Globalization Essay, Research Paper

Clark Bacon

Economics Final

Globalization

Through out time countries have tried to protect their companies and workers from foreign competition by taxing imports. In the past thirty years this has changed drastically. The change resulted for a variety of reasons: technology, peace among world powers, and many other changes in society that occur over time. Today, more and more companies are entering the global economy, while governments are simultaneously promoting world trade. In 1970, imports represented 7 percent of the United States gross domestic product, today it is approximately 13 percent. The General Agreement on Tariffs and Trade and the North American Free Trade Agreement were agreements that lowered trade barriers. Many companies were able to enter the global economy and achieve greater profits. Companies were also put out of business by increased competition. The growth of the global economy has also lead to specialization of production in order to lower costs. The growth of the global economy is often referred to as Globalization, as people begin to see all countries together as a global community. Although there is fear that Globalization will harm the United States market due to more competition, in the long run it will be beneficial for all countries.

The General agreement on Tariffs and Trade, signed in 1947, was an agreement with 22 other nations to reduce trade barriers. The agreement has been fairly successful. In 1991, Europe took a big step and began to form the largest free trade zone in the world. The zone would be known as the European Community. The agreement aimed to put an end to all border patrols, tariffs, and create a common currency. Today the community is now known as the European Union and it has 15 members. Although the United States did not take part in the European Community, in 1998 the North American Free Trade Agreement was passed. The agreement made all of North America a free trade zone. The agreement plans to get rid of all tariffs with in 15 years.

The global market consists of 6 billion people as opposed to the 275 million in the United States, which allows for greater profits. The greater profits are also harder to achieve do to greater competition. United States companies who enter the global market have to compete against foreign companies with different standards and regulations. The market is more competitive, but it is still the same idea that you have to be the better competitor in order to survive. Because there are so many competitors in the global market, companies often turn to specialization, in order to lower the cost of production. There are many components in production: distribution, manufacturing, management, research, advertising and sales. Many companies only perform one component of production and others produce independently. Other companies perform different tasks of production in different places around the world. A competitive market forces companies to look for new ways to produce their product in order to lower costs. The global economy has provided many new ways for companies to lower there cost of production.

Labor is one way to lower cost of production. For example, in the United States the average hourly wages for manufacturing are $18.56 and in Hong Kong the average hourly rate is $5.24. Cheaper labor in foreign countries has led to many companies moving there manufacturing into other countries. Although it appears as if this eliminates jobs for American workers, it often creates jobs. For example, Nike was one of the first companies to move manufacturing out of the United States. At first Nike was taking jobs away from American workers, but overtime they created thousands. Their ability to produce more shoes at a lower rate brought more profits and led to expansion. They needed more American workers for all of the other parts of production including: management, research, advertising, and sales.

Technological advances aided the growth of the global economy. New discoveries about products and how to produce them were made, allowing companies to expand. The global economy led to more specialization in production, which allowed for funds to be devoted towards research. Technology begin to bring economies together through airplanes and other new advanced forms of transportation. This continued with the telecommunication revolution, which brought information around the world in a matter of seconds. The new discoveries have lowered all costs of communications. Since the 1940?s long distance telephone charges have dropped 99%. Today the Internet provides an inexpensive way for people to communicate around the world, which has proven extremely important for all businesses. Aside from the business use, the Internet allows people everywhere to share their beliefs and opinions. It is the beginning of a global community.

Although global trade has its benefits, there are many negative impacts on society. The increased competition has brought fear to thousands of Americans. Farmers across the United States are afraid that the prices of their crops will decrease due to cheaper imports. Manufacture workers are afraid that their jobs will be taken by cheaper labor in other countries, and many companies are afraid of tougher competition. Since the free trade agreement approximately 150,000 garment workers have lost their jobs. This is mainly due to increased competition from Mexico. This is just one example of many where Americans have lost jobs or money due to increased competition caused by Globalization. Another negative impact of Globalization is that it pulls industrialized countries further away from the developing countries. As the developed countries continue to make gains through the global economy, developing countries are often too poor to experience success in a global economy. This further alienates developing countries from the rest of the world. The poorest developing countries cannot afford to remain independent of the global economy. The impact on the lower and middle class in the United States is similar to the impact on developing countries. It is the same idea that the rich are getting richer and the poor are getting poorer. In the United States many people view the issue as the corporate world versus the labor force.

Although jobs have been lost and the gap between developing and developed nations continues to grow, economists still say Globalization is worth it. American workers are being replaced by low-rate foreign workers, but at the same time the global economy continues to improve technology, resulting in a higher demand for more skilled workers. The increased competition for producers will benefit consumers and producers. Producers are forced to have high quality cheaper products in order to compete in the market. The reduced tariffs and new forms of transportation will also benefit consumers, in that there are more inexpensive quality goods made available to everyone. Producers are also in a much larger market and have the ability to make much larger gains. Although at the moment developing nations are falling behind, in the future the more money made through the global economy will hopefully lead to lower interest rates on loans to these countries. The global economy will inevitable continue to grow. The world?s population is growing every year. It is a shrinking world. In the future there will be less space and fewer borders, bringing people together in more ways then just a global economy. The telecommunications revolution has begun to bring people together with new inexpensive ways of communicating around the world. As the global economy continues to grow, countries become more dependent upon each other. This interdependence breaks down borders and differences at the same time. The future will bring the world together culturally through the interdependence created through the global economy.