The Globalization of America

Globalization: the term as defined in Webster’s dictionary means to make global, especially to make worldwide in scope or application. Furthermore, globalization is concerned with the application of business practices and processes to take a business or a product global. Two examples of businesses that are global are McDonald’s and Coca-Cola. These businesses have been doing business globally for years and are well accepted as doing such.

However, beginning about the year 2000, businesses began to use another method outside of the generally accepted term of globalization. This new method of doing business is called outsourcing. Outsourcing, according to Webster’s, is the practice of subcontracting manufacturing work to outside and especially foreign or nonunion companies. For example, Microsoft uses employees in India to answer its customer service calls originating from the United States.

The focus of this paper will be on globalization, and on how it has affected the United States economy, employment, and foreign trade. The subjects of outsourcing and protectionism will be examined as well, and how they are contributing to job loss in the United States. Total globalization and integration of the world’s economies is inevitable; it cannot be stopped at this point in time. We have simply become too closely tied to one another in the practices of world trade and finance. Formerly poor and backward countries, such as China and India, are now enjoying huge annual growths in their economies due to globalization. Personal incomes are rising in these formerly impoverished countries, and there is now no turning back.

One globalization success story is China, which has been enjoying an economic miracle in recent years. China’s economy has grown at a rate of 9.1% a year for the last 20 years. The average income for most Chinese citizens is an astounding $5,600 dollars a year. What makes these figures so astounding? China had a personal income of only $300.00 dollars a year just 20 years ago (“China” 6). Deng Xiaoping (1904-1997), former president of China, is singularly credited for this economic miracle. He opened the doors to foreign investment and foreign trade in the early 1980s, with heavy emphasis on manufacturing and exports (“Deng Xiaoping” 1-7).

Today, this economic miracle is causing major headaches for the United States. For example, U.S. companies are relocating to China in droves to take advantage of the plentiful cheap labor pool. From 1989-2003, over 1.5 million U.S. jobs have been lost to China alone (“Study Documents Negative Impact of U.S. Trade Deficit with China” 1). Furthermore, China has a huge trade imbalance with the United States that is currently at 152 billion dollars. The cause of this imbalance is that Chinese exports into the U.S. are at 22%, but U.S. exports to China account for only 7% (“China” 8). China is clearly benefiting from free trade, but is the U.S.?

In the race toward globalization, there are positive points to globalization and negative points in regard to the United States. The positive points of globalization are that U.S. corporations are making money by paying lower wages to employees in foreign nations, and are in turn making consumer goods in the United States much more affordable. The negative points are the loss of American jobs, which in turn put strain on social services, and therefore affect the economy. Namely, the practice of outsourcing is responsible for this.

U.S. corporations, in an effort to save money, do outsourcing rather than pay employees in the United States high wages. For example, employees in China have to be paid less than a few dollars per hour for the same work as their American counterparts. This practice is completely legal; it is based on the host country’s real national wages. Most factory workers in China make only $1.00 per hour. In the United States they make an average of $15.00 dollars an hour (Blustein 1). With savings of over $14.00 dollars an hour, it is clear where most U.S. manufacturing corporations will be heading in the future.

U.S. manufacturing industries that have suffered the greatest job losses in recent years due to outsourcing and offshoring are computer and electronic equipment (16 percent), machinery (10.8 percent), transportation equipment (10.7 percent), fabricated metal products (10.7 percent), and semiconductor and electronic components (7.5 percent) (Mankiw 4). There are many reasons for this decline; to save money is the obvious reason. An alternative explanation is from the Chairman of the Council of Economic Advisers, N. Gregory Manikin: “These are export intensive industries for the United States where imports from China are small. This suggests that U.S. job losses are more closely related to declines in domestic investment and weak exports than to import competition” (4).

Critics would argue differently to this explanation. The position of the Institute of Electrical and Electronics Engineers, an industry especially hard hit by outsourcing is as follows: “Whether the United States will benefit from the offshoring of jobs will ultimately depend on how the process is implemented. As in all competitions, there will be winners and losers. Potentially adverse consequences include: loss of employment opportunities and income by technical professionals; loss of payroll and income taxes by national, state and local governments; growing trade deficits in goods and services; transfers of investment capital and intellectual property to overseas locations; and increasing dependence on foreign sources for consumer products and defense critical weapons systems” (“Offshore Outsourcing” 2). Whatever the explanation, the truth is that American jobs are leaving this country in record numbers.

