Trade and the World Economy Notes

Trade and the World Economy

Essential Question

• What are the causes and geographic consequences of recent economic changes such as increased international trade, deindustrialization, and growing interdependence?

Global Interdependence

• In the 21st century, countries are increasingly interconnected due to:
  • Improvements in transportation and communication.
• Global interdependence involves:
  • Political, cultural, and economic processes linked across regions.

The Complex Nature of Globalization

• Positive Outcomes of Globalization:
  • Corporations in core countries profit; consumers enjoy lower prices; job creation in non-core countries.
• Negative Repercussions:
  • Job losses in core countries; multiplier effect leads to further unemployment.
• Negative Conditions (The Ugly):
  • Poor working conditions in semiperiphery and periphery countries; weak environmental regulations.

Trade Mechanisms

• Trade Definition:
  • Exchange of goods/services between parties; can involve barter (exchange without money).
• **Examples of Trade:
  • Barter used in literature (To Kill a Mockingbird).**

Comparative Advantage

• Definition: Ability to produce a good/service at a lower cost than others.
• Example:
  • Chinese manufacturers have lower wages than U.S. workers, offering a competitive edge.

Complementarity in Trade

• Definition: When countries can produce what the other lacks.
• Examples:
  • Canada produces maple syrup; Costa Rica produces coffee.
• Trade Imbalance:
  • U.S. consumers buy more products from China than vice versa, creating tension.

Technology and Trade

• Significant Changes in Trade:
  • U.S. trade increased from 5% (1960) to 28% (2018) of the economy.
  • Global trade grew from 27% (1970) to 60% (2019) of GDP.
• Factors Promoting Trade:
  • Advances in shipping (larger ships, containerization) and improved info systems (internet).

Government Influence on Trade

• Trade Policies Historical Context:
  • Industrial nations used to implement barriers to protect home industries before shifting to free trade.
  • Post-WWII, core countries embraced free trade.
• Neoliberal Policies (1980s):
  • Advocated by leaders like Reagan and Thatcher, reducing regulations and tariffs.

Recent Trade Barrier Factors

• Political/Economic Decisions:
  • Example: U.S. increased tariffs on Chinese goods in 2018.
  • Sanctions imposed by the UN to address human rights abuses.
• Global Health Issues:
  • COVID-19 disrupted trade due to health fears and factory shutdowns.

Government Development Initiatives

• Types of Economic Incentives:
  • Tax Breaks: Temporary tax exemptions; incentives for R&D.
  • Loans: Forgivable loans and below-market rates.
  • Direct Assistance: Infrastructure support.
  • Regulatory Changes: E.g., weakening unions, reducing environmental regulations.
• Goals:
  • To stimulate economic development and job creation.

Supranational Trading Blocs

• Formation of Trading Blocs: Important groups, such as:
  • USMCA, OPEC, Mercosur (South American countries).
• European Union (EU): Unique trading bloc promoting free citizen and goods movement.
• World Trade Organization (WTO): Established in 1995 to enforce trade rules globally; involves 164 member countries.

Manufacturing in Semiperiphery Countries

• Globalization Effects:
  • Shift of production from core to semiperiphery countries; facilitated by tech and logistics.

Economic Interdependence

• Growth Examples:
  • As China grows, it increases imports from the U.S., showing interdependent growth.
• Economic Downturns:
  • Example: Oil price drop in 2014 impacted economies globally, causing revenue and job losses.

Responses to Global Financial Crises

• International Financial Institutions (IFIs): Like the (IMF), provide financial aid and advice to struggling countries.
  • Notable Examples:
  • IMF aided Argentina in 2018 and provided emergency funds during COVID-19.
• Large-Scale Projects:
  • Can lead to economic growth, but also debt risks; dependency theorists critique borrowing dynamics.
• Microloans:
  • Small loans to foster entrepreneurship in periphery countries.

Reflection on Economic Changes

Causes of Economic Changes

• Key Terms: Trade, Barter, Comparative Advantage, Complementarity, Free Trade.

Consequences of Economic Changes

• Key Terms: Neoliberalism, Trading Blocs, Mercosur, WTO, IMF.

Geographic Perspectives

• Geographers explore how globalization affects multiple nations and the interplay of economic policies, especially from core to semi-periphery and periphery countries.
• Thailand's Economic Crisis (1997):
  • Initially strong economy collapses due to reliance on foreign investment; regionally impacts neighboring economies.
• Market Disturbance Diffusion:
  • Crisis in one country affects others (e.g., through distance decay concept).

Conclusion

• Globalization impacts are complex, with economic policies of core states affecting peripheral economies significantly.