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The Effects of Globalization to Employment and International Trade

Abstract

Globalization refers to the growing interconnectedness among global societies, economies, and cultures, primarily due to increased trade in goods and services, foreign investment, exchange of knowledge and information, and immigration. This phenomenon has affected employment and trade significantly. It has increased wage inequality and destroyed jobs, especially in manufacturing. It has increased trade between countries and created markets for international goods and services. For instance, China and the US have access to natural resources and large markets in Africa. They are competing for influence and access to resources in Africa through investment and aid. They should cooperate and invest more in the health and education sectors.

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Introduction

The 21st century is characterized by an increased rate of globalization that has emanated from heightened political, economic, and social relationships between countries and continents. These interactions have shifted the focus from industrialization to the utilization of information for enhanced prosperity, hence the title “the information age.” Worldwide economic liberalization has led to increased foreign direct investment, rapid growth in international trade, and more cross-border financial flows. The process of globalization has heralded an era in which knowledge-intensive work is being replaced by labor-intensive work, thus leading to monumental transformations. The phenomenon has affected employment and international trade in both positive and negative ways.

Effect on Employment

The increasing globalization of the world economy has caused concern among economists because of its potential negative influence on employment, including wages. The primary causes of the phenomenon are lower tariffs, policies that encourage foreign investment, non-tariff barriers to international trade, and increased deregulation of markets (Catao and Obstfeld 45). Moreover, technological advancements have lowered the costs of transportation and communication between continents. Globalization has several effects on employment: wage inequality, unemployment, and the transfer of jobs to developing economies.

Globalization is increasing competition in the labor market, and as a result, wages are decreasing, especially among unskilled workers (Catao and Obstfeld 51). The rate of unemployment is rising as people lose their jobs to foreigners who are willing to take lower wages for their services. For instance, in the United States of America (USA), wages have decreased significantly due to immigration (Elson 44).

Surveys have indicated that increasing imports from low-wage countries are a major cause of unemployment because they destroy manufacturing jobs. This trend has been rampant in labor-intensive sectors that offer a sizeable percentage of skilled and unskilled jobs. The occurrence is also cited as a driver of wage inequality, especially in industrialized countries (Catao and Obstfeld 54). The continued loss of labor-intensive jobs has led to a decrease in the demand for unskilled labor as companies prefer to import goods from industrialized countries. Consequently, this has resulted in a decline in the earnings of unskilled workers when compared to their skilled counterparts.

According to the factor second largestprice equalization theorem, the prices of similar factors of production are equalized between countries whenever international trade in commodities is involved (Elson 51). In that regard, factors such as the wage rate and prices of goods fall. An inadequate adjustment to mitigate the downward adjustment in order to match the new equilibrium leads to higher rates of unemployment. On the other hand, wage adjustment to match the new equilibrium causes a rise in wage inequality. Inadequate wage regulations lead to both unemployment and wage inequality.

The increase in the number of foreign direct investments to developing economies causes the export of low-skilled jobs through massive relocations. As a consequence, the demand for low-skilled labor in developed countries dwindles and the competition for cheap labor increases (Catao and Obstfeld 64). The outflow of foreign direct investment from developed to developing countries destroys jobs because the profits earned from increased exportation of capital goods are weak.

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Empirical evidence suggests that international trade and increased direct foreign investment to developing countries have a part to play in explaining the current rise in unemployment and wage inequality. For example, tech giant Apple conducts most of its manufacturing activities in China because of the availability of cheap labor (Elson 69). As a result, both skilled and unskilled jobs are transferred from the US to the Chinese economy.

Effect on International Trade

Over the last two decades, international trade has grown tremendously, primarily due to the integration of economies into a harmonious global system. This process has led to increased trade between countries, as nations exchange products and services. Global markets have become more interconnected and investors have increased awareness regarding investment opportunities in countries around the world (Elson 58).

Enhanced communication through advanced technologies has lowered the costs of international trade as individuals can access distant markets without incurring costs that were a hurdle during the industrialization age (Catao and Obstfeld 76). Locally-made products can be exported to international markets, and developing economies can import products from industrialized countries. Countries that have positive political relations strengthen their economies through foreign investment and trade. For example, the United States and China are Africa’s top trade partners.

Globalization has increased competitiveness as local companies contend with the disruption caused by foreign firms expanding into their territories. As a result, the sourcing of materials and outsourcing of labor has increased, thus transforming many companies into global entities that enhance trade (Elson 65). The search for production locations, partners, raw materials, and cheaper labor initiates and improves relations between countries, and as a result, enhances international trade (Catao and Obstfeld 83). Globalization has contributed significantly to the growth of international trade. For instance, nations benefit greatly when they negotiate better trade agreements, fight trade malpractices, and curb currency manipulation.

The increase in trade between the US and China has been cited as one of the causes of unemployment among Americans, particularly because of the trade deficit. According to government statistics, America’s annual trade deficit with China has grown tremendously over the past decade. The debt can be cited as one of the key reasons for the sluggish economic growth that has been experienced since the Recession (Elson 52).

