International Trade and
Globalization
Impacts on Scale, Distribution,
Efficiency and Democracy
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China’s Arms Industry Makes Global
Inroads
‘Airpocalypse’ Hits Harbin, Closing Schools
A Wave of Sewing Jobs as Orders Pile Up
What is Globalization?
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The integration of all national economies
into one global market, with one set of
rules
Global market takes precedence over
national autonomy
Supporting institutions are IMF, World
Bank, World Trade Organization (WTO),
NAFTA, etc.
What’s a legitimate alternative?
Article
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Barriers to Change, From Wall St. and
Geneva
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According to the W.T.O., 125 of its 153
member countries have made varying degrees
of commitments to the financial services
agreement. Now, these pledges could easily
be used to undermine new rules intended to
make financial systems safer.
What are it’s defining
characteristics?
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Economic growth (increasing material
consumption) as sole desirable end
Privatization and commodification of public
services, national and global commons
Corporate deregulation and unrestricted
movement of capital across borders
Increased corporate concentration
Cultural and economic homogenization
The Theory Behind International
Trade
Comparative advantage
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One country can be more efficient at
producing everything than another
country, and still benefit from trade with
the inefficient country
Assumes that trade must be advantageous
or else countries would not participate.
Numerical example
NO TRADE
Phil
Indonesia Total output
fish
2 pesos
2 rupiah
2F
clothes
Total resources
1 peso
3 pesos
4 rupiah
6 rupiah
2C
TRADE
fish
Phil
Indonesia Total output
6 rupiah 3 F
clothes
Total resources
3 pesos
3 pesos
3C
6 rupiah
1 rupiah = 5 pesos: Philippines has absolute advantage
Impacts of comparative advantage
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More total output and freedom of choice
in consumption
More specialization, and less freedom of
choice in production
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Is consumption only desirable end, or does
choice of career matter?
Some sectors/regions within a country will
lose out (but winners can compensate
losers)
Articles
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How Convincing Is the Case for Free
Trade?
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“one of the economic profession’s intellectual
triumphs: the theory that every country gains by
unfettered international trade.”
“Relative to a status quo of no or limited
international trade, permitting full free trade
across borders will leave in its wake some
immediate losers, but citizens who gain from such
trade gain much more than the losers lose. On a
net basis, therefore, each nation gains over all
from such trade.”
Articles
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Report Lays Out State’s Great Gains
and Losses From Globalization
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But the costs and benefits of globalization have spread unevenly
across the state, with New York City and its suburbs reaping
most of the rewards and some regions of the state failing to
adapt to the onslaught of competition, according to the report,
from the SUNY Levin Institute in Manhattan. Even within the
city, though, most workers have fallen behind as the wages of
low-skilled jobs have not kept pace with the cost of living.
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Let’s Admit It: Globalization Has Losers
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FOR the typical American, the past decade has been economically
brutal: the first time since the 1930s, according to some
calculations, that inflation-adjusted incomes declined. By 2010, real
median household income had fallen to $49,445, compared with
$53,164 in 2000. While there are many culprits, from declining
unionization to the changing mix of needed skills, globalization has
had the greatest impact.
A typical General Motors worker costs the company about $56 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 per
hour. While G.M. doesn’t (yet) achieve United States-level
productivity in China and India, its Mexican plants are today at least
as efficient as those in the United States.
Articles
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Standard of Living Is in the Shadows as
Election Issue
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At the top of the list are the digital revolution, which
has allowed machines to replace many forms of
human labor, and the modern wave of globalization,
which has allowed millions of low-wage workers
around the world to begin competing with Americans.
One of the more striking recent developments in
economics has been economists’ growing acceptance
of the idea that globalization has held down pay for a
large swath of workers. The public has long accepted
the idea, but economists resisted it, pointing to the
long-term benefits of trade. “That is starting to
change only in the face of very strong evidence over
the past decade,” said Edward Alden of the Council
on Foreign Relations.
Global Markets are good for everyone
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Markets will end poverty
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“The real losers in Seattle”
Markets will solve environmental problems
Environmental Kuznet’s curve
 Population growth and poverty
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Economic growth is essential
Humans are insatiable
 “The Moral Consequences of Economic
Growth” (B. Friedman)
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Comparative or Absolute
Advantage?
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What if capital can flow between countries?
Numerical example
No capital flows
Phil
fish
Indonesia
Total output
6 rupiah
3F
clothes
3 pesos
3C
Total resources
3 pesos
6 rupiah
Capital flows
Phil
Indonesia
fish
22 pesos
11 F
clothes
11 peso
11 C
Total resources
33 pesos
1 rupiah = 5 pesos
Total output
Absolute advantage
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There will be more fish and clothes
What about employment in Indonesia?
Can people flow across borders?
Is efficient economic production all that
matters?
Can winners compensate losers?
If trade is voluntary, how could this
happen?
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"It is a very common clever device that when anyone
has attained the summit of greatness, he kicks away the
ladder by which he has cllimbed up, in order to deprive
others of the means of climbing up after him…Any nation
which by means of protective duties and restrictions on
navigation has raised her manufacturing power and her
navigation to such a degree of development that no
other nation can sustain free competition with her, can
do nothing wiser than to throw away these ladders of
her greatness, to preach to other nations the benefits of
free trade, and to declare in penitent tones that she has
hitherto wandered in the paths of error, and has now for
the first time succeeded in discovering the truth."
-Friedrich List, 1885 (German economist known as father of modern 'infant
industry' theory
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"For centuries England has relied on protection,
has carried it to extremes and has obtained
satisfactory results from it. there is no doubt
that it is to this system that it owes its present
strength. After two centuries, England has found
it convenient to adopt free trade because it
thinks that protection can no longer offer it
anything. Very well then, gentlemen, my
knowledge of our country leads me to believe
that within 200 years, when America has gotten
out of protection all that it can offer, it too will
adopt free
trade" -Ulysses S. Grant
What empirical results would we
expect under absolute advantage?
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Rich get richer, poor get poorer
Headlines: Number of Hungry Rising, U.N.
Says By ELIZABETH BECKER Published: December 8, 2004
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Number of hungry and number of poor at record
levels (though not when measured in percentage
terms, especially if we include China)
Income of poorest countries is falling (World
Bank statistics)
Richest countries accumulating greatest share of
new wealth
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1% of GNP growth in US = GNP of 24 poorest nations
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IMF Working Paper: Rising Income
Inequality: Technology, or Trade and
Financial Globalization?
“The limited overall impact of globalization
reflects two offsetting tendencies: whereas
trade globalization is associated with a
reduction in inequality, financial globalization
—and foreign direct investment in particular
— is associated with an increase.”
How does a country get an
absolute advantage?
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Race to the bottom
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We would expect the countries with the lowest
wages and most lax environmental standards to
exhibit economic growth and atrocious
environmental degradation
Headline 9/1/2004: Rivers Run Black, and Chinese Die
of Cancer
By JIM YARDLEY, NYT
How does a country develop domestic markets for
domestic production?
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Environment
Wages
Unavoidable Environmental
Costs of Trade
• Transportation
– Global warming
– Oceanic pollution
– Dependence on fossil fuels
• Spread of weed species (especially aquatic)
– Asian longhorn beetle
– San Francisco Bay
– Salmon bacteria