The United States in a Global Economy
1. Outline

Introduction
Globalization in Perspective
The Growth of World Trade
Capital and Labor Mobility
New Features of the Global Economy
New Issues in International Trade and Investment
The Role of International Organizations
Regional Trade Agreements
Trade and Economic Growth
Twelve Issues in the International Economy
The Gains from Trade
Wagess. Jobs. and Protection
Trade Deficits
Regional Trade Agreements
The Resolution of Trade Conflicts
The Role of International Institutions
Exchange Ratess and the Macroeconomy
Fiscal Crisiss and the Global Contagious disease
Capital Flows and the Debt of Developing States
Crisis and Reform in Latin America
Export Led Growth in East Asia
The Integration of India and China into the World Economy

2. A Thumbnail Sketch of the Material Covered in Chapter One The re-emergence of international economic integrating subject tries to set globalisation in position. Most characteristics of globalisation aren’t new. and international economic integrating could be described as re-emerging after a period of break during clip periods environing WWI and WWII. There are three facets of international economic integrating considered: 1. The growing of universe trade. World trade has grown over the last 60 or 70 old ages but is still reasonably comparable in per centum footings to what existed 110 old ages ago. Trade has become a larger portion of national economic systems as measured by the: Index of Openness ( Exports Imports ) /GDP

This index does non state us about a nation’s trade policies. States with higher figures for the index of openness do non needfully hold lower trade barriers. Large economic systems are less dependent on international trade and frequently have lower steps of openness than little states. Figure 1. 1 shows the openness index for six states at different points in clip. It shows the bead in trade from 1913 to 1950 and its growing ( even above 1913 degrees ) for most states by 2000. A tendency obscured in the overall trade informations is that in 1890 most U. S. trade was in agricultural merchandises and natural stuffs. while today most is manufactured goods. The comparative importance of capital goods has increased dramatically. 2. Capital and labour mobility. Labor is much less nomadic internationally now than it was in 1900. For capital. it is slightly more nomadic. There is a difference between fiscal capital and physical capital. Foreign Direct Investment ( FDI ) is the flow of capital stand foring physical assets such as existent estate. mills. and concerns. While capital flows to developing states have increased over recent decennaries. the degree of investing in any state is still correlated with its domestic degree of nest eggs. doing national nest eggs rates far more of import than planetary capital flows. However. capital flows today are different from earlier periods in three ways. More types of fiscal instruments exist today. and flows of fiscal capital are likely much greater. In 1900. the universe operated on a fixed exchange rate criterion and much of today’s fiscal market minutess are aimed at protecting against exchange rate hazard caused by drifting exchange rates. Minutess costs associated with foreign capital flows have besides fallen significantly. Volatility in international capital flows. while frequently a topic of intense attending today. is non new. 3. Motion of monetary values in different markets. The text does non develop this. but points out that in the late 1800s wheat husbandmans. meat baggers. and fruit agriculturists all produced for a planetary market where international instead than domestic supply and demand determined monetary values. News studies today could easy show this for most trade goods. New issues in international trade and investing:

Barriers to manufactured goods have fallen significantly as a consequence of a procedure that began at the terminal of WWII. As formal limitations on imports have been reduced. domestic policies on issues such as the environment. labour. and just market conditions have become the barriers to farther additions in trade flows. Reducing trade barriers has been the focal point of dialogues between states. Extinguishing the traditional barriers to merchandise. duties and quotas. is referred to as shallow integrating because it merely changes policies “at the boundary line. ” Eliminating domestic policy differences that create trade barriers is much more complicated and is referred to as deep integrating. International organisations created at the terminal of WWII play a cardinal function and are an wholly new component in the international economic system. Agreements between states are non new. but there has been a important addition in the figure of regional trade understandings signed. particularly in the 1990s. The formation of these regional trade understandings is controversial for different grounds for both trade oppositions and trade advocates. The growing of universe trade can potentially take to a assortment of effects. but by and large economic experts remain committed that the benefits outweigh the costs. This place is supported by the insouciant empirical grounds of historical experience. grounds supported by theoretical accounts and deductive logical thinking. and grounds from statistical comparings of states. Open economic systems grow faster and prosper sooner than more closed 1s.

