International Economics Assignment on Globalization & Trade

This assignment delves into the core concepts of international economics, examining the multifaceted impacts of globalization and trade. It explores the benefits of globalization, such as increased free trade, capital flows, and technological development, while also addressing anti-globalization arguments related to labor standards, environmental concerns, and the sovereignty of nations. The assignment further analyzes the significance of trade balances, specifically the implications of trade deficits for the U.S. economy, including job losses, wage stagnation, and concerns about trade competitiveness. Conversely, it examines the advantages of trade surpluses, such as expanded business opportunities and job creation, while acknowledging potential drawbacks like increased import costs. The analysis incorporates key economic concepts such as comparative advantage, foreign direct investment, and the role of government intervention, providing a comprehensive overview of the complexities of international trade and its effects on economic growth and development.

Running head: INTERNATIONAL ECONOMICS
International Economics
Name of the Student
Name of the University
Author note

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Table of Contents
Answer 1..........................................................................................................................................2
Answer 2..........................................................................................................................................3
References........................................................................................................................................6

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Answer 1
Globalization is the process of increasing integration and environment of co-operation
among different economies. It results in inter-related and integrated world economies. The
benefits of globalization is realized in forms of greater free trade, increased capital flows,
increased movement of labor, integration of global trade cycle, growth of multinational
companies and improved means of transport and communication that removes barriers among
countries. Free trade allows specialization to the countries. When countries specialize in goods,
in which it has a comparative advantages then it enjoys several benefits (Baylis, Owens & Smith,
2017). The consumers get goods at a lower price in the world market; trade enables a greater
choice of goods and a wider market for exporters, increased competition in the world market
enhances efficiency in production and the countries enjoys economies of scale. The free
movement of labor comes with advantages for both the countries and workers. The increasing
specialization reduces average cost and makes good cheaper. Globalization comes along with the
benefit of increased investment. The flow of funds from developed to developing nations
contributes to economic growth of these nations.
The anti-globalization arguments are related to effects of trade on labor standard, workers
and environment. In contrast to the benefits of free trade arguments, there are two widely held
controversies against free trade. The supporters of government intervention states that there are
some industries remaining underfunded in the free market environment (Mander, 2014). Other
forms of imperfect competition dominate these markets. The globalization effect on
environment, workers and sovereignty warrant the support from government. The free trade
resulted from globalization harms developing countries. The developing countries face difficulty
to compete with developed nation. The industries in developing nation often need protection to

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develop fully. One major problem of globalization is increased use of non-renewable resources.
A byproduct of this is the increased pollution and problem of global warming. The globalization
fails to set a desirable environment standard. The free movement of workers creates the problem
of labor drain. It becomes difficult for low paying countries to retain their skilled workers.
Globalization has a mixed impact on growth of world economies. Free trade that resulted
from globalization allows specialization based on comparative advantage (Stiglitz, 2017). The
comparative advantages foster growth contributed from country’s openness in the world market.
The resulted Foreign Direct Investment affects economic growth and has a positive impact in
developed nations leading to higher growth rate. Globalization boosts technological development
that has promoted unparalleled development of economies. In some countries, globalization
increases human welfare and eliminate poverty and underdevelopment. However, the benefits of
globalization can be reaped only by countries having capacity of exploring new opportunities
and have potentials to absorb the adverse impact of the process. However, growth impact of
globalization on underdeveloped and developing nations remain ambiguous. The effect of
globalization on economic growth depends on the structure of economics in globalization
process (Rodrik, 2014). The growth impact changes depending on policy set for improvement of
financial system and human capital.
Answer 2
Trade balance of a nation keeps record of country’s export and import. Trade deficit is a
situation where country’s import exceeds its imports. The trade deficit in US has become a cause
of concern for the US government because of its adverse impact on the domestic economy (Kim,
2014). Trade deficit affects US economy through three direct channels. First, the growing trade
deficit since past two decades has destroyed many manufacturing jobs. As U.S. mostly exports

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manufacturing goods, trade deficit resulted from declining exports depressed manufacturing
sectors and causes significant job losses. Transition is observed from highly paid manufacturing
jobs to low paid jobs in the service sector. In addition to job losses, the adverse impact of trade
deficit is observed in a depressed wage of workers (Irwin, 2015). The problem of unemployment
can be countered with active policies taken by the government such as decline in the interest rate
or increased government expenditure. However, the effect on job composition cannot be altered.
Workers who lose jobs in manufacturing finds job in some other sectors mostly in service sectors
where wage is low. The import growth in countries having a low wage creates downward
pressure on the workers wage in U.S. In response to a low-priced imported good, prices of
products produced in U.S. In order to reduce production cost firms in U.S have to cut wages.
The U.S. government is concerned with the effect of trade deficit on their trade competitiveness.
When trade deficit raises then many firms and industries were closed negatively affected the
domestic economy.
Trade surplus describe a situation in which export of a nation exceeds its import. A trade
surplus benefits nation in many ways. Increase in export means increased demand for goods in
the international market (Acemoglu et al., 2016). This helps to expand business in the domestic
economy. With increased production new job opportunities open up solving the problem of
unemployment. In order to expand production labor demand raises. This pushes wage in labor
market to a high level. Therefore, the problems created with a trade deficit come to an end with a
surplus trade balance. However, trade surplus increases the inflow of domestic currency lowering
its value in the exchange market. This makes import expensive. For countries with heavy
reliance on import, the rising import price is a problem. The manufacturing industry in U.S. is
the propeller of economic growth. The U.S. manufacturing sector depends on imported raw

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materials. Therefore, increasing cost of raw materials increases the production cost (Melvin &
Norrbin, 2017). In this situation the government in U.S. should take proper policy to maintain a
stale import price. However, trade surplus might create a problem in terms of raising import cost
but the problem is not as severe as trade deficit.

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References
Acemoglu, D., Autor, D., Dorn, D., Hanson, G. H., & Price, B. (2016). Import competition and
the great US employment sag of the 2000s. Journal of Labor Economics, 34(S1), S141-
S198.
Baylis, J., Owens, P., & Smith, S. (Eds.). (2017). The globalization of world politics: An
introduction to international relations. Oxford University Press.
Irwin, D. A. (2015). Free trade under fire. Princeton University Press.
Kim, M. H. (2014). The US–China Trade Deficit. The International Trade Journal, 28(1), 65-83.
Mander, J. (2014). The case against the global economy: and for a turn towards localization.
Routledge.
Melvin, M., & Norrbin, S. (2017). International money and finance. Academic Press.
Rodrik, D. (2014). The past, present, and future of economic growth. Challenge, 57(3), 5-39.
Stiglitz, J. E. (2017). The overselling of globalization. Business Economics, 52(3), 129-137.