alarm clock MADE IN JAPANcoffeepotMADE IN CHINAelectric razor MADE IN HONG KONGdress shirt(MADE IN SRI LANKA)designer jeans (MADE IN SINGAPORE) tennis shoesMADE IN KOREA electric skilletMADE IN INDIA calculator (MADE IN MEXICO) watch (MADE IN TAIWAN )radio(MADE IN INDIA)car (MADE IN GERMANY)GAS Saudi Arabia AMERICAN JOB. computer (MADE IN MALAYASIA), sandals (MADE IN BRAZIL)wine (MADE IN FRANCE)TV (MADE IN INDONESIA)  Joe Smith started the day early having set his alarm clock (MADE IN JAPAN) for 6 a.m. While his coffeepot (MADE IN CHINA) was perking, he shaved with his electric razor (MADE IN HONG KONG). He put on a dress shirt (MADE IN SRI LANKA), designer jeans (MADE IN SINGAPORE) and tennis shoes (MADE IN KOREA). After cooking his breakfast in his new electric skillet (MADE IN INDIA) he sat down with his calculator (MADE IN MEXICO) to see how much he could spend today. After setting his watch (MADE IN TAIWAN ) to the radio (MADE IN INDIA) he got in his car (MADE IN GERMANY) filled it with GAS from Saudi Arabia and continued his search for a good paying AMERICAN JOB. At the end of yet another discouraging and fruitless day checking his computer (MADE IN MALAYASIA), Joe decide to relax for a while. He put on his sandals (MADE IN BRAZIL) poured himself a glass of wine (MADE IN FRANCE) and turned on his TV (MADE IN INDONESIA), and then wondered why he can't find a good paying job in America..... Actually this is a good thing. We get more choices, lower prices, & because more is bought, more jobs are created.

Globalization can be defined as: Widening and deepening of international flows of trade, finance and information in a single, integrated local market. Increasing linkages between the world's people as natural and artificial barriers fall. Transformation of the world into a global village, as borders disappear, distances shrink and time shortens. Impact of Globalization The Good News… Increased market access e.g. trade flows increased 12-fold in the past 50 years as a result of the removal of natural and artificial barriers. Increased access to capital. The General Agreements on Tariff and Trade (GATT) is expected to increase global income by an estimated US $ US $ 510 billion - from trade and efficiency gains and higher rates of return on capital. Increased movement of people due to tourism and migration. Greater access to information and increased long distance communication The Disturbing News… Gains are not equally distributed between countries. Gains are not equally distributed within countries. Financial volatility because of a globally integrated market. Contagion and threat of worldwide recession. More human insecurity such as crime (trafficking in drugs, weapons, women, international syndicates), spread of diseases such as HIV/AIDS, and loss of cultural identity.

The world is becoming a smaller place. What happens in Tokyo affects what happens in New York and Dallas, Texas. over $12 trillion in world trade There is over $12 trillion in world trade. Volume of Trade Exports as % of GDP Panama 80% Belgium 87% Netherlands71% Kuwait55% Norway45% Canada38% [If we sneeze, Canada catches a cold] South Korea44% Germany40% China 35%[1/3 bought by U.S.] United Kingdom26% Spain25% Italy27% France26% Mexico25% [80% of Mexico’s exports are sold to U.S.] Japan13% United States11% [$1.6 trillion in 2007] World25% trade deficit In 2007, we had a trade deficit in goods of $815 billion in goods of $815 billion. trade surplusin We had a trade surplus in services of $104 b illion. ($711 services of $104 b illion. ($711) The importance of trade has grown. 16 % 2008

C anada 322China 148Japan 211 M exico 137Mexico 249 C anada 66Deficitof$256China IMPORTS 95Germany 38Taiwan 57UK 45 K orea 42 F rance 50UK 50Germany32Korea 26Taiwan 25Singapore 33Netherlands 27 EXPORTS 60Japan

After a series of product recalls, from pet food to tires, American regulators are paying more attention to goods exported to the U.S. from China. Who Buys Chinese Goods? The U.S. accounts for 1/5 of all Chinese export destinations, FDA ordered recall after a poisonous ingredient was found in toothpaste. 1.5 mil imported toy trains were made using lead paint. 450,000 tires were recalled because of tire separation problems. More than 60 billion cans of cat and dog food were recalled. $56 billion In goods from U.S. to China 10 million toys including “Big Bird” were recalled because of “lead” or magnets that tear the intestines when swallowed by children. 675,000 Barbie doll accessories

KEEP THE MONEY AT HOME KEEP THE MONEY AT HOME Point: Point: When I buy a coat in England, I have the coat and England has the money. But when I buy a coat in America, I have the coat and America has the money. America is more wealthy because it has both the coat and the money. Abe Lincoln Counterpoint: Counterpoint: Money is not wealth in and of itself, it merely facilitates trade. If America sends dollars to England, England will eventually use those dollars to buy American goods. If we don’t buy goods from other countries, then other countries will not be able to buy goods from us.

Point: Point: Protecting businesses from foreign competition preserves American jobs. Counterpoint: Counterpoint: Few are helped by protective policies, but they are more visible and more vocal than the many who are hurt. Protecting jobs in import competing industries raises prices to consumers and costs jobs in industries that use imported inputs. America and consumers pay dearly each time protectionist measures “save” jobs.

