Brian Lim 171271 EC 112 D

Before the Industrial Revolution, around 60% of the gross domestic product of the world
came from China and India. The reason for this was not because they were superpowers as what we
would think today. Rather, everyone was poor during this period, the large population in both these
countries helped boosted their GDP. In fact, according to the Malthusian trap, the GDP per capita was
expected to not have a significant improvement due to limited resources. However, the Industrial
Revolution broke the Malthusian limits with the discovery of technology. But this was only
concentrated around the United States and Europe. Both countries exhibited significant growth for
200 years while the rest of the world exhibited no significant improvement. According to professor
Garland, this phenomenon is called the Great Divergence wherein some countries started taking off
after the Industrial Revolution. This can be seen in how 15% of the population of the world accounted
for 85% of the world’s economy.

In recent years, several countries are already catching up on their GDP per capita. This was
due to some political and economic decisions. Professor Garland mentioned some examples such as
the end of the Cold War which led to countries opening up to trade, the political transition of South
Africa, and the 1991 collapse of the Soviet Union which led them to open trade to the world. In fact,
according to him, this phenomenon is described as the Great Convergence. From 1990 to 2015, China
began reemerging while Europe started to slow down. In recent years, China was also able to beat the
United States in terms of GDP. China and the United States are now among the top three contributors
to global GDP. This shows us how the actions of both countries could potentially affect the global
economy.

Some of the events that affected the global economy in recent years include the Great
Depression also had a large impact on the world as people become protectionist. They questioned
trade and opted to substitute imports by local production in order to lessen unemployment. Currently,
the trade war between China and the United States also affects the global economy. The situation is
getting worse due to the drastic increase in tariffs between both countries. Moreover, there is also a
decrease in global trade from 2017-2019. Moreover, there is also a rising tension between the United
States and the European Union which could spark a new trade was. This goes against the idea of
Adam Smith about the division of labor in the world wherein countries specialize in the products. This
situation is worse off for everyone since GDP will decline for the countries exporting goods and it
will be costly for countries to produce all goods locally. 

These global trends affect Philippine macroeconomy in several ways. First, because of the
trade war between the United States and China, we are indirectly affected by our imports from either
country which requires intermediate goods coming from either country. As a result, the prices of
goods imported will be more expensive. Furthermore, the trade war could worsen that both countries
will cut off trades with countries that serves as an intermediate trade route. For example, China might
be exporting meat to Kazakhstan while the United States might be importing meat from Kazakhstan.
However, professor Garland stated that free trade will not be over as the trade war will be contained in
a localized area to avoid such problems. In order for the Philippines can cope up with the effects of
these trends, the government needs to set up policies that will make us less vulnerable to the global
economy. One such policy could be to strengthen the production within the country so that we would
not be dependent on other countries for imports. The government could allocate more funds to
subsidize investors and encourage them to produce goods. This will not only make us less vulnerable
but also lower the unemployment rate within the country.