International Trade Because of the Increasingly Globalized Essay

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International Trade

Because of the increasingly globalized nature of the economy, manufacturers, retailers and service providers have more options to locate sources of supply and labor where overall costs are lower than in their home markets. In industry today, parts and supplies frequently come from many different countries, such as the Boeing 787, with 65% of its components outsources to foreign companies (Hill 2011). Another example is flat-screen TVs, which have their components manufactured in Asia, assembled in Mexico then shipped to distributers in the United States. Vizio has a small office in California with less than 100 employees to handle sales and service, but with all of the design, manufacturing and assembly done overseas. Even though American companies originally developed this technology in the 1960s, they did not continue with it and forfeited this market to Asian countries (Hill 2011). This has happened time and again in American industry, which has been devastated by Asian imports since the 1970s. In the case of China, which has become the largest exporter among the developing nations, wage-costs and currency values have been held artificially low to stimulate exports, while the state subsidizes these export industries far more than in the United States. Economists who once believed in the comparative advantage theory of David Ricardo have changed their minds when it comes to the China trade and argue that its unfair advantages have cost the U.S. economy millions of manufacturing jobs, increased unemployment, lowered incomes and raised the costs of adjustment to the U.S. government.

American economists who once believed that trade with China would have only on minimal impact on manufacturing and blue-collar jobs in the U.S., have been changing their minds in recent years. For years they argued the benefits of the China trade would outweigh the costs, but now they realize that the "damage to the U.S. economy has been deeper" than they originally predicted.

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Those regions most exposed to Chinese exports have suffered the highest loss of manufacturing jobs and declines in overall employment, as well as higher costs to the government in the form of unemployment insurance and food stamps. Costs to the government alone wiped out one-third to two-thirds of the gains from trade with China, and these adjustment costs were far higher than economists and politicians asserted in 1999 (Lahart 2011).

Two centuries ago, the classical political economist David Ricardo put forward the comparative advantage theory that under free trade conditions each nation would gravitate towards those exports that it did best, yielding maximum benefits for all. Over 90% of U.S. firms that export are small businesses with fewer than 100 employees, although these account for only 20% of total exports. National markets have not yet broken down completely, particularly in consumer goods, and there are still major distinctions in legal regulations, trade barriers, culture and traditions and consumer tastes among nations, which "frequently require companies to customize marketing strategies, product features, and operating practices to best match conditions in a particular country" (Hill 2011). Most globalized markets today are for raw materials like oil, rubber, aluminum and iron ore, and manufactured goods like computers and aircraft. Rival firms in this globalized trade include General Electric and Rolls Royce in aircraft engines, Boeing and Airbus in aircraft, and Ford and Toyota in vehicles.

In recent years, though, economists like Paul Samuelson have challenged classical Ricardan theory on the grounds that the type of trade practiced with China has devastated blue-collar jobs in America. Alan Blinder, who once supported free trade policies, has changed his mind because "outsourcing to lower-wage countries puts millions of American jobs at risk." China's growth has been so unexpectedly rapid that its exports have swamped those from other developing nations, and American counties where manufacturing is facing the heaviest.....

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