Greater Economic Openness Essay, Research Paper
Does
greater economic openness between nations lead towards economic growth and
convergence? Greater economic openness between nations does lead towards
economic growth and convergence. All of the first world countries demonstrate
greater economic openness then third world countries demonstrate. Although
economic openness may be a solution to gain economic growth and convergence,
free trade may not be the answer. There are two different views on free trade;
the conservative view and the liberal view. In an economic age in which speedy
transactions of imports and exports are essential, free trade is a necessity for
aiding worldwide economic development. Even today, the United States continues
to support free trade, an example being NAFTA (North America Free Trade
Agreement). The problem is that America’s generosity has caused the foreign
industry to take over the U.S. marketplace. This unfortunately has resulted in
high unemployment rates because consumers and firms can purchase foreign goods
for a little less than domestic products. From a conservative viewpoint, the
only remedy to decrease unemployment and stimulate our own economic growth is to
abandon the free trade policy and raise tariffs. Free trade has only crippled
the American work force, increased poverty, and added to our national debt. If
other nations begin to support free trade, the same situation may be likely to
occur. Today there are about 10 million unemployed citizens and 35 million
Americans are living in poverty because of free trade. Foreign industry is
taking advantage of us. Market-opening measures in Asia along with other
countries across the world have been promoted by exporting opportunities. In any
clothing store and you’ll find that most of the apparel comes from South Korea,
China, Hong Kong, Sri Lanka, and the Philippines. It’s simply not feasible for
the U.S. apparel industry to compete with the extremely low production costs in
Third World countries. Also, another example of an industry hurt by free trade
is the lumber industry. Even though our country possesses the largest supply of
timber resources, the United States is the largest importer of wood products in
the world. The reason: imported wood is less expensive, especially from Canada.
Other examples of industries that have responded negatively to free trade are
the U.S. textile petrochemical, fishing, and auto industries. The temptation for
consumers to buy cheaper foreign goods has only slowed production in U.S.
industries and has caused unemployment levels to skyrocket. America needs to
become less generous, more independent, and definitely more self-sufficient.
Free trade policies need to be discontinued if that it is to be accomplished.
The liberal viewpoint, however, is somewhat different. In a world of
ever-increasing global economic interdependence, the United States should accept
the responsibility of leadership towards the approaching 21st Century by
promoting free trade. We need to do so in such a way that builds and matures the
economies of other countries. As technology continues to advance in areas such
as computers, medicine, and communication, we need to prioritize the spreading
of these advancements across the world in hopes for reaching worldwide economic
stability and unity. Free trade is the best way to allow for the sharing of
valuable resources and technology, which in turn makes the world a better,
safer, and more united place for all. Inhibiting free trade is a step backwards
in politics that only made sense back in the days when communication was slow
and were being fought. Allowing for the existence of free trade is a step
forward in the right direction towards the necessary global interdependent ways
of the nearing 21st Century. Having clarified the different perspectives of the
two main political parties on the free trade issue, it is hard to determine
which action would be the most advantageous. Actually, both parties have come to
conclusions on this issue which would allow for positive and negative results.
The only problem is deciding which one would have the best overall effects.
Should we put the immediate focus on our own economy and allow it to prosper,
while other poorer countries suffer from the tariffs? Or, should we do away with
all taxes on imports in hope that others will follow our bold lead? Only the
near future can show which was the best decision. For certain, however, the
results will be global. 4.) Who has benefited and who has lost from greater
international trade? The financial crisis that erupted in Asia in mid-1997 has
led to sharp declines in the currencies, stock markets, and other asset prices
of a number of Asian countries. It was hard to understand what these declines
would actually do to the world market. This decline was expected to halve the
rate of world growth in 1998 from the four percent that was projected pre-crisis
to an estimated outcome of about 2 percent. The countries that are included in
the East Asian crisis, known as "Tiger" economies, are Hong Kong,
Indonesia, South Korea, Malaysia, the Philippines, Singapore, Taiwan and
Thailand. For these countries to participate effectively in the exchange of
goods, services, and assets, an international monetary system is needed to
facilitate economic transactions. To be effective in facilitating movement in
goods, services, and assets, a monetary system most importantly requires an
efficient balance of payments adjustment mechanism so that deficits and
surpluses are not prolonged but are eliminated with relative ease in a
reasonably short time period. The Asian crisis of recent falls into this
category of inefficient balance of payments facilitated by, its overcapacity and
its lack of growth to the West, particularly depreciation of its currency. By
competitively depreciating its currencies, Asia is exporting its deflation to
the US. History The past ten or fifteen years have seen an unprecedented
expansion in the extent to which the countries of the world are tied together,
both by instant communication and by international trade, institutions, and
markets, including financial markets. On the whole, this process of
globalization has been an enormously positive development. It has opened new
markets, enhanced competition, spurred innovation, and provided new
opportunities for workers, farmers, and businesses around the world. For example
more than 40 percent of US exports today are absorbed by developing countries,
an extraordinary increase over past export patterns, and the jobs associated
with these exports are high-paying, good jobs. The increasing productivity of
our trading partners has helped keep inflation down and improve standards of
living in the United States. And outside the US, probably hundreds of millions
of people have been lifted out of poverty around the world by the economic
growth and trade over the past twenty or thirty years. (This view is definitely
a liberal one unlike the conservative viewpoint given in question 1). Effects of
the Global Economy In this new global economy, countries are more tightly linked
than ever before to each other’s fates. A decade ago, a collapse in the currency
of a small, distant country like Thailand would barely have rated a mention in
the typical American newspaper. A few years ago, however, that currency crash
triggered a crisis in other East Asian countries that had dominated news
coverage in a way that no other foreign financial crisis has ever done before in
this country. The reason for the change is that we now have more at stake than
ever before in the economic performance of these countries. Not only are they
major customers for our products; the rich countries and developing countries
are also increasingly linked by financial ties. In 1996, the developed countries
including the US invested more than 250 billion in emerging markets, and this is
compared to roughly 20 billion ten years earlier. Much of this money was from
banks (especially in Japan and Europe), although US mutual funds, pension funds,
and individual investors also participated. But whatever its source, the extent
of this investment means that economic turmoil in East Asia has a direct
financial impact on the developed world’s capital markets, including our own.
Indeed, a brief plunge in US stocks was widely attributed to turmoil in the Hong
Kong stock market that was linked to the crisis set off by Thailand’s currency
crash. What were the causes? Throughout the East Asian crisis many different
ideas have been proposed to what the cause or causes were. Attempts to identify
the fundamental causes of a financial crisis always suffer from the problem of
distinguishing insight from hindsight. Many financial journalists today have
said the crisis was the inevitable consequence of: "overvalued exchange
rates, large current account deficits, short-term capital inflows, opaque
financial systems, or one of several other supposedly fatal flaws in East Asian
capitalism." It seems fair to say that a few years back, nobody suspected
that a calamity like what we have seen was possible, although all of the
characteristics that are now described as the fatal flaws of the East Asian
economies were reasonably widely understood even then, at least by experts.