Comparison of the Global Economy

3046 words (12 pages) Essay in Economics

08/02/20 Economics Reference this

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 Global Economy

To say the current economy is at its best point is very wrong. The economy as society knows it, is currently on a direct path to destruction. Economists have long warned about the effects of inflation and rising cost of goods and product around the world. They want to further identify areas where society has faults, market movement of each nation, and how each nation contributes to the economy downfall. Global economy is the exchange of goods and services between various countries, such as China, Great Britain, and U.S. economy that are interconnected with each other. This paper will examine the U.S., U.K. and Chinese economies, in order to determine the pros and cons of globalization, and the consequences of living in a borderless economy. 

 The U.S economy is based on the consumption of the value of goods and services bought by people is what the economy thrives on. The U.S economy is also based upon consumption statistics, sustainability, and consequences of reduced consumption. Before money, people used non-monetary items to survive, however now that money is involved, society needs money to grow the economy. Without increased consumption, the economy would falter (Vollmer, 2013). Without money being injected into the economy, society may witness inflation and high interest rates which can lead to a recession. “One of the major consumptions happen from consumers watching television commercials to entice consumers to purchase goods such as Christmas gifts that cover $80 billion dollars” (Vollmer, 2013). This statement brings such truth because in order for society to increase economic growth continue to spend money. Society is enticed by commercials showing pizza, iPhones, or computers. The federal government can help inject money into the economy. When a recession happens, the government will spend more on unemployment benefits and the government may use expansionary fiscal policy. The government uses these policies to increase government spending, lower taxes, and increase unemployment benefits. For example, in 2009 the US economy was experiencing a deep recession with high unemployment rate, falling GDP, and rise in government borrowing. Obama passed the American Recovery and Reinvestment Act of 2009 – which involved $831 billion of economic stimulus – including tax cuts, unemployment benefits and infrastructure spending (Pettinger, 2017). Despite the controversary, the recovery package boosted the economic growth and loosened up the monetary policy. So, in order for the economy to grow, society has to spend money in order for the economy to thrive and not fall into recession.

 “The U.S. economy provides goods and services such as computers, electrical machinery, oil, aircraft, space craft, vehicles, optical, technical, medical apparatus, plastics, plastic articles, gems, precious metals, pharmaceuticals, and organic chemicals […] U.S. economy specialize in [certain products] that brings in 12.2% of gross domestic product” (Workman, 2018). Specialization brings in comparative advantage which leads the U.S economy to work on the products that they are strong in. Specialization leads to advantages for workers to become experts in a production such as the items listed above. Carpenters use many tools that commercial bakers use. Commercial bakers use bigger ovens than a local bakery that uses a smaller oven for pies. The advantages of specialization lead to large production facilities in the United States such as car manufacture. Automobile factories produce thousands of cars each day, and some shipyards employ more than 10,000 workers. When the market for a product is very large, and a company can sell enough goods and services in that market to support a very large production facility, it will often choose to produce on a large scale. A large scale would take advantage of specialization and division of labor. As long as producing more in large facilities lowers the average costs of production, the producer enjoys what are known as economies of scale (the usa online, n.d.). The U.S is the largest trading nation with goods and services. U.S goods and services estimated 11.4 million jobs in 2013 (Benefits of Trade). Trade benefits families and businesses in many ways by providing higher jobs in the export sector, expanding different products for consumers and business, and encouraging investment and economic growth. If the U.S economy apply the bakery method to the items above’ the U.S economy can produce more money to the economy. More money into the economy helps the U.S economy to bring in more jobs, businesses, and economic growth. The United Kingdom looks does thing a little different.

 The United Kingdom has fiercely independent, developed, and international trading economy that was at the forefront of the 19th century Industrial Revolution. The country emerged from World War 2 as a military victor but with a debilitated manufacturing sector; recovery has been slow for about 40 years after the war with additional stimulation after 1973 from membership in the European Union (Encyclopedia Britannica, n.d.). With vigorous competition, the United Kingdom has paved away for their country to be economically stable.

