The Development of a Globalized Economic System
Globalization, although divisible into innumerable dimensions, can be effectively generalized as the progressive trend towards an interconnected, borderless world. While it holds true that ancient trading networks and the European imperialist movement are strong examples of globalization throughout history, modern globalization is not considered to have commenced before the nineteenth and twentieth centuries (Malaspina, 2006). Groundbreaking advancements such as rail transport and steamship technologies during that time period facilitated the relatively quick transport of goods, people and ultimately, ideas across large distances at low cost (King, 2016). Additionally, no longer did these long distances sharply inhibit communication, notably thanks to the invention of the telegram (Tormey, 2004 & King, 2016). Consequently, the economic frontiers of the world that once partitioned the world have progressively blurred with the fading geographical barriers. The European imperialist movement’s implementation of common legal and economic institutions across the globe greatly facilitated the development of cross-border networks for commerce. Furthermore, technological advancements from this era also encompassed powerful new industrial production methods. Not only did this allow for the development and sustainment of larger populations, however economies of scale (proportionate savings typical with heightened production) could be achieved. The combined effect of all these factors led to an accelerated expansion of international trade; by 1913, approximately 8% of the global GDP constituted of exports (Wessels, 2016).
Following the events of the Second World War, the international community began putting more emphasis on the potential and importance of globalized economic integration and cooperation. This internationalism, characterized by comprehensive discussion and negotiation, led to several important effectuations for the liberalization of international trade. First of all, 23 industrialized nations became signatories of the General Agreement on Tariffs and Trade (GATT), collectively undertaking an obligation to gradually reduce protectionism. The GATT facilitated and inspired the establishment of free trade blocs as well, such as the European Union (EU) and the North American Free Trade Agreement (NAFTA). Later in the twentieth century, developing nations and former members of the dissolving Marxist Soviet bloc began to take part in the trade liberalization movement as well, often pressured by the International Monetary Fund (IMF) due to outstanding debts. The GATT was succeeded later in history by World Trade Organization (WTO), which is currently comprised of 164 members (Malaspina, 2006).
Trend away from Economic Globalization?
Case Study #1: Donald J. Trump and the North American Free Trade Agreement
On 1 January 1994, the North American Free Trade Agreement (NAFTA) was effectuated in an effort to alleviate trade barriers and facilitate stronger economic cooperation between the three major countries of North America, namely the United States, Canada and Mexico (Government of Canada, Government of the United States, & Government of Mexico, 2012). Additional provisions of the framework include: (i) obligations of each involved party to enforce violation of intellectual property regulations, as a countermeasure against piracy (Garcia, 1993); (ii) institutions for environmental protection, recognizing the potential environmental consequences of trade liberalization (Mumme, 1999); (iii) specialized bilateral United States - Mexico and Mexico - Canada agricultural trade agreements, with slight variation with regards to specific liberalization policies (Rosson, Benson, Moulton, & Sanders, n.d.). Furthermore, NAFTA has brought about the development of a wide, continuous, transnational (Canada to Mexico, passing through the United States) highway network known as the CANAMEX Trade Corridor, across which transportation of goods (especially agricultural commodities) is further facilitated and the geographical trade barrier is minimized (Schmitz, Kennedy, & Schmitz, 2016). Despite controversy over matters such as immigration and job security (Kincaid, 2008), NAFTA has had a generally positive net economic outcome. The North American economy has seen exponential development following the agreement’s implementation, with the combined gross domestic product of its members rising to 17 trillion USD in 2008 from the former 7.6 trillion USD in 1993. As of 2013, an estimated 108 million USD worth of merchandise is exchanged between the member countries on an hourly basis, and a net employment increase of 23% across North America has been observed since 1993 (Government of Canada, Government of the United States, & Government of Mexico, 2013). Economically stable and beneficial investment decisions (e.g. foreign direct investment) have also been greatly influenced by the agreement, by minimizing trade discrimination and promoting transparency (Government of Canada, Government of the United States, & Government of Mexico, 2012 & Government of Canada, 2016). According to the studies conducted by the Journal of Economic Perspectives and the Government of Canada, NAFTA has proved itself to be a critical foundation for the North American economy as all three member countries have observed net economic growth and consequent improvement of quality of life for their denizens (Burfisher, Robinson, & Thierfield, 2001 & Government of Canada, 2016). NAFTA, therefore, can be considered a hallmark achievement of internationalism.
Donald J. Trump, the contemporary president-elect of the United States of America, has expressed his desires to withdraw the United States from NAFTA. This was in response to concerns over employment and economic sovereignty (Gillespie, 2016). As illustrated by the Ricardian model of comparative advantage, as detailed under the "theory" section of this website, the transient disruptive effects of trade on the supply-demand dynamic develop urgencies for more resource allocation towards sectors to which demands are heightened at the expense of downsizing of sectors outcompeted, in a sense. During this shift, workers can become temporarily unemployed. Problems arise when workers who specialized in the downsizing sector find themselves out of the field, as they may have a more difficult time reestablishing in a new career background. In the case of the Bangladesh-Italy clothing and wine trade example (see Theory), it may not be easy for specialized Bangladeshi wine makers (yes, this is a hypothetical scenario) to seamlessly transition into the more demanding line of work due to their lack of background and expertise (Wessels, 2012 & Varoufakis, 1998). Trump has spoken out against companies such as Ford and Carrier for externalizing operations in this fashion, with threats to implement a 35% tariff as "penalty" against companies that follow such courses of action (Gillespie, 2016).