The U.S. Bureau of Labor Statistics released a list of vulnerable jobs that will be lost to outsourcing by 2015. They are as follows: management, business, computer, architecture, life sciences, legal, art design, sales, and office. This list accounts for a whooping 3,314,000 jobs estimated to be lost in the U.S. in the next 10 years to foreign markets (Shinal 2). Unless new jobs are created, this will put an enormous strain on social services in this country.

With China’s aggressive campaign of exporting its goods have come complaints. A major trade issue between the United States and China right now is concerning exportation of China’s textiles into the United States. The United States has recently lodged complaints against China to the World Trade Organization (WTO) concerning this issue. The complaint centers on the fear that the U.S. textile industry will collapse if China is permitted to flood the U.S. market with cheap clothing and other textiles. According to the rules implemented by the WTO concerning textiles, “Since 1995, the WTO’s Agreement on Textiles and Clothing (ATC) has taken over from the Mulltifibre Arrangement. By 1 January 2005, the sector is to be fully integrated into normal GATT [General Agreement in Tariffs and Trade] rules. In particular, the quotas will come to an end, and importing countries will no longer be able to discriminate between exporters. The Agreement on Textiles and Clothing will itself no longer exist” (“Agreement on Textiles and Clothing” 1).

This simply means that the United States is not being compliant in its trade agreements with the WTO and China. This discriminatory practice of limiting the number of textiles into this country from China, and other nations, was supposed to cease in 2005. The United States, in its complaint to the WTO, is asking that this process be delayed until 2008. The delay of implementation of this new agreement is meant to give the U.S. textile industry time to adapt. But the WTO charges that the U.S. textile industry has known for 10 years about the changes, and that the delay is being sought to change the agreement to protect U.S. jobs (“Agreement on Textiles and Clothing” 1).

The U.S. government, clearly, is still in a protectionist mode in its way of doing trade, going against the rules of the WTO’s trade guidelines and international trade law. The trade barriers should be coming down, not going up. However, the United States has historically enacted protectionist measures against its industries and products. As mentioned previously, currently it’s seeking to protect its textile industry from massive foreign imports. In an official statement, released by the United States Government Accountability Office on April 14th, 2005 Loren Yager, Director of International Affairs and Trade said, “Managing the U.S.-China trade relationship goes beyond ensuring access for U.S. businesses seeking to enter China’s market. It also includes ensuring U.S. industries are protected from harmful surges in imports and unfair Chinese trade practices” (2). The Director went on to say, “The WTO China textile safeguard is a transitional mechanism that allows the United States and other WTO members to temporarily restrict growth in textile and apparel imports from China through the end of 2008, even though WTO textile and apparel quotas in general were eliminated on January 1, 2005” (5). These statements by Yager seem to confirm protectionist tactics used by the U.S. government to protect favored industries from Chinese and foreign imports.

In another matter, regarding protectionist tactics, in a bold move on June 23rd, 2005, the China National Offshore Oil Corp., which is state owned, made a bid to buy the U.S.-owned energy giant, Unocal Corp., for 18.5 billion dollars (Peltz, Douglass and Iritani 1). This move by China has elicited protectionist cries from industry and government. The fear is that our energy industry will be controlled by foreign powers. This fear is unreasonable, considering that the British Petroleum Oil Corp. bought U.S.-owned Amoco Oil Corp. in 1998 (“Drive Towards Innovation and Efficiency” 1). And, most of our energy is already in foreign hands, -Saudi Arabia, to be exact.

The United States enacted one of the most famous protectionist acts in 1930. It was called the Smoot-Hawley Tariff Act. In an excerpt from the U.S. State Department’s web site, this is an explanation of protectionism: “The Smoot-Hawley Tariff was more a consequence of the onset of the Great Depression than an initial cause. But while the tariff might not have caused the Depression, it certainly did not make it any better. It provoked a storm of foreign retaliatory measures and came to stand as a symbol of the ‘beggar-thy-neighbor’ policies (policies designed to improve one’s own lot at the expense of that of others) of the 1930s. Such policies contributed to a drastic decline in international trade. For example, U.S. imports from Europe declined from a 1929 high of $1,334 million to just $390 million in 1932, while U.S. exports to Europe fell from $2,341 million in 1929 to $784 million in 1932. Overall, world trade declined by some 66% between 1929 and 1934. More generally, Smoot-Hawley did nothing to foster trust and cooperation among nations in either the political or economic realm during a perilous era in international relations” (“Smoot-Hawley Tariff” 1).