 The United Kingdom joined the EU to improve its competitiveness in the union to increase economic growth rates. Compared to other countries in the 19th hundreds, the United Kingdom was on top. Manufacturing has decreased the UK’s GDP to one fifth, this dramatic drop hindered the total service sector. The chief trading ties of the UK shifted its former empire to other members of the EU. Since the US does great in investment and trading and Japan does great in investing in local production; US and Japan choose the UK as their European base. Also other fast developing East-Asian countries with export-oriented economies include the UK’s open market among their important outlets.

 In the 1980’s, Margaret Thatcher’s conservative government pursued to sell the assets of the publicly owned corporation. The denationalization of the corporations resulted in the loss of many jobs in the coal-mining and heavy industrial sector. However, a good thing came from denationalization; there was a change in standard of living and greater growth in the South East, along with London rather than the densely industrialized areas of the west midlands and northern England. The countries role as a major world financial center maintained as the source of economic strength. The country’s exploitation of offshore natural gas reduced the reliance on coal and imported oil which gave the economy its extra economic boost.

 The United Kingdom is among western European countries where there is 2% of its small employed population are active in agriculture industry. Even with a small percentage the United Kingdom has found away to exceed demand. Mainly because of the high commercial yields and mechanization pushed the United Kingdom beyond its potential. As the agriculture continues to surplus it is showing a decline in agriculture employment. If society is not buying the products there will be no need for extra employees. To stop this from happening the country has tried to create alternative employment opportunities in rural areas. To make matters worse, three-fourths of the land has declined, and the farmable share has fallen in favor of pasture. The EU is a large supplier of fish, forestry, engineering and manufacturing. The United Kingdom has several financial markets with security markets which consist of the international stock exchange.

 Trade has long been a pivotal to the UK’s economy, the total value of imports and exports represents nearly half the country’s GDP, by comparison the value of foreign trade amounts to about one fifth of the GPD of the United States. Financial services and other major exports contribute to Britain’s trade balance.

 China’s economy is based on manufacturer and industrial producer which provides 40% of China’s gross domestic product. China is also the second largest importer, largest exporter and fastest consumer market which contributes to China’s gross domestic product. China is a capitalist country which helps China to be the second largest economy in the world. China manufactures goods such as iron, steel, aluminum, textiles, cement, chemicals, toys, electronic, rail cars, ships, aircraft and many other products. China is dominant in many types of goods.

Almost 80% of all air conditioner units are created by Chinese businesses. China manufactures more than 45 times as many personal computers per person than the rest of the world combined. It is also the biggest producer of solar cells, shoes, cellphones and ships (Ross, n.d.).  China also manufactures a large number of cars for export, despite the economy not supporting much of a domestic automotive market. China has also made a remarkable stand in agriculture. China has 300 million Chinese farmers. China produces wheat, tobacco, potatoes, peanuts, millet, pork, soybeans, corn, tea, oilseeds, and rice which makes China a very competitive country. China also provides a healthy service sector for wealth to increase. In other terms Chinese people are gaining the capacity to afford their own output (Ross, n.d.). The service sector in China is not as high as manufacture because less Chinese people work in this area. According to Investopedia, “A 2010 world study found the services sector accounted for 43% of total Chinese production, slightly less than its manufacturing sector. However, there are still more Chinese employed in agriculture than in services, which is a rarity for more developed countries” (Ross, n.d.). The health care sector in China is upcoming because of the middle class and urbanization. In 2011 a reform has passed for there to be competition in the health care sector including foreign-owned markets. China is becoming one of the fastest health care sectors in the world.

 China’s economy is striving to move from the second largest to the largest economy because their gross domestic product is reaching remarkable levels. The second quarter GDP shows that China is doing bad all by themselves, with a percentage of 6.7% just below their prior last quarter GDP. With an increasing GDP, society can see that China is transitioning from a trade war economy to a consumption-driven base economy. The People’s Bank of China has trimmed the amount of cash that banks are required to hold as reserves, albeit with very specific conditions. The PBOC demurred on interest rates in June instead of following the Federal Reserve’s hike, as some economists had anticipated (Moss, 2018). Having a push back in PBOC contribute to China’s slow growth in June. President Trump has also pushed China’s tariffs to an extreme which also put a strain on to China’s GDP. The two countries’ game of tit-for-tat tariffs on each other’s goods has rumbled on for months (Hickey, 2018). China has blamed President Trump for the decrease in China’s manufacturing sector. Both leaders came with a resolution for the problem.

