Globalization

1. Globalization By: Neel Patel and Avni Patel

2. Nations are Interdependent • Interdependency arises from a situation in which economies of countries rely on each other to produce goods and services one country needs in exchange for other goods and services. (KEY POINT) • We do this by trading… • Remember: Trade is always beneficial for both nations.

3. Trade • By trading, we get what we want in exchange for something someone else wants. Remember Comparative Advantage is the main way we trade. It says that we trade things based on who has the lower opportunity cost for the given good. • For example, many people in Saudi Arabia desire bananas, but their desert landscape does not allow them to produce bananas efficiently. So if Saudi Arabia wants bananas, it will have to import them from a banana producing country such as Brazil. But Brazil wants something in exchange… So Saudi Arabia gives Brazil oil for the bananas. • Careful: Money is not desired… it is just something that is a store of value or a median of exchange… it is not what we want. An easy way to remember is would you rather have a million pieces of paper that has 1$ written on it, or would you want a nice large home with a golden swimming pool. We want stuff not money.

4. Globalization: What I do affects you too… • Today’s society is more connected than ever before. • Likewise, if we’re connected, then we tend to be affected by each other’s actions. For example, the recent US housing bust has decreased consumption in not only the US, but it has spread to other parts of the world too. • You can relate as well… for example, let’s say you have a good friend who is having a really bad day and you feel bad for them. Now you find yourself having a crummy day as well. Because both of you are really close friends, both of you feel for each other. This is globalization, just on a larger scale.

5. Globalization doesn’t have to be bad. • Interdependency is a good thing. If one country is experiencing a booming economy, then that country has more money to spend on other country’s good and services. This increase in imports/exports can lead to other countries doing better as well. • We tend to view globalization in America as something that takes our jobs to Mexico or China. However, the media tells us little as to why and how we have benefited.

6. Globalization doesn’t have to be bad… continued • Our manufacturing jobs go to other nations because we have higher labor costs and production costs. Whereas countries such as Mexico don’t have as high costs. When things are produced there however, we, Americans, can buy these goods for cheaper prices than if we were to produce them. So now, since things cost less, we can buy more stuff  I like stuff… do you???

7. Globalization doesn’t have to be bad… continued • Furthermore, America has also benefited from the increase in high technology jobs. While labor costs are low in Mexico, people here are generally more educated and skilled. So since we have a higher skilled workforce with more education, don’t you think we should do these types of jobs that fit our true potential?

8. The case for Protectionism Protectionism is defined as a country or government that wants to prevent SOME (not all) free trade in fear of the negative consequences that arise with free trade. In the next slides, you will find a variety of cases for protectionism and why that case can be proved wrong. You must decide whether or not protectionism is good or bad, the debate rages on today…

9. The case for : Military Self-sufficiency The issue here is not economic, but political-military. Many nations argue they cannot rely on other nations for weapons, because such dependency may come to haunt them when wars arise.

10. Diversification-for-Stability Argument Many nations argue that they must diversify their economies in order to insure themselves from economic downturns that can arise if they rely on only one Sector of the economy. Think about Michigan’s economy that has depended on autos for so long, now it has to diversify. The same issue is being argued for nations on a larger scale. They claim that diversification can lead to greater domestic stability.

11. The Infant Industry Argument Some nations claim that they need short term protection for their industries so that they can grow big and strong to compete with larger scale foreign companies. However, which industries need this protection? It is very difficult to decide which industries need help. Also, many protective measure still exist when these infant industries mature.

12. The Protection-against-Dumping Argument Dumping is defined as the sale of a product in a foreign country at prices either below cost or below the prices commonly charged at home. If the firms succeed in dumping, they will achieve monopoly power. However, most nations outlaw dumping that injures domestic firms.

13. The Increased Domestic Employment Argument Many argue protectionism is good because it increases the amount of jobs available in the domestic economy. The jobs would increase, because firms would have to make all of the good for consumption for the country. To do this, the firms must hire a lot of people. However, increased protectionism can lead to trade wars where everyone enacts barriers. For example, this was evident of the Smoot-Hawley Tariff that is partly to blame for the Great Depression.

14. The Cheap Foreign Labor Argument Many argue that the cheaper wages in other nations lead firms to hire less workers at home. That is why we need protectionism. However, this argument assumes that it is not mutually beneficial for the rich and poor people/countries to trade. Also, trade is based on comparative advantage and not absolute advantage. People wrongly assume that we will be hurt with less employment, but they don’t realize the lower costs and the new ability to focus on higher technology industries that come with trade.

15. Interdependency Today Today, with increases in Globalization, we now have cooperative economic units known as free trade zones. For example, we are in a free trade agreement with Canada and Mexico known as NAFTA (North-American Free Trade Agreement) Europe has taken one step ahead of this and created the European Union which shares more than just free trade, but also one common central bank, etc.

16. What has lead to Globalization? • Globalization has increased mainly because barriers to trade have decreased. (KEY POINT) • We find it easier to trade across oceans that were once very treacherous. We do this by airplanes, satellites in space, etc. • Our ability to communicate with each other more easily is a big reason as to why globalization has increased.

17. The key Ingredients to Globalization: If you don’t understand a word below, click on it! • Reduction in Quotas and Tariffs. • Increase in Communication such as internet and even the telephone/cell phone. • Increased number of participant countries in the world economy. • Reduction in transportation costs. • Increased protection of intellectual property.

