Trade and Globalization

The tremendous growth of international trade over the past several decades has been both a primary cause and effect of globalization. The volume of world trade increased twenty-seven fold from $296 billion in 1950 to $8 trillion in 2005 (WTO, 2007). In recent years world trade has declined in volume and was down in 2012 and is expected to remain sluggish through 2013. This is a result of the struggling economies of Europe and doubt over the Euro (WTO, 2013). The continued decline of world trade was evidenced by a decrease of 0.3 percent in May, with forecasters cutting their prediction for global growth (Hannon, 2013).

In recent years China has experienced an economic slowdown along with the rest of the world, but many worry that because of its position in the world market, any downturn will have a global impact. In the years leading up to the global recession China was growing at an unprecedented pace. However, the Beijing government recently predicted a rate of seven percent growth, for the next year, a slowdown for the previously hot Chinese economy (Kurlantzick, 2013). China maintains the world’s largest reserves of US treasuries, which makes it vital in determining the amount of trade that occurs in the world market.

Part of the reason for the economic slowdown in China is rising labor costs which is causing manufacturing jobs to move to poorer countries and other parts of China (Coonan, 2013). Fortunately, even if China’s economy does experience its projected slowdown, it should not negatively impact the global economy as many fear, China’s large trade surplus means it does not represent the biggest driver of demand, which typically drives growth. On the contrary, if China’s economic rebalance causes it import more, this will boost other economies (Pettis, 2013)

Growth in the Volume of World Merchandise Trade, 2005-2014

Source: World Trade Organization

As a result of international trade, consumers around the world enjoy a broader selection of products than they would if they only had access to domestically made products. Also, in response to the ever-growing flow of goods, services and capital, a whole host of U.S. government agencies and international institutions has been established to help manage these rapidly-developing trends.

Although increased international trade has spurred tremendous economic growth across the globe —- raising incomes, creating jobs, reducing prices, and increasing workers’ earning power — trade can also bring about economic, political, and social disruption.

Since the global economy is so interconnected, when large economies suffer recessions, the effects are felt around the world. When trade decreases, jobs and businesses are lost. In the same way that globalization can be a boon for international trade; it can also have devastating effects.

The following Issue in Depth is designed to help you understand some of the fundamental economic principles behind international trade, familiarize you with some of the technical terms, and offer some insight into a few of the controversies surrounding international trade policy both in the United States and abroad.

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