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After centuries of technological progress and advances in

international cooperation, the world is more connected than ever.
But how much has the rise of trade and the modern global
economy helped or hurt American businesses, workers, and
consumers? Here is a basic guide to the economic side of this
broad and much debated topic, drawn from current research.

G
lobalization is the word used to describe the growing
interdependence of the world’s economies, cultures, and
populations, brought about by cross-border trade in goods and
services, technology, and flows of investment, people, and information.
Countries have built economic partnerships to facilitate these movements
over many centuries. But the term gained popularity after the Cold War in
the early 1990s, as these cooperative arrangements shaped modern everyday
life. This guide uses the term more narrowly to refer to international
trade and some of the investment flows among advanced economies,
mostly focusing on the United States.

The wide-ranging effects of globalization are complex and politically

charged. As with major technological advances, globalization benefits
society as a whole, while harming certain groups. Understanding the relative
costs and benefits can pave the way for alleviating problems while sustaining
the wider payoffs.

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01:27

Today, Americans rely on the global economy for many of the things they buy
and sell, and to expand their businesses and make investments. Many products
and services have become affordable to the average American through the
coordination of production across countries.

THE GLOBAL ECONOMY MOVES FAST. WE HELP YOU

NAVIGATE IT.
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welfare in the global economy through expert analysis and practical policy solutions.

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THE HISTORY OF GLOBALIZATION IS DRIVEN BY

TECHNOLOGY, TRANSPORTATION, AND
INTERNATIONAL COOPERATION

Since ancient times, humans have sought distant places to settle, produce,
and exchange goods enabled by improvements in technology and
transportation. But not until the 19th century did global integration take off.
Following centuries of European colonization and trade activity, that first
“wave” of globalization was propelled by steamships, railroads, the
telegraph, and other breakthroughs, and also by increasing economic
cooperation among countries. The globalization trend eventually waned and
crashed in the catastrophe of World War I, followed by postwar
protectionism, the Great Depression, and World War II. After World War II
in the mid-1940s, the United States led efforts to revive international trade

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and investment under negotiated ground rules, starting a second wave of

globalization, which remains ongoing, though buffeted by periodic
downturns and mounting political scrutiny.

1800 — 1899

TECHNOLOGICAL BREAKTHROUGHS
AND INDUSTRIALIZATION
Steamships, railroads, and the telegraph accelerate global
commerce, along with industrialization and mass production.
Rapid population growth increases demand for goods and
services. England becomes first country to formally adopt
gold standard—meaning currencies are convertible to a
specific amount of gold—creating stability in exchange rates
and facilitating trade and investment. Most developed nations 
follow suit. Western nations capitalize on natural resources
provided by colonies and foreign markets, use force and
economic pressure to open China and Japan.

  Technological Breakthroughs and Industrialization




|
1760
|
1770
|
1780
|
1790 | |
1810
|
1820
|
1830
|
1840
|
1850
TimelineJS 1800

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GLOBALIZATION IN CHARTS

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Foreign direct investment (FDI) involves establishing ownership or controlling

interest of a business in another country.

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China, India, and Brazil dropped their rates to enter the World Trade
Organization (WTO).

Global supply chains are production networks that assemble products using
parts from around the world (known as intermediate goods). Today, 80 percent of
world trade <https://unctad.org/news/investment-and-trade-are-increasingly-
entwined-gvcs-report-says> is driven by supply chains run by multinational
corporations. Trade in intermediate goods is now nearly twice as large as trade
in final goods and is especially important in advanced manufacturing, like autos.

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The surplus in services suggests the competitive strength of US services in the

global market. The United States had an overall trade deficit of $447 billion in
2017, according to the US International Trade Commission, as a result of
Americans spending more than they earn <https://piie.com/blogs/trade-
investment-policy-watch/public-comment-trump-administration-report-significant-
trade> and financing the difference with foreign credit. For more, watch the
video, “Is the US Trade Deficit a Problem? <https://piie.com/newsroom/short-
videos/us-trade-deficit-problem>”

FAQ: What has been the role of international financial flows?

Separate from trade in goods and services, global financial integration

is a much-debated but important topic. Here is a quick summary.

