The Unintended Consequences of Globalism

Globalism might be good for the world economy as a whole, but does not necessarily mean it has been good for the American worker. Whether intentional or unintended, the American worker has suffered through the philosophy of free trade. Do not miss quote me, Globalism has a lot of positives. Now more than ever the people of earth are connected through the internet and can communicate information faster than any other time in history. People are exposed to different cultures and ideas, and the free flow of information is exponentially evolving our society. “Free trade” plays a big part in globalism, which is why there has been a “backlash” from non-college educated workers in wealthy countries in direct response to the effects of free trade policies. When wealthy counties openly trade with developing countries it can overvalue the wealthy countries currency, which in turn makes imports cheaper while exports become more expensive. However, according to the Economic Policy Institute, the real culprit is not the valuation of the dollar and the increasing trade deficit. (Bivens, Economic Policy Institute)

The USA has increasingly shifted its economy from manufacturing to services like banking and investing. It is cheaper to import products of manufacturing from a country that has extremely cheap labor than it is to employ American workers in the United States. This in turn means there now is a premium on college educated Americans who are filling job openings within the service industry. On the other side of the coin, manufacturing jobs are leaving the country and lowering wages of workers without a college degree. This fact coupled with increasing technology that replaces workers and a trade policy that out prices “expensive” American workers is leading to decreased wages. As the US trades more with developing countries as a percentage of GDP, the wages of unskilled workers continue to decrease. (Slaughter and Swagle, International Monetary Fund)

Though Globalism has a net increase in GDP and employment for countries involved, most of the gains from free trade is disproportionately received by the top 1% of Americans. Policies that protect corporations and their interest at the expense of the American worker exacerbate the problem. Trade policies like NAFTA and others have little protections for workers and heavily favor the multinational corporations that seek to benefit from free trade. This only adds fuel to income inequality, which for poor countries can increase economic growth while having a negative effect on rich countries. Rich countries are also at higher risk of financial crisis when they have high levels of income inequality. (Malinen, Huffington Post)

Globalism and free trade are linked very close together, which is why there is a stigma attributed to the word. There has been growing resentment within the US and other wealthy nations of globalism as a whole. They do not just condemn free trade, but openly blame minorities and marginalized groups for their decrease in wages and “eroding” their cultural dominance that they claim dominion over. This is a deadly cycle, as income inequality only feeds this type of behavior. In a country that is not adequately educating its people, more of the workers within its country will become more ignorant. With free trade putting a premium on college educated workers and decreasing wages of unskilled labor, we are now almost at a tipping point, socially and economically.

Globalism has many unintended consequences that inadvertently caused huge social and economic problems within the US. The problems that globalism is causing is not a hard fix. Reducing the income inequality will eradicate more of the negative effects of globalism. Universal Education, Universal healthcare, and a rewrite of our tax code are just a few ways to reduce income inequality. All of these possibilities are well within our means. We have to take care of these problems swiftly, before globalism becomes an integral part of our own decline. (Mason, Post-Gazette)

Bivens, Josh. “Using Standard Models to Benchmark the Costs of Globalization for American Workers without a College Degree.” Economic Policy Institute. N.p., 22 Mar. 2016. Web. 25 Apr. 2017.

Malinen, Tuomas. “The Economic Consequences of Income Inequality.” The Huffington Post., 17 Dec. 2015. Web. 25 Apr. 2017.

Mason, Bob. “Single-payer Health Care Would Help to Treat Three Separate Threats.” Pittsburgh Post-Gazette. N.p., 26 Oct. 2014. Web. 25 Apr. 2017.

Slaughter, Matthew, and Phillip Swagel. “Economic Issues 11–Does Globalization Lower Wages and Export Jobs?” International Monetary Fund., Sept. 1997. Web. 25 Apr. 2017.

United States – China Trade Relations

Tuesday November 8, 2016 marked a new age of American politics. Donald Trump shocked the world and became the 45th President of the United States of America. The controversial businessman captivated the American public with his unconventional rhetoric and “in-your-face” campaign style. Throughout his campaign to becoming President he proposed many agendas and ideas on what he thought it would take to “make America great again.” One of his big talking to points during his campaign crusade was that he wanted to put America “first” again. Which means he essentially wants to initiate plans that benefit America first and then worry about the outside world. This was very controversial considering America has always done whatever they could to help other countries. However, Trump and his advisors believe that we as a country might be helping out others and suffering the consequences.

This idea of putting America first goes hand in hand with how he is dealing with international trade, most notably China. Donald Trump has often said that China is responsible for nearly half of our trade deficit and he believes that their government is manipulating their currency. To counter this, Donald Trump has proposed we slap a 45 percent tariff on all Chinese imports. The Trump administration says that this tariff would stem from years of China stealing jobs and manipulating the trade system. Recent studies have put the total job losses in the US associated with the Chinese at 2 million. Most of these jobs are in the manufacturing industry.

Fearing a significant tariff on their imports, China has now threatened to retaliate if these tariffs are in fact imposed. The Chinese government has relayed the message to the US government urging against these “outlandish” tariffs (McDonald). China’s Commerce Minister Zhong Shan stated that the US and China are interdependent and bilateral trade relations would have an impact on the worldwide economy. They are afraid that if things start to escalate a trade war might be imminent (McDonald).

