Several people want to know what globalization is? Nowadays, globalization is a hot topic because it affects the economies of nations around the globe. After advancements in international cooperation and centuries of technical development, the world is more strongly connected than before. It will be interesting to learn about the impact of globalization on trade and the modern worldwide economy, American businesses, consumers, and workers.
Generally, globalization describes the increasing interdependence of economies, populations, and cultures of the world through cross-border trades in services, goods, investment flow, technology, information, and people. Countries try to facilitate each other through economic partnership. In this article, you will find a basic guide to the economic side of globalization.
The term “globalization” became popular after the cold war in the 1990s early because cooperative arrangements play an important role in shaping the daily life of modern society. Globalization is narrowly used to describe international trades, and investment flows among advanced global economies, especially the USA.
What is globalization?
Globalization means spreading financial products, technology, goods, jobs, and information across national cultures and borders. It defines the interdependence of different nations around the world nurtured through free trade.
Corporations get a competitive advantage on different fronts via globalization. They may decrease operating costs by outsourcing the manufacturing process, buying cheap raw materials because of removing or reducing tariffs, and getting access to new consumers.
Is globalization good or bad? It depends on the legal, political, cultural, and social phenomena. At a cultural level, globalization means exchanging values, artistic expression, and ideas among cultures. Socially, it increases the chances of better interaction among populations.
Globalization may represent a specific trend in the progress of a single global culture. Moreover, globalization has moved political attention to different intergovernmental organizations, such as World Trade Organization (WTO) and United Nations (UN). Additionally, globalization at the legal level has altered how global law is developed and enforced.
Indeed, globalization plays an important role in creating new jobs and triggering economic growth through a cross-border flow of labor, capital, and goods. Job creation and growth are not equally distributed across countries and industries.
Particular industries in specific countries, including Mexico corn farming and the USA textile manufacturing, have suffered outright collapse or severe disruption because of growing international competition. Remember, the motives of globalization are opportunistic and idealistic; therefore, you cannot conclude if globalization is good or bad.
Remember, the wide-ranging impacts of globalization are politically charged and complicated. Its influence is mixed for small businesses, cultures, and workers worldwide, emerging and developed nations. In the western world, companies take advantage of universal free-market development.
Americans depend on the worldwide economy for several things they sell and buy for their business expansion and investments. Due to technological advances, globalization is beneficial for society while harming particular groups. Understanding the benefits and relative costs can create a method for lessening problems when supporting wider payouts.
Nowadays, several products and services are becoming affordable for an average American through production coordination across countries. Globalization history is determined by international cooperation, transportation, and technology.
History of Globalization
From ancient times, humans have preferred distant places to produce, exchange goods, and settle. It is possible through transportation and technology improvement. Global integration was not done until the 19th century. After periods of European trade activity and colonization, globalization’s first wave was impelled by railroads, telegraphs, steamships, and several other breakthroughs. There was an increase in economic cooperation between countries.
Unfortunately, the trend of globalization crashed and waned in World War I catastrophe, followed by protectionism after the war (the great depression) and Second World War. In the middle of the 1940s (after World War II), the US tried to revive international investment and trade under-discussed trade rules. It was the second wave of globalization that is ongoing, however, rocked by mounting political analysis and periodic downturns.
Is globalization good or bad?
Globalization has some benefits and drawbacks; therefore, it is difficult to say whether it is completely good or bad. The United States took it as a tool for peace and prosperity. After Second World War, the US tried to build a worldwide economic order ruled by commonly accepted rules and supervised by multidimensional institutions.
In fact, they wanted to create an amazing world for countries looking forward to cooperating with others for instant peace and prosperity. Regulations and free trade were the backbones of this system to prevent economic disputes from intensifying into huge conflicts.
Impacts of Globalization
What is globalization? It means economic growth, prosperity, better communication and goods at affordable prices. Globalization allows every country to specialize in specific products using limited resources for comparative advantage. Due to this concept, production becomes efficient, lowers the prices of services and goods, and encourages economic growth. As a result, goods become affordable for households with low incomes.
Business Scale Up
In larger markets, companies can reach potential customers and get a huge profit on fixed business costs, such as conducting research and building factories. Technology firms can enjoy the special benefits of innovations.
Competition from overseas drives firms in the United States to improve their services and products. For this reason, customers have more choices and better products. Trade expansion spurs innovation, and technology spreads along with the communication of ideas. The ideas from market leaders can spread easily.
Job Displacement
Globalization can increase new employment opportunities but contributes to the displacement of jobs. It may not significantly change the total positions in an economy. Remember, job numbers may depend on Federal Reserve, fiscal policies, and business cycles. From 2001 to 2016, almost 156,250 manufacturing jobs in the US were lost on average because of expanded manufactured goods trades.
This situation affects workers with low wages in particular regions. Several workers face dropped out of the team or got low earnings. Technologies such as artificial intelligence and automated machines play an important role in job displacements. Some highest paying positions are available in high-tech manufacturing areas, such as chemicals, transportation equipment, and computers. Moreover, some other notable jobs are available in real estate and finance.