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Many countries have large international financial flows or investments,

consisting of assets and liabilities. These include FDI, securities (which
are bought and sold), and debts. They are generally held by or owed to
firms, banks and other financial institutions, or governments. This
chart shows how yearly US transactions grew over time as the global
economy and financial system became increasingly integrated but
dropped dramatically during the global financial crisis of 2008–09.
(Total US foreign assets in 2016 were $26 trillion, equal to 140 percent
of US GDP. Total US liabilities to foreigners were $34 trillion in 2016, or
185 percent of GDP.)

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This chart shows how FDI has grown steadily while the growth of
portfolio holdings (foreign equity or foreign debt) and “other” assets
(which are largely composed of bank loans) has been more volatile.
Reserves are international assets held by the US government.

This chart shows the collapse of financial inflows to South Korea

during two periods, the 1997–98 Asian financial crisis and the global
financial crisis of 2008–09, especially in “other liabilities” like bank

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loans. Korea was hit in 2008–09 even though the epicenter of the crisis
was in the United States and Europe.

“I saw that you could not separate the idea of commerce from the idea of war
and peace. ... [and] that wars were often largely caused by economic rivalry
conducted unfairly. ...I embraced the philosophy that…unhampered trade
dovetailed with peace; high tariffs, trade barriers, and unfair economic
competition, with war. ...[I]f we could get a freer flow of trade—freer in the
sense of fewer discriminations and obstructions—so that one country would not
be deadly jealous of another and the living standards of all countries might rise,
thereby eliminating the economic dissatisfaction that breeds war, we might
have a reasonable chance for lasting peace.”
Cordell Hull, Secretary of State under
President Franklin D. Roosevelt, written in his memoirs in 1948

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<https://piie.com/>

Countries gather at the 1944 Bretton Woods conference.

GLOBALIZATION AS A TOOL FOR PROSPERITY AND

PEACE

After World War II, the United States helped build a global economic order
governed by mutually accepted rules and overseen by multilateral
institutions. The idea was to create a better world
<https://www.foreignaffairs.com/articles/2016-12-12/will-liberal-order-survive> with

countries seeking to cooperate with one another to promote prosperity and

peace. Free trade and the rule of law were mainstays of the system
<https://www.foreignaffairs.com/articles/united-states/2018-02-13/post-american-world-

economy>, helping to prevent most economic disputes from escalating into

larger conflicts. The institutions established include:

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EFFECTS OF GLOBALIZATION

MORE GOODS AT LOWER PRICES

Globalization encourages each country to specialize in what it produces best

using the least amount of resources, known as comparative advantage. This

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concept makes production more efficient, promotes economic growth, and

lowers prices of goods and services, making them more affordable especially
for lower-income households.

01:51

Imagine if countries were like chefs, with different specialties. See how trade
helps both sides be more productive. For more information, see Increased Trade: A
Key to Improving Productivity <https://piie.com/publications/policy-briefs/increased-
trade-key-improving-productivity>.

SCALED UP BUSINESSES

Larger markets enable companies to reach more customers and get a higher
return on the fixed costs of doing business, like building factories or
conducting research. Technology firms have taken special advantage of their
innovations this way.

BETTER QUALITY AND VARIETY

Competition from abroad drives US firms to improve their products.

Consumers have better products and more choices as a result.

INNOVATION

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Expanded trade spurs the spread of technology, innovation, and the

communication of ideas. The best ideas from market leaders spread more
easily.

JOB CHURN

Globalization supports new job opportunities but also contributes to job

displacement. It does not significantly change the total number of positions
in the economy, as job numbers are primarily driven by business cycles and
Federal Reserve and fiscal policies. Nevertheless, a Peterson Institute study
<https://piie.com/publications/policy-briefs/payoff-america-globalization-fresh-look-

focus-costs-workers> finds 156,250 US manufacturing jobs were lost on net

each year between 2001 and 2016 from expanded trade in manufactured
goods, which represents less than 1 percent of the workers laid off in a
typical year.1 Low-wage workers in certain regions are most affected. Many
of them also face lower earnings or have dropped out of the workforce.
Bigger factors than trade that drive job displacements are labor-saving
technologies, like automated machines and artificial intelligence. Better-
paying positions have opened up in manufactured exports—especially in
high-tech areas, such as computers, chemicals, and transportation
equipment—and other high-skill work, notably in business services, such as
finance and real estate (see Jobs section).