For example, manufacturing jobs have dwindled over the years as the manufacturing industry stagnated due to China’s World Trade Organization membership in 2001 (Elson 52). The loss of jobs in sectors that include high technology, textiles, and apparel has resulted from the rapid increase in imports and the decrease in exports from China. As a result, the US has missed the opportunity to build more factories and create more jobs for its citizens in areas that include technology, agriculture, and transport.

China’s Partnerships with African Countries

Economic relations between Africa and China have existed for several centuries. However, they gained global recognition in the past decade as China’s economy grew rapidly and became the second-largest in the world after the US. The main goals of China’s involvement in Africa are key areas the expansion of infrastructure and the opportunity to obtain resources for its thriving manufacturing sector (Lau 87).

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In many instances, China works with countries that possess vast natural resources. Huge loans to fund large-scale projects such as roads, highways, ports, dams, and airports are issued to developing countries. They exchange their resources for minerals. The major components of the relations are trade and diplomacy. However, certain countries receive military support through the supply of arms and other equipment.

The United States is China’s major competitor with regard to the development of diplomatic and economic ties with Africa. In 2009, China surpassed the US in terms of trade volumes to become Africa’s largest partner (Elson 64). Currently, China is engaged in various partnerships with more than 40 countries, with trade volumes in excess of $250 billion annually. China’s presence is stronger in certain countries than in others. For example, the Asian country has traded with Zimbabwe since the days of the liberation war in Zimbabwe that began in the 1970s and ended in the early 1980s (Lau 96). After independence, China continued to support Zimbabwe’s economic growth through aid and investment.

Critics have argued that China’s interests in Africa are not economic but political in nature. They argue that their main agenda is to impose their foreign policies and culture on African countries. China expects to gain access to mineral resources and the rapidly growing markets for its goods and services Africa in exchange for its resources that include loans and technological expertise (Lau 134).

In its partnerships, China adheres to the policy of noninterference that is part of the Charter of the United Nations. It avoids the domestic affairs of its partners and focuses only on facilitating trade and investing in infrastructure. In addition, it focuses on key areas that include education and health. In recent years, China’s partnership with African countries has been criticized as many nations have taken huge loans that are difficult to pay, hence raising their national debts.

China’s aid and investment on the continent have both positive and negative outcomes. It has supported the development of infrastructure, the expansion of health care sectors, and the eradication of ignorance through improved education systems. Moreover, it has created more jobs and enhanced the growth of numerous economies. Trade volumes have increased significantly and the standards of living have improved as Africans have access to cheaper goods and services from China (Lau 77). The introduction of innovative technologies has improved agricultural outcomes and aided in the fight against famine.

On the contrary, it has led to the displacement of African firms as large Chinese multinational corporations are usually given the tenders to develop infrastructure, thus denying local companies the opportunity to grow (Lau 80). Moreover, cheap Chinese products have led to the collapse of many local industries as they cannot compete effectively. Socially, human rights violations have increased as Chinese companies fail to recognize worker unions, labor standards, and employees’ rights to safe working conditions (Lau 93). In addition, the companies are more concerned with attaining their goals than with promoting environmental conservation. As a result, they violate international construction standards and cause massive environmental pollution.

China and US Competition

China and the United States are competing for influence, access, and resources in Africa as evident from both nations’ investments and political involvement. The US is uncomfortable with Beijing’s growing presence in Africa, as China’s investments near the $2 trillion mark since 2005 (Lau 37). The two largest economies are competing for both economic and political influence. China is one of the reasons why the International Monetary Fund (IMF) included seven African countries in the 20 fastest growing economies in the world in 2017 (Lau 40). Relations between the US and Africa have weakened over the years due to political interference.

In 2018, China enhanced its presence created a $1 billion Belt and Road infrastructure fund. Many countries are dealing with huge debts as China is offering substantial amounts of loans that are repayable over long periods. Economists have argued that this trend could have long-term economic ramifications that could strain relations between China and Africa. The US and China have different economic strengths. Therefore, they should stop competing for influence and access to resources, and instead, offer solutions to Africa’s slow economic growth. They should introduce different economic models and help Africa adapt them for enhanced growth (Lau 65). It is important for the US to adjust the prices of its products so that it can cater to the needs of low-income individuals, who make up the majority of the population.

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Conclusion

Globalization has negative effects on employment as it lowers wages for unskilled labor and increases wage inequality. On the other hand, it increases trade between countries by facilitating the elimination of tariff barriers, currency manipulation, and business malpractices. African countries prefer China as a trade partner because it respects their sovereignty and steers off their political matters. For many years, the United States and the United Kingdom were Africa’s major trade partners. However, the relations have weakened over time as the two sought greater control of the political affairs of the continent. China and the US should cooperate and help African economies grow by investing more in the education and health sectors.

Works Cited

Catao, Luis A.V., and Maurice Obstfeld, editors. Meeting Globalization’s Challenges: Policies to Make Trade Work for All. Princeton University Press, 2019.

Elson, Anthony. The United States in the World Economy: Making Sense of Globalization. Palgrave Macmillan, 2019.

Lau, Lawrence J. The China-U.S. Trade War and Future Economic Relations. The Chinese University Press, 2019.

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