3. What Students Should Know After Reading This Chapter Chapter 1 challenges the belief that the universe has embarked on an entirely new and unprecedented epoch of globalisation. Looked at from the long tally. it seems clear that the period 1870 to 1914 was an earlier epoch with similar tendencies. Those old ages experienced rapid technological alteration in the signifier of railroads. steamers. and cable that all came into widespread use and spanned the oceans ; they underwent concern and fiscal sector invention through the rapid growing in the corporate signifier of concern organisation. the innovation and spread of demand sedimentations. and the development of stockmarkets ; trade policies were liberalized in many states ; and there were widespread protests against in-migration and the planetary economic system. In the United States. the protest motion was centered in democrat motions that are reminiscent of some politicians and observers today. This is non an statement about history reiterating itself. Rather. it is an effort to acquire pupils to believe of the period from World War I to the terminal of World War II as an aberrance in the last 150 old ages of universe history. The long tally tendency is toward integrating. punctuated by protests and chauvinistic motions that halt or change by reversal the tendency. When pupils are asked what they think is new about today’s economic system. they necessarily answer: engineering. E-mail. facsimiles. satellite systems. jet aircraft. and less seeable signifiers such as container lading transit systems have each made important parts to increasing trade flows. It is utile to prosecute pupils in a treatment over the fringy impacts of these new engineerings versus the fringy effects of steam powered ocean traveling vass or trans-Atlantic telegraphy. Telegraphy cut the clip it took information to traverse the ocean from around three hebdomads to comparatively outright. and reduced the clip it took to purchase a foreign bond from around three hebdomads to about one twenty-four hours. It is utile for pupils to recognize there was a break for two grounds. First. much of what has happened over the last 50 old ages was aimed at repairing something that was broken. non making a new phenomena. Second. the international establishments that deal with the planetary economic system are new and were created because of some shared acknowledgment that integrating was of import and helpful and needed to be encouraged. An of import sub-theme of the text is the thought of deep versus shallow integrating and the institutional procedure that states go through to make deeper degrees of integrating. The chapter besides points to some things that are new about today. Important 1s for the text will be flexible exchange rates. regional trade understandings. and the altering mix of the types of goods states produce. Domestic policies will be a cardinal focal point when trade barriers and capital flows are considered. Another of import issue will be the evolving function of international organisations in negociating and implementing alterations in domestic policies.

4. Assignment Ideas

1. I like to utilize the index of openness to contrast the importance of trade to assorted states and to drive place the fact that comparative value affairs. The United States is a immense participant in trade in dollar footings. but it is non as dependant on trade as many other states. Some countries’ full economic systems are dependent on international trade. I find pupils need some pattern calculating and construing the index of openness. The information below is from the World Fact Book and is 2006 estimated informations in one million millions of U. S. dollars:

State

Exports
Imports
GDP
New Zealand
23. 7 B
25. 2 B
106 B
Bahrein
12. 6 B
9 B
17. 7 B
Brazil
138 B
95. 8 B
1. 616 B
Cambodia
3. 3 B
4. 5 B
36. 78 B
Chad
4. 34 B
0. 823 B
15. 26 B
Nigeria
59 B
25. 1 B
188. 5 B

2. As prep really early in the class. I sometimes assign pupils each a state. and one of the pieces of information they are to roll up is its Index of Openness. I besides ask them to happen out its currency. current exchange rate with the U. S. dollar. primary exports. imports. major merchandising spouses. and the trade understandings in which it participates. To compare with the U. S. historical informations. you might inquire them to track the nation’s trade figures over clip. While these are basic affairs of fact. I find it helps do what we are discoursing more concrete. 3. The chapter besides lends itself to pupils developing some factual cognition about U. S. trade history. One possibility is to look at U. S. trade policy in assorted clip periods. The U. S. had comparatively high duties ( greater than 40 per centum on norm ) throughout the 2nd half of the 19th century. In 1890. Congress passed the McKinley Tariff. followed in 1897 by the Dingley Tariff. Both duties raised rates further from their already high base. Wilson tried to cut down duties but was thwarted by World War I. Ratess in the 1920s fell. but the Tariff Act of 1930 ( Smoot-Hawley Tariff ) raised the rates back up to about 45 per centum. In the thick of the Great Depression ( 1934 ) . Roosevelt and his Secretary of State. Dulles. persuaded Congress to go through the Reciprocal Trade Agreement Act. The Act authorized Roosevelt to negociate bilateral. mutual duty decrease understandings. This piece of statute law Markss an historic displacement in U. S. duty policy. off from protectionism and toward more openness.

