GLOBAL ECONOMY

Global economy is the exchange of goods and services
integrated into a huge single global market. It is virtually
a world without borders, inhabited by marketing individuals
and/or companies who have joined the geographical
world with the intent of conducting research and development
and making sales.

International trade permits countries to specialize in
the resources they have. Countries benefit by producing
goods and services they can provide most cheaply and by
buying the goods and services other countries can provide
most cheaply. International trade makes it possible for
more goods to be produced and for more human wants to
be satisfied than if every country tries by itself to produce
everything it needs.
U.S. FOREIGN TRADE
The United States is one of the world’s leading trading
nations. The exports and imports of the United States
thrive so mightily that the profits of many large businesses,
the jobs and incomes of many workers, and the
incomes of many farmers are dependent upon them.
In such a market, companies may source from the
United States, conduct research and development in
another country, take orders in a third country, and sell
wherever there exists demand, regardless of the customer’s
nationality.

CAUSES OF INCREASING GLOBALIZATION

In the days of Scottish economist Adam Smith
(1723–1790), if a merchant wanted to trade a lot of wool
for a case of port wine, the communication of that intent
would require weeks. Sending a message to someone in
India took months. Such circumstances lent themselves to
fragmented and individualized markets run by family
members or close friends. These industry managers were
trusted to make decisions in the best interests of the company
because no rapid means of communicating existed.
The opportunity to closely coordinate the act of several
foreign operations simply did not exist.
In the early twenty-first century, communication
between most parts of the world is instantaneous. A manager
in Berlin, Germany, can phone or e-mail a manager
in Rio de Janeiro, Brazil, to discuss the latest news regarding
the orange crop. These new capabilities allow vast
amounts of business data to be transferred globally almost
instantaneously at a reasonable cost. The world truly has
become a smaller place in terms of communication.
Technological advances have increased the potential
for the transportation of goods and individuals globally.
This reality encourages a global market approach to business
as companies attempt to reach the largest number of
consumers at the lowest possible prices.
Another factor leading to a more globalized marketplace
is the historical decrease in tariff and nontariff barriers.
In 1930 the United States raised tariffs under the
Hawley-Smoot Tariff Act. Other countries followed suit,
and international trade slowed considerably. In 1947 several
leading trading nations created the General Agreement
on Tariffs and Trade to serve as a forum for bringing
down trade barriers. Between 1947 and 1994, trading
countries around the world participated in eight rounds of
negotiating in an effort to reduce tariffs.
Another agreement, the North American Free Trade
Agreement, was implemented by Canada, Mexico, and
the United States in 1994. This agreement reduced tariffs
over a fifteen-year period, lifted many investment restrictions,
allowed for easier movement of white-collar workers,
opened up government procurement over a ten-year
period, and created a mechanism for dispute resolution.
As a result, retailers such as Wal-Mart and 7-Eleven have
expanded operations into Mexico and many Mexican and
Canadian firms have been enjoying the benefits of participating
in the world’s largest consumer market, the United
States.
Multinational corporations search the globe for the
lowest possible labor costs and weakest environmental
safeguards. It is not unusual for them to get help from
undemocratic governments that compete in the global
marketplace by refusing to protect their citizens from
environmental degradation and workplace abuse—ranging
from below-survival wages to physical attacks.

OTHER FACTORS AFFECTING THE GLOBAL ECONOMY

Closely related to the liberalization of trade, technological
advantages, and the convergence of consumer preferences
are a set of competitive factors centered around the ideas
of economies of scale (larger production volumes generating
lower per-unit production costs) and locational advantages.
Another factor affecting the global economy has been
the shifting of production among various plants located
outside of the United States. This has occurred most significantly
with the People’s Republic of China. China is
able to produce a wide variety of goods and services at
much lower costs than is possible in the United States.
Overall, the future for the global economy is positive.
Many challenges lie ahead, but the overall opportunity is
very exciting and carries with it many unknown adventures in international trade in ways not yet known