Nonetheless, the president-elect has come under criticism for his economic views (Gillespie, 2016). Sustainable economic development cannot be maintained with such a myopic approach - administrative leaders should always be conscientious of net effect and long-term implications of their economic strategies. If an entire nation, holistically, can benefit off a trade deal at the expense of temporary job instability, is it a good economic strategy to withhold from the opportunity? Furthermore, tariffs are proven to be a highly inefficient barrier to trade. Per family of four, Americans spend an extra hundred dollars annually on sugar due to import tariffs - a measure that benefits a mere 11 400 workers in the sugarcane industry out of the hundreds of millions of citizens living in the United States (Wessels, 2012). The Trump administration's foreseeable implementation of globalization "countermeasure" policies, particularly considering the sheer economic prowess of the United States in the international community, is destined to slow the expansionist development of the global economy. Is is worthwhile myopically inhibiting the international expansion of multinational companies as well as free trade in the general context, which holds great potential for steady, mutual, long-term net economic progress, for short-term local economic stabilization and job security? In the scope of the global population, do these protectionist policies facilitate fair distribution of wealth? Not exactly. |
Case Study 2: The United Kingdom's Withdrawal from the European Union
Common markets are one of the tightest and powerful internationalist approaches towards economic integration. Unification comes not only though the effectuation of free-trade agreements between member states, however also the implementation of a common external tariff on imports coming from countries beyond the bloc (Malaspina, 2006). The most prominent example of a common market today, perhaps, would be the European Union (commonly abbreviated as the EU), geographically encompassing over 4.4 square kilometres and constituting of over five million people (Malaspina, 2006 & Hunt & Wheeler, 2017). Interestingly, the EU is perfectly analogous with a country, having a common, universalized currency across all member states and even an official anthem. Furthermore, this common market has served to facilitate the movement of people across its member states. Examples of this include the valid recognition of driving licenses issued by any member state across the full extent of the common market, as well as the single currency railway network which minimizes complications with cross-border transit journeys. The EU is also an important contributor to global development, accounting for roughly half of all international aid. Finally, member states of the European Union are known for having high Human Development Indices (HDIs). In 2012, the EU became the recipient of a Nobel Peace Prize (Wilkinson, 2016, Robertson, 2017 & United Nations Development Programme, n.d.).
Interestingly, mainstream political administrators in the United Kingdom have been seriously considering leaving the EU for years. The decision was finalized by a referendum in 2016, whereby 52% of over 30 million voters (71.8% turnout) signified their enthusiasm to withdraw. This decision came to be known as “Brexit”. Given the innumerable net benefits of the EU’s establishment, as aforementioned, what compelled the citizens to vote leave? First of all, the EU has intentions of further homogenizing the intrinsic economic system by universalizing the euro as an ultimate successor to other currencies. This would spell the elimination of the pound in Britain’s context – even in spite of the fact that the euro is a less valuable currency (Robertson, 2016). Secondly, pro-Brexit campaigners have expressed concerns over apparent loss of political sovereignty to the EU. The EU administration, technically, has a supranational veto influence over the decisions of governments of its member nations. Furthermore, this is actually being put in effect – for example, while the British government is attempting to remove in-work benefits and social housing for migrants who have not lived in the country for at least four years, overriding EU policies affirm these exact provisions (Morris, 2017).
Brexit's effects set in evidently just the day after the vote (24 June 2016). The pound took a relatively rough blow, depreciating to record-low levels that have not been observed since 1985. The Financial Times Stock Exchange and the Deutscher Aktienindex, indices of the London stack exchange and German stock exchange, respectively, plummeted. A steady rise in inflation, consequent of Brexit's effect on the pound, has been observed. Economic forecasters continue to stress the fact that Brexit has catalyzed a period of substantial economic downturn in the British economy's business cycle, with inertia hypothesized to continue throughout the remainder of 2017, characterized by low business confidence, lower consumer optimism and market slowdowns (e.g. prices in the housing market are expected to keep rising steadily 2-3%) (Robertson, 2016). Given these current circumstances, was Brexit truly worth it? Undeniably, the Brexit vote's economic impacts have caused financial hardship among several citizens - can progress towards lessening economic inequalities be made under these circumstances? Not easily. Internationalism in this context, i.e., diplomatic cooperation and compromise between the United Kingdom and the EU towards this common challenge, could have allowed for the sustainment of the socioeconomically progressive trend highlighted in the first paragraph of this section.