Answers to End-of-Chapter Questions

1. How can globalization and international economic integrating be measured? Answer: The chapter offers three ways to mensurate globalisation and economic integrating: ( 1 ) trade flows ; ( 2 ) factor motions ; and ( 3 ) convergence of monetary values ( goods. factors. and assets ) . 2. In what sense is the U. S. economic system more incorporate with the universe today than it was a century ago? In what ways is it less incorporate? Answer: The U. S. ’s openness index is about 60 per centum greater today than it was in 1890 ( ( 25. 3 – 15. 8 ) /15. 8 ? 0. 601 ) . or about one hundred and nine per centum greater than in 1910. While this is a really important addition. it is barely the revolution in economic dealingss that many people claim.

The 60 per centum statistic might be considered deceptive. nevertheless. in that a much larger portion of entire goods end product is traded ( more than 30 per centum in 1990 versus less than ten per centum in 1950 ) . While we can non compare the latter statistic to 1890 or 1900. it does look that there is a clear tendency toward a greater function for international commercialism. This is consistent with the observation that universe trade has been turning faster than universe end product. at least since 1950. Much of the growing in trade since so. nevertheless. merely brought us back to where we were before World War II.

In footings of labour flows. the U. S. is likely less incorporate with the universe economic system than it was in 1890 or 1900. At those latter day of the months we had an unfastened door in-migration policy ( for all but Chinese citizens ) . and a larger portion of our population was foreign born ( 14 and one half per centum in 1890 versus less than eight per centum in 1990 and twelve per centum today ) .

Capital flows are more hard to generalise since they can be measured several ways. While the absolute volume of capital flows has increased dramatically. as a portion of universe GDP it is likely no more than it was at the bend of the century. and it may be less. While the absolute volume of capital flows to developing states has increased. the degree of investing in any state is still extremely correlated with its domestic nest eggs rate. What is different. nevertheless. is the easiness at which capital can traverse international boundaries ( lower dealing costs ) and the much greater assortment of assets that are traded. The demand to protect against exchange rate hazard is a cardinal constituent of today’s international fiscal markets and is a primary difference from the fixed exchange rate criterion of the yesteryear. The incidence of fiscal crises has non increased and. as a metric of integrating. it implies no addition in capital market integrating.

The growing of regional trade understandings is besides an index of increased integrating. A turning function for international establishments such as the IMF or the World Bank may besides bespeak an addition in international integrating. 3. What is “openness” ? How is it measured? Does a low openness index indicate that a state is closed to merchandise with the outside universe? Answer: Openness is a step of the comparative importance of trade to a national economic system. It is measured by the ratio of exports plus imports to GDP.