Protectionism benefits no one in the end; the result of protectionist tactics is job loss, not job gain. With diminished imports and exports will come diminished jobs. With production down, layoffs are inevitable. Has the United States learned from its past protectionist tactics? Apparently not, considering the textile dispute, and now the energy dispute with China.

The final question is: is globalization good for America? In the short term, I think not. This is because of the transitional period of American job loss to foreign markets. In the long term, most definitely. As developing nations catch up to the United States in income parity, everyone will benefit. The people in these developing nations will have more money to spend on luxury items, luxury items that will be coming from the United States. As incomes rise in these developing nations, a demand for high-end consumer goods will rise, resulting in more exports from the United States to these nations. With more exports leaving the United States, more American jobs will be created to keep up with the demand. And, as these developing nations middle classes grow, there will come a demand for higher wages, thus eroding the need for outsourcing and offshoring by the United States (“Globalization and the WTO” 9-18). So the story goes, but Africa is waiting in the wings, and it will be next in line after Asia, waiting for its shot at globalization.

Works Cited

“Agreement on Textiles and Clothing.” WTO Trade Disputes. 01 April 2003: 1. Retrieved 04 July 2005. www.wto.org Blustein, Paul.

“U.S. Implored to Offshore More.” Washington Post. 02 July 2004: 1. Retrieved 01 August 2005. www.corpwatch.org/article.php?id= 11417

“China.” CIA World Factbook. 14 July 2005: 6-8. Retrieved 01 August 2005. www.cia.gov/cia/publications/factbook/print/ch.html

“Deng Xiaoping.” Wikipedia. 24 July 2005:1-7. Retrieved 01 August 2005. http://en.wikipedia.org/wiki/Deng_Xiaoping

“Drive Towards Innovation and Efficiency.” BP Global. 26 July 2005: 1. Retrieved 01 August 2005. www.bp.com/genericarticle.do?categoryId= 2010124&contentId=2001153

“Globalization and the WTO.” Welcome to the WTO. 01 January 2005: 9-18. Retrieved 01 August 2005. www.wto.org/english/thewto_e/10anniv_e/ future_wto_chap1_e.pdf Mankiw, Gregory N.

“China’s Trade and U.S. Manufacturing Jobs.” Whitehouse.gov. 30 October 2003: 4. Retrieved 25 June 2005. www.whitehouse.gov/cea/text/mankiw_testimony_house_ways_and_ means_oct_30.html

“Offshore Outsourcing.” IEEE Position Statement. 05 March 2004: 2. Retrieved 06 June 2005. www.ieeeusa.org/policy/positions/offshoring.asp Peltz, James F. et al.

“Chinese Oil Firm Bids for Unocal.” Latimes.com. 23 June 2005: A-1. Retrieved 01 August 2005. www.latimes.com/la-fi-unocal23June Shinal, John.

“Jobs Flying Faster from U.S.” San Francisco Chronicle. 18 May 2004: 2. Opposing Viewpoint Series. San Francisco: Greenhaven, 2004: 2. Retrieved from Opposing Viewpoints Resource Center 25 June 2005.

“Smoot-Hawley Tariff.” State.gov. 25 June 2005: 1. Retrieved 01 August 2005. www.state.gov/r/pa/ho/time/id/17606.htm

“Study Documents Negative Impact of U.S. Trade Deficit with China.” USINFO. STATE.GOV. 11 January 2005: 1. Retrieved 01 August 2005. http://usinfo.state.gov/eap/Archive/2005/Jan/11-238754.html Yager, Loren.

“Opportunities to Improve U.S. Government Efforts to Ensure Open and Fair Markets.” GAO.gov. 14 April 2005: 2-5. Retrieved 25 April 2005. www.gao.gov/htext/d05554t.html

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