DECLINE IN INEQUALITY GLOBALLY, BUT WIDER WITHIN UNITED

STATES

Globalization has helped narrow inequality between the poorest and richest
people in the world, with the number living in extreme poverty cut by half
<http://blogs.worldbank.org/developmenttalk/trade-has-been-global-force-less-poverty-

and-higher-incomes> since 1990. But within many countries, including the

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United States, inequality is rising. A consensus of scholarly work

<https://piie.com/blogs/trade-investment-policy-watch/has-global-trade-fueled-us-

wage-inequality-survey-experts> holds that globalization has contributed

marginally to rising US wage inequality, putting this factor at 10 to 20

percent. A leading explanation for rising US inequality [pdf ]
<https://fas.org/sgp/crs/misc/r44705.pdf> is that technology is reducing demand

for certain low- and middle-wage workers and increasing demand for high-
skilled, higher-paid workers. Wages have also stagnated, though economists
are still debating the exact causes. Countries exposed to globalization have
alleviated inequality to different degrees through tax and welfare systems.
The United States has done the least <https://www.piie.com/research/piie-
charts/us-government-worst-reducing-inequality-all-high-income-oecd-countries>

among advanced economies to mobilize government policies to reduce

inequality.

1In 2016, 19.9 million workers [pdf ]

<https://www.bls.gov/news.release/archives/jolts_03162017.pdf> were laid off or

discharged (i.e., involuntary separations).

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READ MORE
HOW TO FIX
ECONOMIC
INEQUALITY?
An indepth look at
the rise of
inequality in high- <https://www.piie.com/microsites/how-
income countries, fix-economic-inequality>
how policy failures
left millions
vulnerable to the
COVID-19
pandemic, and
solutions for more
equitable societies.

GLOBALIZATION HAS DISPLACED SOME WORKERS,

WHILE SUPPORTING HIGH-SKILL JOBS

Globalization changes the types of jobs available but has little effect on the
overall number of jobs in the ever-changing US labor market. That being
said, some workers have directly benefited from expanding global
commerce, while others have not. Certain manufacturing and industry
workers in specific geographic regions lost out, such as those in furniture,
apparel, steel, auto parts, and electrical equipment industries in Tennessee,
Michigan, and the mid-Atlantic states. A widely cited study [pdf ]
<https://www.ddorn.net/papers/autor-dorn-hanson-chinashock.pdf> shows that

between 1991 and 2007, lower-wage manufacturing workers within

industries that faced import competition experienced large and lasting
earnings losses, while higher-wage workers in these industries did not. The

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lower-wage workers may have lacked the skills and mobility to transition to
other lines of work, whereas higher-wage workers relocated to companies
outside manufacturing. Studies show <https://piie.com/bookstore/has-
globalization-gone-too-far> that globalization has also diminished US worker

bargaining leverage to demand higher wages.

FAQ: What has happened to American manufacturing employment?

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The percent of US jobs in manufacturing has steadily declined since the

1940s, before the rise of China, NAFTA, or the WTO, mainly because
technology has made it easier to produce goods. American industrial
production is at historically high levels, but fewer people are needed to
achieve this success. Manufacturing employment share has also
declined because consumers are spending a smaller percent
<https://piie.com/publications/working-papers/recent-us-manufacturing-

employment-exception-proves-rule> of their incomes on manufactured

goods and more on services, which include housing, health care, dining
out, travel, and legal services. Employment in service industries has
grown from about half to 84 percent of all nonfarm, nongovernment
employment.

Because US firms often beat international competitors at supplying high-

skill services—like engineering, legal, consulting, research, management, and
information technology—workers in these fields have benefited the most
from globalization.

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Business-service employment expanded

<https://piie.com/publications/policy-briefs/how-offshoring-and-global-supply-chains-

enhance-us-economy> more than 20 percent between 2006 and

2016. These jobs pay more than 20 percent
<https://piie.com/bookstore/global-trade-services-fear-facts-and-offshoring> higher

wages than the average manufacturing job.

Foreign-owned companies that do business in the United States have hired

Americans at a faster rate than US private employers between 2007 and
2015. They also pay better <http://www.pewresearch.org/fact-
tank/2017/12/14/number-of-u-s-workers-employed-by-foreign-owned-companies-is-on-

the-rise/>, do more research and development, export more, and invest more

than the average US firm. The same is true, by comparison with local
averages, of US firms that invest abroad. One in five
<https://piie.com/publications/policy-briefs/how-offshoring-and-global-supply-chains-

enhance-us-economy> American manufacturing workers is now employed by a

foreign-owned company operating in the United States.

