The Contemporary World (CONWORLD 103)

Chapter 2: THE GLOBAL ECONOMY

THE GLOBAL ECONOMY
-also referred to as “world economy”
-refers to the interconnected worldwide economic activities that take place between multiple countries, such
as the international exchange of goods and services, technology, and information.
-it is concerned with the globalization of production, finance, markets, technology, institutions, corporations,
and labor.

ECONOMIC GLOBALIZATION AND GLOBAL TRADE

According to the United Nations, Economic globalization refers to the increasing interdependence
of world economies as a result of the growing scale of cross-border trade of commodities and services, flow
of international capital, and wide and rapid spread of technologies.
There are two types of economies associated with economic globalization:
1. protectionism
2. trade liberalization
PROTECTIONISM means protecting one’s economy from foreign competition by creating trade
barriers. It is a policy of systematic government intervention in foreign trade to encourage domestic
production. This encouragement involves giving preferential treatment to domestic producers and
discriminating against foreign competitors. Trade protectionism usually comes in the form of quotas and
tariffs. Tariffs are required fees on imports or exports. For instance, a pen that costs $1.00 in Country A and
Country B, would be given a $5.00 tariff. The pen would become $6 in Country B. Simply put, tariffs make
foreign goods more expensive. Because of this, consumers might be more likely to buy domestic goods.
Another common trade barrier is the Import quota. An import quota places a limit on the amount of
goods that can be imported.
Governments also put in place trade barriers for political reasons or in times of war. In response to
the recent Russian invasion of Ukraine, the US placed sanctions on Russia. Sanction is any action one
government takes, in order to punish or put pressure on a country. Often that action is an embargo or an
official ban on trade.
On the other hand, the trans-Pacific partnership and the CETA (Comprehensive Economic and
Trade Agreement) – a free trade agreement between Canada and the European Nations were established,
removing 98% of the tariffs between the two parts.
 TRADE LIBERALIZATION, on the other hand, means reducing trade barriers to make
international trade easier between countries. Most economists argue that trade liberalization is better than
protectionism.
First of all, free trade encourages truly competitive markets. When companies are competitive in a
free market, they often become successful. It also promotes cooperative relationships among countries. If
countries depend on each other for trade, they are much less likely to go to war with one another.
There are various ways the country can make trade easier with other countries.
1. Fairtrade
2. Free trade
3. Outsourcing
4. Trade bloc
Fairtrade, which is the concern for the social, economic, and environmental well-being of
marginalized small producers”. A concrete example of the growth of fair trade is the case of American
coffee chains such as Starbucks and Dunkin’ Donuts. In 2006, 2.2 billion dollars was spent on certified
products, which is 24% greater than the preceding year. In turn, coffee growers such as those in Brazil “get
at least $1.29 market per pound of coffee beans compared to the current market price of $1.25.
Free trade- trading of goods and services between two or more countries without tariffs or taxes.
For Example, the Canada – Korea Free Trade Agreement (CKFTA), a free trade agreement between
Canada and South Korea.
Outsourcing- manufacturing jobs transfer from developed nations to developing nations reducing
the cost of products. Manufacturing from country A is outsourced to country B. It will give job opportunities
to the citizens of country B, and tariffs will be abolished.
Trade bloc- agreement made between governments to reduce or eliminate trade barriers. For
example NAFTA or the North American Free Trade Agreement. It was an agreement signed by Canada,
Mexico, and the United States that created a trilateral trade bloc in North America to reduce trade disputes.
To encourage free trade, most countries have signed international free trade agreements in recent
decades. Probably the most well-known is the European Union, which is the largest trading block in the
world. In 1995, leaders from various countries met to form the World Trade Organization (WTO) to make
global trade more free. It is the only international organization dealing with the global rules of trade. Its main
function is to ensure that trade flows as smoothly and freely as possible.
In conclusion, while the world economies have moved toward trade liberalization, controversy over
trade continues. A recent example of a backlash against trade liberalization arose in what became known
as Brexit which culminated in the withdrawal of the United Kingdom from the European Union in 2020.
Overall, free trade is likely here to stay for a long time as it ultimately tends to provide a higher standard of
living.

ECONOMIC GLOBALIZATION AND SUSTAINABLE DEVELOPMENT

 There are some significant downsides to globalized trade and perhaps the strongest argument
against economic globalization is its lack of sustainability or the degree to which the earth’s resources can
be used for our needs, even in the future. Specifically, the development of our world today by using the
earth’s resources and the preservation of such sources for the future is called sustainable development. It
is development that meets the needs of the present without compromising the ability of future generations
to meet their own needs.
In other words, development has to be ensured in and out for future generations. The continuous
production of the world’s natural resources, such as water and fossil fuel allows humanity to discover and
innovate many things. We were able to utilize energy, discover new technologies, and make advancements
in transportation and communication. However, these positive effects of development put our environment
at a disadvantage. Climate change. This means that development, although beneficial on the one hand,
entails cost on the other.
Global food security means delivering sufficient food to the entire world population. It is, therefore,
a priority of all countries, whether developed or less developed. The security of food also means
sustainability in society such as population growth, climate change, water scarcity, and agriculture.
But perhaps the closest aspect of human life associated with food security is the environment. A
major environmental problem is the destruction of natural habitats.
There are different models and agendas pushed by different organizations to address the issue of
global food security.