18. Globalization: A love story and not such a love story… • Globalization has lead to many things: • Positives: McDonalds, Pokemon, Cultural diffusion (a fancy way to say we now understand more about others), Democracy and Capitalism have spread, greater immigration, • Negatives: Brain Drain (smart people go to richer countries), environmental decay, natural resources such as oil or zinc or lumber get used up, income disparity increases, black market activities increase, sweat shops…

19. Exercises: • What is interdependency between countries in an economic sense? Click on a box next to each answer option. You can only proceed after clicking on the right answer. A. When one nation assumes dominance over another nation. B. When one nation depends on another nation for a good or service and the other nation depends on another and so on… C. When one nation can produce all of its goods domestically so it doesn’t need to trade. D. When one nation produces apples and another cannot produce apples.

20. Exercises Continued… • Why do we, in America, worry about financial meltdowns in faraway places such as Europe or Asia? Please explain… • Hint: Include interdependency in your statement.

21. Exercises Continued… • The correct answer to why we worry about financial meltdowns elsewhere is because the world is becoming more economically interconnected. When one section of the world experiences an issue, the other parts of the world can feel it too. Think about the current/last economic recession in 2008-2009

22. Exercises Continued… • Globalization has increased because of all of the reason below EXCEPT: • Because Americans have made the world free of communism forever. • Communication has increased • Trade barriers have decreased. • Decreases in costs of transportation

23. Exercises Continued… • Which of the following is NOT an example of interdependency? • Since India grows rice and sub-Saharan Africa can’t produce rice, sub-Saharan Africa imports rice from India. • China depends on the US for pharmaceuticals and the US depends on China for manufactured goods. • The United Kingdom trades British romance novels with France for French pastries because the British love French pastries. • Japan took over parts of China in WW II and used some of China’s resources for the war effort. Japan depended on China for its natural resources.

24. Exercises Continued… • What are import quotas? • Regulations enacted by governments that restrict the amount of goods the country can export. • The total quote or amount, of goods a country produces in a fiscal year. • Regulations enacted by governments that restrict the amount of goods the country can export. • These are quotes found for stocks in New York.

25. Exercises Continued… • What is intellectual property? Name an example also. • It is smart individuals moving from one place to another. Example: Bill Gates • It is an asset that an individual(s) create for production of some sort. Example: patent • It is the total property owned by the rich people in a country. Example: Country Clubs • It is not worth protecting because it is of old-world use. Example: Clocks

26. The World Trade Organization (WTO): • Yes you guessed it, it is a world organization. • The WTO is not superman… however, it does help settle disputes between the 153 member countries in the subject regarding trade. • Above all, it’s: -It’s a negotiation forum -It’s a set of rules -It helps to settle disputes WTO Spain China

27. How old is the WTO? • Although it was born in 1995, the WTO organization is not that old. • The WTO grew out of GATT (the General Agreement on Tariffs and Trade) (KEY POINT) • The WTO is better than the GATT because unlike the GATT which only focuses on trade regarding goods, the WTO also deals with services, traded inventions and creations and designs known as intellectual property. (KEY POINT) Patents Fair Trade Contracts

28. The WTO also sees to it that there is fair competition among member countries and that there is a fair treatment between rich developed countries and poor developing nations. (KEY POINT) The WTO

29. Exercises • Which of the following has lead to (ingredient) of world trade? • Personal Income • Costs of production • Tariffs in the world • The real GDP per capita

30. Exercises continued… • True or False. A country can always benefit from trade. True False • True of False. It is easier for a nation to produce everything itself. True False

31. Exercises Continued… • Which of the following tend to describe what the World Trade Organization (WTO) does? • It is a strict enforcer of trade and intellectual property. • The WTO has no specific duties • The WTO acts as an intermediary between nations regarding trade of both goods and services and even intellectual property rights. • The WTO acts like the UN and has 7 permanents members with 163 total members.

32. Exercises Continued… • Which of the following is a common reason as to why North Korea and Cuba have yet to become part of the global market. • The western world threatens to nuke both countries. • Both countries tend to refuse to participate in the world economy. • Both countries tend to be self-sufficient and therefore not need any other country. • Both countries fear they will “lose out” if they participate in trade.

33. Exercises Continued… • Short Essay: List two pros and two cons of globalization. Overall, do you think that globalization is detrimental to the world at large?

34. References • "Basic Economics: Interdependence." Social Studies for Kids. Web. 30 May 2010. <http://www.socialstudiesforkids.com/articles/economics/interdependence.htm>. • "WTO | Understanding the WTO - What Is the World Trade Organization?" World Trade Organization - Home Page. Web. 30 May 2010. <http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact1_e.htm>. • Why Are Some Nations Wealthy. IMF Center, 21 Sept. 2005. Web. 31 May 2010. <http://www.imf.org/external/np/exr/center/students/hs/think/lesson6.pdf>. • Bhagwati, Jagdish. "Globalization Arguments." Interview. Video blog post. Globalization Arguments. 5minLife Videopedia. Web. 31 May 2010. <http://www.5min.com/Video/Globalization-Arguments-27296840>. • Campbell, McConnell R., Brue L. Stanley, and Flynn M. Sean. Economics. Vol. 18. NewYork: McGraw-Hill, 2009. Print.