Transcript Globalization Effects

NS3040
Fall Term 2015
Globalization and Inequality
Free Trade Faqs I
Frequent Questions About Globalization and Free Trade:
• Does free trade lead to a “race to the bottom” in
workers’ rights in less developed countries?
• What are the benefits of free trade for the average
person?
• Does globalization give companies/countries an
incentive to abuse the environment/
• Does the trade deficit harm domestic economic
performance?
• Do imports destroy jobs?
• Does free trade force countries to make economic
gains at the expense of their cultures?
• Is free trade a threat to the U.S. manufacturing base?
2
Free Trade Faqs II
• Continued –
• Is immigration bad for average Americans/
• Should the United States enact and enforce laws that aim
to create a “level playing field” for its workers and
industries?
• Does the World Trade Organization (WTO) undermine
national sovereignty?
• Should the WTO include all groups, not just
governments?
• Are unilateral sanctions effective foreign policy tools?
3
Inequality in the U.S. I
• Claudia Goldin and Lawrence Katz, “The Future of
Inequality,” The Milken Institute Review, 2009
• Many commentators blame globalization and increased
trade as a major cause of the increasing income
inequality in the U.S.
• Goldin and Katz look at the data and find little support for
this argument.
• Instead they use a basic supply and demand model to
account for increasing inequality – especially during the
period since the mid-1970s.
• In their model, the ups and downs in wage inequality
since around 1900 are explained by a race between
technological change and educational attainment.
4
Inequality in the U.S II
• Technological change has increased the relative
demand for skilled and educated workers – while
• Access to education has increased the relative
supply of skilled and educated individuals
• They find that it is changes in educational attainment
rather than technological progress that causes most
of the shift in wages
• Rise and decline of unions plays a supporting role
• Also important is immigration
• However both of these factors are minor compared
to education and technological attainment
5
Inequality in the U.S. III
• Between 1947 to 73 economy grew rapidly as did
educational attainment and technology – all income
groups benefitted
• After 1973, educational attainment slowed and the
demand for educated workers outran the supply
• From 1973 to 2005 the bottom fifth of families realized
almost no growth in real income
• The top fifth enjoyed an average annual gain of 1.6%
• The top 5% an even higher growth of 2% per year.
• If anything, the trends have become more pronounced in
the last several years with the recession and slow
growth.
6
Inequality in the U.S. IV
• Income Growth by Income Group, 1947-2005
7
Inequality in the U.S. V
• Low, Middle and High Family Incomes
8
Inequality in the U.S. VI
• College Wage Premium
9
Inequality in the U.S. VII
Conclusions
• Efforts to reduce inequality depend on increasing the
supply of educated workers.
• Question – why has educational attainment slowed
down?
• Rapid rise in tuition
• Stagnation of secondary school graduation rates
• Many high-school graduates inadequately prepared to pass
college courses
• Policy implications
• Need to revitalize educational system, or -• Country will become more and more divided between the rich
and poor.
10
Trade and Japan/China Conflict I
• Richard Katz, Mutual Assured Production: “Why Trade
Will Limit Conflict Between Japan and China”, Foreign
Affairs, July/August 2013
• Looks at tensions between Japan and China over island
chain.
• Draws analogy between U.S. and USSR during Cold War
– each knew that conflict would mean obliteration of both
countries
• Fears of conflict between two countries slim because
China needs to buy Japanese products as much as
Japan needs to sell them.
• Many high tech products assembled in and exported from
China use advanced Japanese made parts.
• China could not boycott Japan or have conflict without
endangering the country’s export-oriented growth.
11
Trade and Japan/China Conflict II
• Similarly, Japan needs the trade with China
• From 2002-2007 a third of Japan’s GDP growth came from
an increase in its trade surplus and another third from
capital investment – much of which tied to exports
• From 1995 to 2011 increased shipments to China
accounted for 45% of the overall growth in Japanese
exports
• Since the crisis began (July 2012) Japan’s exports to
China have fallen (July 2013) by 20% compared with an
11% drop in its global exports (
• As a result both governments showing restraint over the
island issue
12
Trade and China/Japan Conflict III
The specifics are interesting:
• I. China’s export driven economy actually depends on
imports.
• Around 60-70 percent of the goods China imports from
Japan are machinery and parts needed to make China’s
own products
• For every one percent increase in China’s global exports,
its imports from Japan rise by 1.2%
• As China has increasingly begun to export high tech
products, it is had to rely more and more on imported
components
• Import intensive machinery and electronics products
becoming more important rising from 22% China’s
exports in 1992 to 63 percent in 2006 – no doubt more
today
13
• Most of iPad made outside of China
Trade and China/Japan Conflict IV
• II. China’s modernization depends on host of
multinational corporations using China as their
workshop.
• In 2010, foreign companies and joint foreign-Chinese
ventures accounted for more than
• 25% percent of China’s entire industrial output.
• 39% of its apparel exports and
• 99% of is computer exports
• These companies rely on imports from Japan
• III Companies can go elsewhere
• Only $4 of value of the 2005 $299 iPod came from China
most was assembly work that could have been done
elsewhere
• Firms know their leverage – why they are not leaving they
14
know there will be no conflict over the islands.