 There are many cons and pros for global economy. Many years ago, globalization was pitched as a strategy that would raise all boats in poor and rich countries to alike. (Forbes, 2015). This statement can be both a pro and a con depending on how the countries would have adjust to their idea. International trade is the exchange of goods and services between countries. Total trade equal exports plus imports. In 2017, world trade was 34 trillion. That’s 17 trillion exports plus 17 trillion in imports. (Amadeo, 2018) Over the years the global trade grew 10.5 percent, in 2016 it had contracted 4 percent. It had grown 2 percent in 2015, and 3.4 percent in 2014. Before the financial crisis in 2008 international trade contributed 27 percent, after the crisis it grew 1.9 times faster than economic growth. (Amadeo, 2018). Pros of global economy encourages free trade, consumers can purchase items from anywhere in the world at the reduced price. (Lombardo n.d) many places would have little barriers in place like tariffs, sales taxes, or subsidies, due to nations not being able to add restrictions. The more trades we have would bring in more jobs for unemployed people. Without any barriers for consumers to buy anything, they would automatically purchase more items. This would generate a foundation for companies to create more jobs. Currency manipulation would not be a thing. Even the three primary sources of currency are being manipulated by their own countries. Such as the pound, the euro, and the dollar. In 2017 the president of the United States announced that the dollar was becoming too strong (Lombardo, n.d) which basically means the US dollar was losing value. The consumers would benefit fully when countries no longer have a need to manipulate their currency to gain price advantages. With a lot of open borders, we would have more opportunities to develop poor areas of the world. A lot of lines would open up for communications, when borders are removed people would be able to communicate more with each other freely.  A little change like that would change a lot in the world such as people being humans. All of that can be changes by making better decisions and it will lead to more information. Even though there are more pros than cons in the world, but our government still picks the cons. The cons in an economic globalization is mostly a one side deal where the rich get richer and the poor stay poor. It can serve as a tax haven, while economic globalization would allow companies and people to have greater access to international markets, (Lamborba, 2016) tax havens mostly protects companies with large amount of money in taxes by moving their companies to a different country.

Countries would have a hard time developing and growing if they tried to renovate places and streets. Only foreign businesses would be able to gain profit and have access to resources, while paying fees for the rights (Lambarbo, 2016). The country would not be able to benefit from their own resources and profits. Globalization supposed to be about free trade, many people in a borderless world could experience a race to the bottom instead. Globalism creates a culture of fear. It also creates an environment where workers and other individuals around the world would be unable to have any leverage when it came to their take home pay or working conditions (Lambarbo, 2016). Many people would have to freelance, create their own business, or accept the race to the bottom of the pay scale to keep their employment or just be a homeless person.

It creates a political system where the biggest and the richest have influence. Rich people would be able to gain more global resources for themselves through whatever government was put into place, that also goes for large businesses too. Wealthy regions would always have access to consume more resources. According to information from the united nations development program, the G20 nations consume 86% of the world’s resources. In comparison, the poorest 80% of the world consume the other 14% (Lambarbo, 2016). Companies and wealthy people are not the only one that consume resources, wealthy regions gain more than the both put together under the guise that they produce more for the rest of the world.

With all the push and pull between President Trump and other countries, it seems as if Trump is trying to turn the U.S. economy into a local economy which would hinder the global economy. As the paper stated the United States has made it a name for itself because it is strongly developed with specialization of certain products. The United Kingdom is popular for its imports of fish, agriculture, and machinery. While China has gradually developed their economy to become independent. However, if Trump thinks the U.S. can do bad its self, he will start to notice there will be a trade deficit and to turn this around he will need to open to international trade. Trump will also see that there will be a lost in economic growth, increase in job out sourcing and degradation of natural resources. If Trump doe open up to international trade it will lead to increase economic growth, lower government spending, and increase foreign direct investment.

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