Question

Q2. The new global economy has its supporters, but also its detractors.

a. Explain the most important benefits and pitfalls.

b. Analyze the government regulations for trade liberalization of international trade.

Answer 1

2.(a). Important benefits of the new global economy are:

(i) The Spread of Technology and Innovation

Many countries around the world remain constantly connected, so the knowledge and technological advances travel quickly.

(ii) Lower Costs for Products

It allows companies to find lower-cost ways to produce their products. It also increases global competition, which drives prices down and creates a larger variety of choices for consumers. Lowered costs help people in both developing and already-developed countries live better on less money.

(iii) Higher Standards of Living Across the Globe

Developing nations experience an improved standard of living—thanks to the new global economy. According to the World Bank, extreme poverty decreased by 35% since 1990. Further, the target of the first Millennium Development Goal was to cut the 1990 poverty rate in half by 2015. This was achieved five years ahead of schedule, in 2010. Across the globe, nearly 1.1 billion people have moved out of extreme poverty since that time.

(iv) Access to New Markets

Businesses gain a great deal from the new global economy, including new customers and diverse revenue streams. Companies interested in these benefits look for flexible and innovative ways to grow their business overseas. International Professional Employer Organizations (PEOs) make it easier than ever to employ workers in other countries quickly and compliantly. This means that, for many companies, there is no longer the need to establish a foreign entity to expand overseas.

Important pitfalls of the new global economy are:

(i) Foreign Worker Exploitation

Lower costs do benefit many consumers, but it also creates tough competition that leads some companies to search for cheap labor sources. Some western companies ship their production overseas to countries like China and Malaysia, where lax regulations make it easier to exploit workers.

(ii) Loss of Cultural Identity

While globalization has made foreign countries easier to access, it has also begun to meld unique societies together. The success of certain cultures throughout the world caused other countries to emulate them. But when cultures begin to lose their distinctive features, we lose our global diversity.

(iii) Immigration Challenges and Local Job Loss

Many countries around the globe are tightening their immigration rules, and it is harder for immigrants to find jobs in new countries. This rise in nationalism is mainly due to anger from the perception that foreigners fill domestic jobs or at companies moving their operations abroad to save money on labor costs.

(iv) Global Expansion Difficulties

For businesses that want to go global and discover the benefits of globalization, setting up a compliant overseas presence is difficult.

b. International trade negotiations have changed profoundly in the last 50 years. Since the first rounds of talks under the General Agreement on Tariffs and Trade (GATT), trade negotiations have moved from the reciprocal reduction of tariff barriers to include a wealth of non-tariff barriers, focusing increasingly on domestic issues with an impact on trade. The Uruguay Round led to the creation of the World Trade Organization (WTO) in 1995 and expanded the coverage of the multilateral trading system to services and intellectual property rights. Trade-related domains, such as environment or labor standards, competition, or investment policies are also affected by the rules negotiated under the WTO. With the expansion of trade issues, new non-governmental groups have tried to take part in trade negotiations to offset the influence of big business. Indeed, activists and the anti-globalization movements have argued that the WTO is captured by big business, which maintains apparently privileged relationships with trade negotiators.