Greater Economic Openness Essay, Research Paper

Does

greater economic openness between nations lead towards economic growth and

convergence? Greater economic openness between nations does lead towards

economic growth and convergence. All of the first world countries demonstrate

greater economic openness then third world countries demonstrate. Although

economic openness may be a solution to gain economic growth and convergence,

free trade may not be the answer. There are two different views on free trade;

the conservative view and the liberal view. In an economic age in which speedy

transactions of imports and exports are essential, free trade is a necessity for

aiding worldwide economic development. Even today, the United States continues

to support free trade, an example being NAFTA (North America Free Trade

Agreement). The problem is that America’s generosity has caused the foreign

industry to take over the U.S. marketplace. This unfortunately has resulted in

high unemployment rates because consumers and firms can purchase foreign goods

for a little less than domestic products. From a conservative viewpoint, the

only remedy to decrease unemployment and stimulate our own economic growth is to

abandon the free trade policy and raise tariffs. Free trade has only crippled

the American work force, increased poverty, and added to our national debt. If

other nations begin to support free trade, the same situation may be likely to

occur. Today there are about 10 million unemployed citizens and 35 million

Americans are living in poverty because of free trade. Foreign industry is

taking advantage of us. Market-opening measures in Asia along with other

countries across the world have been promoted by exporting opportunities. In any

clothing store and you’ll find that most of the apparel comes from South Korea,

China, Hong Kong, Sri Lanka, and the Philippines. It’s simply not feasible for

the U.S. apparel industry to compete with the extremely low production costs in

Third World countries. Also, another example of an industry hurt by free trade

is the lumber industry. Even though our country possesses the largest supply of

timber resources, the United States is the largest importer of wood products in

the world. The reason: imported wood is less expensive, especially from Canada.

Other examples of industries that have responded negatively to free trade are

the U.S. textile petrochemical, fishing, and auto industries. The temptation for

consumers to buy cheaper foreign goods has only slowed production in U.S.

industries and has caused unemployment levels to skyrocket. America needs to

become less generous, more independent, and definitely more self-sufficient.

Free trade policies need to be discontinued if that it is to be accomplished.

The liberal viewpoint, however, is somewhat different. In a world of

ever-increasing global economic interdependence, the United States should accept

the responsibility of leadership towards the approaching 21st Century by

promoting free trade. We need to do so in such a way that builds and matures the

economies of other countries. As technology continues to advance in areas such

as computers, medicine, and communication, we need to prioritize the spreading

of these advancements across the world in hopes for reaching worldwide economic

stability and unity. Free trade is the best way to allow for the sharing of

valuable resources and technology, which in turn makes the world a better,

safer, and more united place for all. Inhibiting free trade is a step backwards

in politics that only made sense back in the days when communication was slow

and were being fought. Allowing for the existence of free trade is a step

forward in the right direction towards the necessary global interdependent ways

of the nearing 21st Century. Having clarified the different perspectives of the

two main political parties on the free trade issue, it is hard to determine

which action would be the most advantageous. Actually, both parties have come to

conclusions on this issue which would allow for positive and negative results.

The only problem is deciding which one would have the best overall effects.

Should we put the immediate focus on our own economy and allow it to prosper,

while other poorer countries suffer from the tariffs? Or, should we do away with

all taxes on imports in hope that others will follow our bold lead? Only the

near future can show which was the best decision. For certain, however, the

results will be global. 4.) Who has benefited and who has lost from greater

international trade? The financial crisis that erupted in Asia in mid-1997 has

led to sharp declines in the currencies, stock markets, and other asset prices

of a number of Asian countries. It was hard to understand what these declines

would actually do to the world market. This decline was expected to halve the

rate of world growth in 1998 from the four percent that was projected pre-crisis

to an estimated outcome of about 2 percent. The countries that are included in

the East Asian crisis, known as "Tiger" economies, are Hong Kong,

Indonesia, South Korea, Malaysia, the Philippines, Singapore, Taiwan and

Thailand. For these countries to participate effectively in the exchange of

goods, services, and assets, an international monetary system is needed to

facilitate economic transactions. To be effective in facilitating movement in

goods, services, and assets, a monetary system most importantly requires an

efficient balance of payments adjustment mechanism so that deficits and

surpluses are not prolonged but are eliminated with relative ease in a

reasonably short time period. The Asian crisis of recent falls into this

category of inefficient balance of payments facilitated by, its overcapacity and

its lack of growth to the West, particularly depreciation of its currency. By

competitively depreciating its currencies, Asia is exporting its deflation to

the US. History The past ten or fifteen years have seen an unprecedented

expansion in the extent to which the countries of the world are tied together,

both by instant communication and by international trade, institutions, and

markets, including financial markets. On the whole, this process of

globalization has been an enormously positive development. It has opened new

markets, enhanced competition, spurred innovation, and provided new

opportunities for workers, farmers, and businesses around the world. For example

more than 40 percent of US exports today are absorbed by developing countries,

an extraordinary increase over past export patterns, and the jobs associated

with these exports are high-paying, good jobs. The increasing productivity of

our trading partners has helped keep inflation down and improve standards of

living in the United States. And outside the US, probably hundreds of millions

of people have been lifted out of poverty around the world by the economic

growth and trade over the past twenty or thirty years. (This view is definitely

a liberal one unlike the conservative viewpoint given in question 1). Effects of

the Global Economy In this new global economy, countries are more tightly linked

than ever before to each other’s fates. A decade ago, a collapse in the currency

of a small, distant country like Thailand would barely have rated a mention in

the typical American newspaper. A few years ago, however, that currency crash

triggered a crisis in other East Asian countries that had dominated news

coverage in a way that no other foreign financial crisis has ever done before in

this country. The reason for the change is that we now have more at stake than

ever before in the economic performance of these countries. Not only are they

major customers for our products; the rich countries and developing countries

are also increasingly linked by financial ties. In 1996, the developed countries

including the US invested more than 250 billion in emerging markets, and this is

compared to roughly 20 billion ten years earlier. Much of this money was from

banks (especially in Japan and Europe), although US mutual funds, pension funds,

and individual investors also participated. But whatever its source, the extent

of this investment means that economic turmoil in East Asia has a direct

financial impact on the developed world’s capital markets, including our own.

Indeed, a brief plunge in US stocks was widely attributed to turmoil in the Hong

Kong stock market that was linked to the crisis set off by Thailand’s currency

crash. What were the causes? Throughout the East Asian crisis many different

ideas have been proposed to what the cause or causes were. Attempts to identify

the fundamental causes of a financial crisis always suffer from the problem of

distinguishing insight from hindsight. Many financial journalists today have

said the crisis was the inevitable consequence of: "overvalued exchange

rates, large current account deficits, short-term capital inflows, opaque

financial systems, or one of several other supposedly fatal flaws in East Asian

capitalism." It seems fair to say that a few years back, nobody suspected

that a calamity like what we have seen was possible, although all of the

characteristics that are now described as the fatal flaws of the East Asian

economies were reasonably widely understood even then, at least by experts.