Deck 1: The International Economy and Globalization

Question 1

What factors explain why the world's trading nations have become increasingly interdependent, from an economic and political viewpoint, during the post-World War II era?

Answer 1

The world's trading nations have become increasingly interdependent during the post-World War II era due to globalization. From an economic perspective, the formation of the European Union, the increasing importance of multinational corporations in the global market, the market power of the Organization of Petroleum Exporting Countries (OPEC), and the creation of the euro all contributed to the linking of the world's economies. Since the end of World War II, countries have exported and imported goods and services more than ever before. Trade became a large share of national output for industrialized countries as a result. The global banking system has also integrated the economies of these trading nations by making foreign investments and international lending possible.
From a political viewpoint, treaties have been signed between industrialized countries to maintain peace after World War II. Another political aspect that brought interdependence among the nations included the theoretical principles that govern international trade. The implementation of tariffs and quotas on products are considered political actions taken to protect domestic firms from foreign competition. These barriers are also placed on immigrants to restrict the inflow of foreign workers that compete with domestic workers for jobs. These policies contributed to the globalization of countries after the war by signaling that changes in one country can very well affect another.

Question 2

What are some of the major arguments for and against an open trading system?

Answer 2

Open trading refers to a trading system under which there is no barriers to free trade and countries allow fair and nondiscriminatory access to each other markets.
Proponents of an open trading system argue that international trade allows nations to achieve higher levels of consumption with access to lower-priced goods and services.
There is also a wider range of products for consumers to choose from because they are able to consume domestic and foreign goods through the international market.
Countries with open trading systems also have higher levels of investment.
Open trading creates trade creation which arises when the consumption shifts from high cost producers to low cost producers.
It helps countries to attain economics of scale, according to comparative advantage countries specialize in certain goods which leads to economics of scale by reducing the average costs.
Opponents of an open trading system claim that domestic firms and workers face competition when the offshoring of jobs lead to lower production costs and unemployment at home.
Other nations that are able to produce at lower costs cause less efficient domestic firms to exit industries. Having an open trading system also leads to excessive production in the global market.
Infant industries in developing countries would struggle against international competition because they are relatively new and less efficient.
Tariffs raise revenue for government which raises money for the government.

Question 3

What significance does growing economic interdependence have for a country like the United States?

Answer 3

For an industrialized nation such as the United States, increased economic interdependence benefits the country by allowing American firms to offshore jobs to developing nations with lower labor costs. This reduces the cost of production for certain industries and give domestic consumers access to lower-priced goods and services. In addition, American consumers have greater access to foreign goods could select from a wider range of products through the international market. The growing economic interdependence also results in higher levels of investments in the United States from foreign investors, leading an increase in total output.

Question 4

What factors influence the rate of growth in the volume of world trade?

Question 5

Identify the major fallacies of international trade.

Question 6

What is meant by international competitiveness? How does this concept apply to a firm, an industry, and a nation?

Question 7

What do researchers have to say about the relation between a firm's productivity and exposure to global competition?

Question 8

When is international trade an opportunity for workers? When is it a threat to workers?

Question 9

Identify some of the major challenges confronting the international trading system.

Question 10

What problems does terrorism pose for globalization?