A comparatively little openness index does non needfully intend that an economic system is deliberately closed to the outside universe. Large states like the U. S. or China have large domestic markets that enable houses to specialise and bring forth in volume in order to achieve their optimum graduated table. Specialization and high volume in fabrication is frequently associated with increased productiveness. so houses in big markets can accomplish the highest possible degree of productiveness without holding to sell to foreign markets. Firms located in smaller states have to merchandise their end product across international boundaries if they want to hold the same engineering and the same degree of productiveness. Consequently. big states tend to hold lower openness indexs irrespective of their trade policies. 4. Describe the form over the last century shown by the openness index for taking industrial economic systems. Answer: The indexs fell between 1913 and 1950. when it begins to lift comparatively quickly. The chief causes of the form shown in Figure 1. 1 are the two universe wars and the Great Depression of the 1930s and alterations in trade policy that accompanied that period. In 2000. they are largely higher than they were before WWI. Another form the chapter notes is that the index is smaller for the larger population states of Japan and the United States. and higher for the Netherlands. with its little population. 5. Trade and capital flows were described and measured in comparative footings instead than absolute. Explain the difference. Which term seems more valid. comparative or absolute? Why? Answer: Absolute values are the dollar sums of trade and capital flows. Relative values are the ratio of dollar values to GDP. Relative values are a better index of the importance of a variable. Large economic systems like the U. S. may hold big export and import values. but the importance of trade to the national economic system is non about every bit great as it is for other economic systems. The U. S. is the world’s largest exporter and importer. but the national economic system is so big that trade is much less of import for the U. S. than it is for many smaller states such as Canada. Belgium. or the Netherlands. 6. The comparative size of international capital flows may non be much greater today than they were 100 old ages ago. although they are surely greater than they were 50 old ages ago. Qualitatively. nevertheless. capital flows are different today. Explain. Answer: Major qualitative difference between late nineteenth and late 20th century capital flows include the fact that there are many more types of fiscal instruments available now compared to a century ago. These instruments can be finely tailored to the income and hazard penchants of investors. Second. a big portion of the entire flow of capital across boundary lines is related to the demand to protect against fluctuations in the value of currencies. This usage of international capital markets was non as necessary when states operated within fixed exchange rate systems. And 3rd. the dealing costs of take parting in international capital markets is much
lower today than it was a century ago. 7. What are the new issues in international trade and investing? In what sense do they expose national economic systems to outside influences? Answer: The new issues involve policy differences between states that until late were considered the sole duty of local or national authoritiess. Examples include labour criterions. environmental criterions. competition or antimonopoly policies. and industrial support policies.

Negotiations between states potentially give foreign involvements a voice in puting domestic policy. The range and the deepness of the dialogues find how great a voice aliens will hold. It is frequently the instance. nevertheless. that dialogues either occur or are proposed because some facet of domestic policy is perceived by aliens as a barrier to merchandise. and they seek to change the domestic policy that creates it.

8. Describe the three sorts of grounds economic experts use to back up the averment that unfastened economic systems grow faster than economic systems that are closed to the word economic system. Answer: These are: ( 1 ) insouciant empirical grounds of historical experience ; ( 2 ) economic logic and deductive logical thinking ; and. ( 3 ) grounds of statistical comparings of states. ( 1 ) The historical grounds examines the experiences of states that tried to insulate themselves from the remainder of the universe. First. non merely did merchandise protection worsen the depression of the 1930s. but it besides led to the wretchedness and calamity of World War II. Second. an scrutiny of states such as the former West and East Germany. South and North Korea. and other states with the same historical. economic. and cultural background that were divided by war. indicate that those who closed their economic systems from the remainder of the universe suffered in footings of prosperity and environmental debasement. East Asia experienced an economic take-off when it decided to incorporate with the remainder of the universe. while Latin America. which had the same economic background with East Asia but chose to stay partly closed. experient second-rate growing. ( 2 ) The logic of economic theory besides suggests a strong causal relation between trade and faster economic growing. The followers is a sum-up of this linkage:

Following Adam Smith. David Ricardo proved that comparative advantage leads to merchandise and this in bend leads to the reallocation of resources and the betterment of the criterion of life of any state. big or little. Modern trade theory besides makes the instance for exports and unfastened trade as the causes for economic enlargement. Exports and unfastened trade Foster competition. invention. and learning-by-doing. and convey international best patterns to the attending of domestic manufacturers. spurring greater efficiency and export enlargement. This helps domestic manufacturers to recognize economic systems of graduated table when they attempt to bring forth for the universe market. instead than for their ain limited domestic consumers. Larger markets create inducements for houses to prosecute in research and development. and allow states to import of import production inputs and foreign capital by minimising the foreign exchange restraints. They facilitate the transportation of engineering and managerial accomplishments. It follows that unfastened trade and exports increase the demand for the country’s end product and hence contribute strongly to positive economic growing. ( 3 ) Even though the statistical grounds is non rather conclusive ( chiefly due to mensurating trade policy ) . the grounds of statistical comparing of states ( cross-sectional clip series ) indicates that states benefit from unfastened trade.