Demand will likely increase for more highly-skilled manufacturing workers,

in areas such as engineering, management, finance, computer and
mathematical occupations, and sales. The greatest areas of job growth
<https://www.bls.gov/emp/tables/employment-by-major-industry-sector.htm> now in

the United States are in professional and business services, health care and
social assistance, and educational services. More job training and education
is needed to prepare workers for these jobs.

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WHY SUPPORT GLOBALIZATION IF IT DISPLACES

JOBS?

Economists look at the effects of globalization across the entire economy to

weigh the pros vs. cons. Since the overall payoff is so much greater than the
costs to individual workers or groups who have lost out, nearly all
economists support having an open global market versus closing it off (see
example <http://www.igmchicago.org/surveys/steel-and-aluminum-tariffs>).

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Note: Trade expansion refers to the effects caused by additional manufactured

imports and exports. Source: Gary Clyde Hufbauer and Zhiyao (Lucy) Lu, The
Payoff to America from Globalization: A Fresh Look with a Focus on Costs to
Workers <https://piie.com/publications/policy-briefs/payoff-america-globalization-

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fresh-look-focus-costs-workers>. For chart sources, see Figure 3 in Policy Brief.

Total manufacturing job separations from Job Openings and Labor Turnover
Survey, Bureau of Labor Statistics.

Other common arguments:

Globalization is like technological progress. Both disrupt some livelihoods

while enlarging the economic pie and opening up new and better-paying
job opportunities. The internet, for instance, made many jobs obsolete but
also created new higher-paying jobs and industries unheard of only a few
decades ago.

Protectionism helps select groups but at a higher cost for everyone else.
Imposing tariffs on steel, for instance, helps certain domestic steel
producers, but many more jobs depend on businesses that need some
imported steel to make goods that are affordable. US consumers end up
paying more for foreign goods because of the tariff and more for domestic
goods because domestic producers often raise prices in the absence of
foreign competition. Damage worsens when trading partners retaliate
with their own tariffs on US exports. US agriculture is particularly
vulnerable to retaliation.

One study <https://piie.com/publications/policy-briefs/us-tire-tariffs-saving-few-

jobs-high-cost> shows that US tariffs on Chinese tires under

President Barack Obama saved 1,200 tire manufacturing

jobs. But US consumers paid $900,000 per job saved, and
3,700 retail jobs were lost as tires became more expensive.

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The United States must keep open markets to stay competitive globally.
Other countries are continuing to open their markets to each other,
forming regional supply chains that make production more efficient and
products more affordable within their trading blocs. By not joining these
deals, US exports have a difficult time competing. US businesses may also
opt to move operations abroad to gain access to foreign markets.

US real income in 2030 is estimated to be $133 billion less

<https://piie.com/publications/working-papers/going-it-alone-asia-pacific-regional-

than it would have been if President

trade-agreements-without-united>

Trump had remained in the Trans-Pacific Partnership

(TPP) trade deal. Other countries signed a deal in 2018
without the United States, giving them preferential access to
each other’s markets.

Operating within a rules-based system allows for peaceful conflict

resolution. There are cases when unfair trade practices and abuses harm
US producers. Maintaining international systems to address those
problems is key to preventing mutually destructive trade wars—even real
wars. Economic integration strengthens US security alliances, while trade
wars weaken the ability of the United States to collaborate with allies.

FAQ: How can the United States help workers find new jobs without
sacrificing trade gains?

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In an ideal world, displaced workers from trade competition could find

new jobs, sometimes by moving or gaining new skills. In reality, it has
been very difficult for many of these workers to transition, with lasting
effects on individuals and their communities. Trade expert Gary Clyde
Hufbauer points out <https://piie.com/blogs/trade-investment-policy-
watch/ivory-tower-economists-free-trade-and-workplace-woes> that the

national income gains from expanded trade are at least 10 times

greater than what is needed to meaningfully assist workers who lose
their jobs to import competition.