Reduction in Global Inequality
Is globalization good or bad? It can be good if it proves helpful in narrowing inequality between the richest and poorest people around the world. Globalization should decrease the number of people living in poverty. Unfortunately, inequality is increasing in several countries, such as the US.
The main reason behind inequality is technological advancement. It is decreasing the demand for workers with low to median wages and increasing the demand for higher-paid, skilled workers. Wages are stagnated, and economists are debating to find its real causes. Countries using globalization have decreased inequality to different extents through welfare and tax systems. The efforts of the United States are insufficient to mobilize government policies to decrease inequality.
Displacement of Workers and Supporting High-paying Jobs
Globalization has changed the jobs available and impacted the overall number of jobs in the United States labor market. Some workers get direct benefits from the advancement of global commerce. Manufacturing workers in some geographic regions become unemployed, such as workers in auto parts, steel, apparel, furniture, and electric equipment industries in the Mid-Atlantic States, Michigan, and Tennessee.
From 1991 to 2007, manufacturing workers (lower-wage) within industries faced competition and experienced earning losses. At the same time, higher-wage workers in industries were unaffected. The workers with lower wages suffer because of a lack of skills and motivation to transit to other industries. Moreover, workers with higher wages are relocated to other companies. Globalization has decreased the bargaining leverage of US workers to demand good wages.
Manufacturing Employees in America
After World War II, many Americans preferred to work in service-providing companies over manufacturing. Indeed, America’s manufacturing industry keeps growing and requires few workers. Before the rise of WTO, NAFTA, or China, the US manufacturing jobs declined because of technological advancements.
Industrial production in America is high because they have the technology to manufacture goods. There is a clear decline in manufacturing job share because consumers prefer to spend more on services (healthcare, housing, legal, travel, and dining out services) instead of manufactured goods.
Firms in the US can beat the global competition because of high-skill services, such as information technology, management, research, consulting, legal, and engineering. Perhaps, globalization is beneficial for workers in these niches. Business-service jobs increased by over 20 percent from 2006 to 2016. These jobs pay 20 percent more wages than average manufacturing jobs.
Several American manufacturing employees got jobs in overseas-owned companies running in the US. As a result, demand may be increased for high-skilled manufacturing people in sales, mathematical occupations, computer, finance, management, and engineering. In the USA, business and professional services, educational services, and social and healthcare assistance are high in demand. Certainly, education and job training are important to prepare workers for these employments.
Globalization Displaces Jobs Then Why It Is Needed
What is globalization? The answer to this question is clear now with all its benefits and drawbacks. Economists are interested in the impacts of globalization across the economy to evaluate the pros and cons. However, the overall payout is higher than the cost of groups and individual workers who lost their jobs. Perhaps, economists want an open worldwide market instead of closing it.
From 1950 to 2016, the expansion of trade has increased the US economy by $2.1 trillion. It is equivalent to $18,000 for each household and $7,000 for each person annually. There are 100,000 jobs gained annually, along with shifts from several other industries. Moreover, 200,000 lost jobs, such as replaced by other jobs or moved elsewhere each year.
Trade has no contribution to the increase in manufacturing unemployment. Remember, manufactured imports could increase GDP while decreasing manufacturing unemployment. It is enough to demonstrate the overall economic state in determining job numbers. Wage losses can be temporarily limited to every regiment of the affected employees. Additionally, profits are permanent, accumulating, and recurrent each year nationally.
Possibilities in Globalization
Similar to technological progress, globalization can disrupt livelihood and enlarge an economic pie. It may open the chances for better-paying and new job opportunities. However, the internet is responsible for several obsoleting jobs, but it has created new jobs simultaneously. For this reason, you cannot conclude if globalization is good or bad.
Protectionism proves helpful to select groups at higher costs. For instance, imposing particular tariffs on steel helps particular steel producers, but other jobs may depend on companies that require imported steel to make goods affordable. Consumers in the US may pay more for overseas goods because of tariffs and domestic goods because local producers can increase prices because of no foreign competition.
Retaliation of trading partners with their tariffs on United States exports can increase damages. Agriculture in the USA is susceptible to retaliation. According to a study, US tariffs on Chinese tiers saved 1,200 jobs in tire manufacturing under Barack Obama’s presidency. However, consumers of the US paid $900,000 for each job and lost 3,700 retail jobs because tires became expensive.
Wrapping Up
The US should keep open markets to stay globally competitive. Several other countries consistently open their markets and form local supply chains to make production efficient and affordable. Nowadays, US exports are facing tough competition, and businesses may opt to move operations overseas to access foreign markets.
According to an estimate, the real income of the US will be $133 billion in 2030. Operations with a rules-based system permit peaceful resolution of conflicts. Managing the international system is essential to avoid mutually destructive trade. Economic integration can strengthen security alliances because trade wars can impact the ability of the USA to team up with allies.
Some economists recommend certain domestic policies, such as better unemployment perks, health insurance subsidies, tax credit expansion, wage insurance, etc. These policies proved helpful in decreasing the anxiety of workers about employee turnover. There is a special program from the government known as TAA (Trade Adjustment Assistance) to help workers directly impacted by trade. Now, you can understand what globalization is and how it impacts the global economy.
