Does greater economic openness between nations lead towards economic growth and convergence?
Greater economic openness between nations does lead towards economic growth and convergence. All of the first world countries demonstrate greater economic openness then third world countries demonstrate. Although economic openness may be a solution to gain economic growth and convergence, free trade may not be the answer. There are two different views on free trade; the conservative view and the liberal view.
In an economic age in which speedy transactions of imports and exports are essential, free trade is a necessity for aiding worldwide economic development. Even today, the United States continues to support free trade, an example being NAFTA (North America Free Trade Agreement). The problem is that America’s generosity has caused the foreign industry to take over the U.S. marketplace. This unfortunately has resulted in high unemployment rates because consumers and firms can purchase foreign goods for a little less than domestic products. From a conservative viewpoint, the only remedy to decrease unemployment and stimulate our own economic growth is to abandon the free trade policy and raise tariffs. Free trade has only crippled the American work force, increased poverty, and added to our national debt. If other nations begin to support free trade, the same situation may be likely to occur. Today there are about 10 million unemployed citizens and 35 million Americans are living in poverty because of free trade. Foreign industry is taking advantage of us. Market-opening measures in Asia along with other countries across the world have been promoted by exporting opportunities. In any clothing store and you’ll find that most of the apparel comes from South Korea, China, Hong Kong, Sri Lanka, and the Philippines. It’s simply not feasible for the U.S. apparel industry to compete with the extremely low production costs in Third World countries. Also, another example of an industry hurt by free trade is the lumber industry. Even though our country possesses the largest supply of timber resources, the United States is the largest importer of wood products in the world. The reason: imported wood is less expensive, especially from Canada. Other examples of industries that have responded negatively to free trade are the U.S. textile petrochemical, fishing, and auto industries. The temptation for consumers to buy cheaper foreign goods has only slowed production in U.S. industries and has caused unemployment levels to skyrocket. America needs to become less generous, more independent, and definitely more self-sufficient. Free trade policies need to be discontinued if that it is to be accomplished.
The liberal viewpoint, however, is somewhat different. In a world of ever-increasing global economic interdependence, the United States should accept the responsibility of leadership towards the approaching 21st Century by promoting free trade. We need to do so in such a way that builds and matures the economies of other countries. As technology continues to advance in areas such as computers, medicine, and communication, we need to prioritize the spreading of these advancements across the world in hopes for reaching worldwide economic stability and unity. Free trade is the best way to allow for the sharing of valuable resources and technology, which in turn makes the world a better, safer, and more united place for all. Inhibiting free trade is a step backwards in politics that only made sense back in the days when communication was slow and were being fought. Allowing for the existence of free trade is a step forward in the right direction towards the necessary global interdependent ways of the nearing 21st Century. Having clarified the different perspectives of the two main political parties on the free trade issue, it is hard to determine which action would be the most advantageous. Actually, both parties have come to conclusions on this issue which would allow for positive and negative results. The only problem is deciding which one would have the best overall effects. Should we put the immediate focus on our own economy and allow it to prosper, while other poorer countries suffer from the tariffs? Or, should we do away with all taxes on imports in hope that others will follow our bold lead? Only the near future can show which was the best decision. For certain, however, the results will be global.
4.) Who has benefited and who has lost from greater international trade?
The financial crisis that erupted in Asia in mid-1997 has led to sharp declines in the currencies, stock markets, and other asset prices of a number of Asian countries. It was hard to understand what these declines would actually do to the world market. This decline was expected to halve the rate of world growth in 1998 from the four percent that was projected pre-crisis to an estimated outcome of about 2 percent. The countries that are included in the East Asian crisis, known as “Tiger” economies, are Hong Kong, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Taiwan and Thailand. For these countries to participate effectively in the exchange of goods, services, and assets, an international monetary system is needed to facilitate economic transactions. To be effective in facilitating movement in goods, services, and assets, a monetary system most importantly requires an efficient balance of payments adjustment mechanism so that deficits and surpluses are not prolonged but are eliminated with relative ease in a reasonably short time period. The Asian crisis of recent falls into this category of inefficient balance of payments facilitated by, its overcapacity and its lack of growth to the West, particularly depreciation of its currency. By competitively depreciating its currencies, Asia is exporting its deflation to the US. History The past ten or fifteen years have seen an unprecedented expansion in the extent to which the countries of the world are tied together, both by instant communication and by international trade, institutions, and markets, including financial markets. On the whole, this process of globalization has been an enormously positive development. It has opened new markets, enhanced competition, spurred innovation, and provided new opportunities for workers, farmers, and businesses around the world. For example more than 40 percent of US exports today are absorbed by developing countries, an extraordinary increase over past export patterns, and the jobs associated with these exports are high-paying, good jobs. The increasing productivity of our trading partners has helped keep inflation down and improve standards of living in the United States. And outside the US, probably hundreds of millions of people have been lifted out of poverty around the world by the economic growth and trade over the past twenty or thirty years. (This view is definitely a liberal one unlike the conservative viewpoint given in question 1). Effects of the Global Economy In this new global economy, countries are more tightly linked than ever before to each other’s fates. A decade ago, a collapse in the currency of a small, distant country like Thailand would barely have rated a mention in the typical American newspaper. A few years ago, however, that currency crash triggered a crisis in other East Asian countries that had dominated news coverage in a way that no other foreign financial crisis has ever done before in this country. The reason for the change is that we now have more at stake than ever before in the economic performance of these countries. Not only are they major customers for our products; the rich countries and developing countries are also increasingly linked by financial ties. In 1996, the developed countries including the US invested more than 250 billion in emerging markets, and this is compared to roughly 20 billion ten years earlier. Much of this money was from banks (especially in Japan and Europe), although US mutual funds, pension funds, and individual investors also participated. But whatever its source, the extent of this investment means that economic turmoil in East Asia has a direct financial impact on the developed world’s capital markets, including our own. Indeed, a brief plunge in US stocks was widely attributed to turmoil in the Hong Kong stock market that was linked to the crisis set off by Thailand’s currency crash. What were the causes? Throughout the East Asian crisis many different ideas have been proposed to what the cause or causes were. Attempts to identify the fundamental causes of a financial crisis always suffer from the problem of distinguishing insight from hindsight. Many financial journalists today have said the crisis was the inevitable consequence of: “overvalued exchange rates, large current account deficits, short-term capital inflows, opaque financial systems, or one of several other supposedly fatal flaws in East Asian capitalism.” It seems fair to say that a few years back, nobody suspected that a calamity like what we have seen was possible, although all of the characteristics that are now described as the fatal flaws of the East Asian economies were reasonably widely understood even then, at least by experts.