot be altered. Workers who lose jobs in manufacturing finds job in some other sectors mostly in service sectors where wage is low. The import growth in countries having a low wage creates downward pressure on the workers wage in U.S. In response to a low-priced imported good, prices of products produced in U.S. In order to reduce production cost firms in U.S have to cut wages. The U.S. government is concerned with the effect of trade deficit on their trade competitiveness. When trade deficit raises then many firms and industries were closed negatively affected the domestic economy.

Trade surplus describe a situation in which export of a nation exceeds its import. A trade surplus benefits nation in many ways. Increase in export means increased demand for goods in the international market (Acemoglu et al., 2016). This helps to expand business in the domestic economy. With increased production new job opportunities open up solving the problem of unemployment. In order to expand production labor demand raises. This pushes wage in labor market to a high level. Therefore, the problems created with a trade deficit come to an end with a surplus trade balance. However, trade surplus increases the inflow of domestic currency lowering its value in the exchange market. This makes import expensive. For countries with heavy reliance on import, the rising import price is a problem. The manufacturing industry in U.S. is the propeller of economic growth. The U.S. manufacturing sector depends on imported raw materials. Therefore, increasing cost of raw materials increases the production cost (Melvin & Norrbin, 2017). In this situation the government in U.S. should take proper policy to maintain a stale import price. However, trade surplus might create a problem in terms of raising import cost but the problem is not as severe as trade deficit.

References

Acemoglu, D., Autor, D., Dorn, D., Hanson, G. H., & Price, B. (2016). Import competition and the great US employment sag of the 2000s. Journal of Labor Economics, 34(S1), S141-S198.

Baylis, J., Owens, P., & Smith, S. (Eds.). (2017). The globalization of world politics: An introduction to international relations. Oxford University Press.

Irwin, D. A. (2015). Free trade under fire. Princeton University Press.

Kim, M. H. (2014). The US–China Trade Deficit. The International Trade Journal, 28(1), 65-83.

Mander, J. (2014). The case against the global economy: and for a turn towards localization. Routledge.

Melvin, M., & Norrbin, S. (2017). International money and finance. Academic Press.

Rodrik, D. (2014). The past, present, and future of economic growth. Challenge, 57(3), 5-39.

Stiglitz, J. E. (2017). The overselling of globalization. Business Economics, 52(3), 129-137.

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