Industry Yearly LossEmploymentAnnual C ost To Economy Loss If Barriers Per Job To Economy Loss If Barriers Per Job From Barriers Were Removed Saved From Barriers Were Removed Saved Textiles $15,850 billion 71,639 $221,258 D airy Products 1,630 million 2, ,233 Sugar 657 million 2, ,059 Peanuts 74 million ,223 Meat 177 million ,733 Non-rubber 170 million 1, ,456 footwear Orange Juice 307 million ,103 Canned Tuna 100 million ,640

Counterpoint: Counterpoint: Low wages, combined with low productivity, will result in high unit costs. High wages in the U.S. result from the high productivity of American workers, aided by the availability of raw materials, massive capital equipment, sophisticated management, and elaborate infrastructure. Point: Point: If we trade freely with low wage countries, U.S. businesses will flee to those countries and U.S. wages will plummet.

GLOBALIZATION LEADS TO LOWER FERTILITY RATES WHICH LEADS TO MORE OPPORTUNITY FOR GROWTH AND DEVELOPMENT, ESPECIALLY FOR WOMEN

 Trade in Goods  Final and intermediate goods  Trade in Services  Outsourcing  Vacation  Trade in Labor  Immigration … … legal and illegal  Trade in Capital  Foreign direct investment  Financial flows: stocks, bonds, currencies

 Should Wisconsin grow oranges? Should Florida make cheese?  No and No!  Wisconsin should specialize in cheese  Florida should specialize in orange production  Then trade cheese for oranges

WisconsinFlorida Cheese production Low opportunity cost High opportunity cost Orange production High opportunity cost Low opportunity cost How much orange production does WI give up to produce one more unit of cheese? Very little, because oranges don’t grow well in WI. How much orange production does WI give up to produce one more unit of cheese? Very little, because oranges don’t grow well in WI. How much cheese production does WI give up to produce one more unit of oranges? A lot! How much cheese production does WI give up to produce one more unit of oranges? A lot!

WisconsinFlorida Cheese production Low opportunity cost High opportunity cost Orange production High opportunity cost Low opportunity cost The country with the lower opportunity cost in producing one good has a comparative advantage in that good. The country with the lower opportunity cost in producing one good has a comparative advantage in that good. specialize in cheeseWisconsin has a comparative advantage in cheese production => specialize in cheese specialize in orangesFlorida in orange production => specialize in oranges Comparative advantage

Recessions in yellow More trade is associated with economic expansion Trade expanded 3 times faster than GDP, since 1950

Trade deficit expands Unemployment drops Most of the expansion in the trade deficit occurred during the roaring 1990s! Since 2000 Before 2000

1990s: Surge in imports and manufacturing output : Manufacturing drops, imports slow Since 2000: Both recovering Manufacturing output expands despite imports

Manufacturing jobs: 1993 normalized to 100 3m jobs lost in the U.S. It’s a worldwide phenomenon!

 Int’l financial flows are the flip side of the trade deficit: Countries that have a trade surplus with the U.S. are net purchasers of our assets.  There is a trend toward more international financial integration.  This has coincided with less volatility in U.S. GDP.

$365b more assets accumulated trade deficits! $2,546b more liabilities: accumulated trade deficits! 27% of GDP 14% of GDP 92% of GDP 112% of GDP Notice the difference in scale!

2 times standard deviation around the mean GDP has become less volatile since the mid 1980s. Some economists argue that international diversification has been a contributing factor

 Historical perspective of immigration  Who are the immigrants?  Why does immigration work?

Immigration is high compared to mid-1900s, but low compared to pre WW-I era!!! Drops after 1914 Drops again during the Great Depression Peak demand for IT workers in the mid 1990s A lot of immigrants came in the late 1800s, early 1900s Currently about 1m immigrants per year (0.3% of total population)

 Who are the immigrants?  What’s their age?  What's their education?  How much money do they make? Do immigrants assimilate or do they present a burden on society and the economy for generations?

Immigrants are young compared to the overall population!

uneducated Large fraction of uneducated individuals among immigrants

First generation immigrants have low income (they are younger, less educated), … … but consequent generations catch up!

 Large flow of immigrants, though not as large as in the 1800s and early 1900s  Immigrants tend to be young: They help alleviate impending problems of baby boomer’s retirement (but can’t solve the problem either)  Immigrants become more economically like the native population over time  Immigration helps the economy balance growth in labor demand with supply

Since 1975 U.S. exports and imports have A. declined as a percentage of U.S. GDP. B. more than doubled as a percentage of U.S. GDP. C. have increased as a percentage of overall world trade. D. remained virtually constant as a percentage of U.S. GDP.

Which statement is true about the distribution of income among immigrants throughout the generations? A. Second generation immigrants remain less affluent than the native population. B. The longer immigrants are here the more likely they are in higher income brackets. C. The percentage of the immigrant population mired in the lowest quartile tends not to change while the other quartiles rebalance. D. Immigrants never catch up to the income levels of native citizens no matter how many generations are measured.

According to the law of comparative advantage, a country should A. specialize and export goods with the highest opportunity cost. B. specialize and export goods with the lowest opportunity cost. C. specialize and export goods with the highest production cost. D. specialize and export goods with the lowest production cost.

In the last twenty years, the global trend has been greater financial integration and an increase in international financial transactions. As a result, A. there has been greater instability in the U.S. economy during that time. B. U.S. private investors now hold almost half of their investment portfolios in foreign stocks. C. foreign investors have significantly reduced their buying of U.S. assets. D. the U.S. GDP has experienced far less volatility compared to the preceding twenty- five years.

The number of legal immigrants as a percentage of the total U.S. population A. is currently at its highest level since the beginning of the 20 th century. B. has continually increased since the economy began to recover in C. experienced its lowest level after the Great Depression. D. declined in the 1990s as the U.S. labor market approached full employment.