A trade war between the US and China would have significant impact on both economies. First, if trump imposes his tariffs, China’s exports to the United States would fall around 25 percent. This means that China’s annual economic growth would decrease by as much as 1 percent. If China retaliates and imposes a tariff on the US, its economic growth would as much as a quarter percentage point (Reuters). Not to mention the consumers that would ultimately suffer. If Chinese imports get taxed, then companies would be forced to raise their prices, which would then hurt the consumer of said products. Really what this comes down to is the US trying to decrease the trade deficit with China. There are several ideas out there on how to go about this. One idea was that instead of placing a tariff on all Chinese imports, just impose targeted tariffs instead. These tariffs would be put on products that face heavy competition from Chinese imports such as steel, machinery, and auto parts. Another way to decrease the deficit would be enhance service exports to China.

Like any problem, the best to solving one is through discussion. These tensions between the US and Chinese governments are very real and very serious. The two biggest economies in the world are on the brink of a stand-off that could set both economies backwards. Sun Jiwen, spokesman for China’s Ministry of Commerce, believes that these trade tensions will resolve through much-needed dialogue. However, it might take a little more than an open invitation for Trump to join the table of discussion. Trump is playing hardball. He feels that the US has been wronged since China has joined the WTO (World Trade Organization) in 2001 (Reuters). China has said they are willing to sit down with Trump administration to come up with a plan that could benefit both nations. China’s President Xi Jinping has defended free trade on numerous occasions and stated that “no one will emerge as a winner” in an international trade war (Reuters).

These are significant times in our country. The US has always been at the forefront world leadership and it is interesting to see with this new administration how these problems will play out. Every decision has a consequence, good or bad. I hope the Trump administration weighs all of the options before irrationally making a decision. The fate of the United States economy depends on it.

Economic Turmoil and the Future of Brazil

For many years, Brazil has been an emerging economic hub, attracting investors from all over the world. The Brazilian economy saw an 368% increase in Gross Domestic Product growth from 2003 to 2011. In addition, Brazil took in almost half of Foreign Direct Investment flowing into South America during 2015. This doesn’t come as a surprise since it reigns as one of the major emerging national economies. However, Brazil has seen a recent economic downturn with increasing unemployment and a contracting GDP. In fact, the Brazilian government cut 2017 GDP expectations from 1.6% to 1% growth. Having been one the most lucrative foreign investments for governments to individual investors, what happened to the so-called “Country of the Future” and can Brazil regain its momentum?

Back in 2015, recession hit Brazil hard and the country is still struggling to get back on track. According to the CIA World Factbook, the economy contracted 32% from its peak in 2011 and unemployment reached a new high at 12.6% in 2016. Being based mostly on services, agriculture and oil, Brazil’s economy has a direct correlation with global demand. With global recession looming, Brazil is feeling the effects of a slow world economy.

Brazil is a top tourist destination offering beautiful beaches, a diverse culture and exciting festivals. However, with the world economy slowing down, people are less likely to travel abroad. Since the majority of the country’s GDP derives from the service industry, Brazil will not be able to rebound any time soon unless there is a major boost in consumer confidence.

The demand for Brazilian exports was slashed when its largest trading partner, China, entered into an economic slowdown of their own. The decrease in exports caused massive layoffs throughout the nation. The notorious economic downward spiral began by wary consumer spending as unemployment rose. Companies that tried to gain capital by borrowing in U.S. dollars found it difficult to pay back those loans as the Brazilian Real crashed 25% in the span of a year in 2015.

One of the major hits came from low oil prices and the corruption of Petrobras, a large oil company and Brazil’s largest source of investment. Brazil is major producer of oil, exporting $11.8 billion worth in 2015, according to the Observatory for Economic Complexity. OPEC delivered a major blow when the cartel decided not to cut oil production, causing oil futures prices to plunge. In order to cope with heavy losses, Petrobras was forced to sell off assets and halt future research and expansion plans.

As if things weren’t going poorly, Petrobras was also caught in a scandal with former Brazilian president Dilma Rousseff and other high office executives. From 2004 to 2012, the company had spent over $2 billion on bribes to politicians whom would allow the company to charge inflated prices for construction contracts. Now that the scandal has unfolded, Petrobras executives face jail time and the company as a whole is forced to pay billions in fines.

So what does the future hold for Brazil?

Although at the moment the future looks dim, there are still signs of hope Brazil can turn itself around. The Real has seemed to stabilize in 2016 and heads into 2017 with an upward trend. Moreover, experts’ GDP projections for 2018 through 2020 show promising figures that Brazil can restore pre-recession level growth.

Even more promising, U.S. companies are still showing faith in Brazil’s future. American Airlines plans to invest $100 million in an aircraft maintenance center in Sao Paulo. Brazilian Investment Partnership Minister Wellington Moreira Franco and many countries like the United States, United Kingdom, France and Japan agree there are still reasons to invest in Brazil. This should be seen as a sign of confidence that the Brazilian market will grow soundly with the support of both national and international investment.