Instead of sacrificing trade gains, many economists recommend

domestic policies like wage insurance, expanded tax credits
<https://piie.com/publications/policy-briefs/payoff-america-globalization-fresh-

look-focus-costs-workers>, better unemployment benefits, and subsidies

for health insurance <https://www.piie.com/publications/policy-

briefs/prescription-relieve-worker-anxiety> for all displaced workers

regardless of the cause. Such policies could reduce worker anxiety

about job turnover across the board, whether it be from trade or other
bigger factors. Currently, there is government support through a
program called Trade Adjustment Assistance (TAA), though it only
helps workers directly impacted by trade and the amounts paid are
limited. The United States spends only a fifth
<https://piie.com/publications/piie-briefings/us-china-economic-relations-conflict-

solutions-part-i> of what other advanced economies spend on average

to help people find new jobs through education, training, job search
assistance, and other active labor market programs.

Broader domestic policies can also help workers adapt to the

continuously changing job market, such as access to higher education
and health care, but Americans remain conflicted about the
government’s role in these social safety net programs. Other advanced

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economies have generally increased <https://piie.com/blogs/trade-

investment-policy-watch/us-trade-agenda-requires-greater-focus-social-concerns>

the size of government programs as they opened up to trade.

THE GLOBAL ECONOMY MOVES FAST. WE

HELP YOU NAVIGATE IT.
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CHINA’S RISE IN THE GLOBAL ECONOMY CREATES

COMPLICATED PROBLEMS

As a major world trading partner and manufacturing hub, China has become
one of the most dominant forces in the global economy. It entered the World
Trade Organization in 2001 and undertook many reforms, cutting tariffs and
other trade barriers. But it still has not completely transformed into a
market-oriented economy as its trading partners expected. Many big
Chinese companies have close ties with the government, and certain
practices have skewed the playing field in trade. For instance, China’s
government unfairly demands that US intellectual property be handed over
<https://piie.com/commentary/op-eds/section-301-us-investigates-allegations-forced-

technology-transfers-china> in certain cases as the price of doing business there.

And Beijing routinely subsidizes its industries. These practices discriminate

against not only Americans but also US allies.

US administrations have taken different approaches to deal with these

concerns. Negotiated under President Obama, the Trans-Pacific Partnership
(TPP) agreement was intended to entice China to improve its practices by
allowing the country in on the lucrative deal only if it agreed to new rules,
but President Trump withdrew from the deal. There are ongoing efforts
<https://www.piie.com/publications/working-papers/wtoing-resolution-china-subsidy-

problem> started in December 2017 by the European Union, United States,

and Japan to negotiate new rules that would potentially be embedded within
the WTO.

In 2018, the Trump administration started imposing tariffs on China citing a

variety of reasons, including helping American manufacturing, countering
forced technology transfers, and reducing China’s large bilateral trade

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surplus in goods. Beijing retaliated with its own tariffs on US goods,

escalating into a trade war <https://www.piie.com/blogs/trade-investment-policy-
watch/trump-trade-war-china-date-guide>. By late 2019, tariffs had increased to

around 20 percent and new duties covered over half of exports from each
country. To prevent further escalation, China committed to a “phase one
deal” to expand purchases from the United States in 2020 and 2021, but it is
unlikely China will meet its targets <https://www.piie.com/research/piie-charts/us-
china-phase-one-tracker-chinas-purchases-us-goods>, and the deal does not address

many concerns, including China’s industrial subsidies. Evidence to date is

that the cost of tariffs has been borne by importing companies, sometimes
resulting in higher prices for consumers. Tariffs remain elevated under
President Joseph R. Biden Jr., as of mid-2021.

The trade war with China illustrates how globalization has become so
widely entrenched in the US and world economies that undoing its
complicated web of activities risks other damaging consequences. Below is a
list of various protectionist actions and their economic, diplomatic, and
national security risks.

Trade actions Risks

Both countries lose economically when trade volumes

Engaging in a trade decline
war, with escalating
tit-for-tat tariffs Costs rise, harming US competitiveness and making it
harder for families to afford products
Retaliation hurts US exports

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Disrupts global supply chains that domestic businesses,

Withdrawing from workers, and consumers rely on to hold costs and
free trade inflation down
agreements
Can put the United States at a disadvantage since other
countries continue to strike their own deals with each
other that improve their competitiveness
Leads to higher tariffs on US exports, which would
dampen sales and hurt US businesses and workers
Jeopardizes role of the United States as a world leader in
international cooperation, making it more difficult to
achieve solutions on national security, immigration, and
the environment

Violating WTO rules Weakens rules-based trading system that the United
or circumventing States and much of the world relies on to keep foreign
established markets open and settle disputes
processes

Causes more lost jobs than they create as other countries

Promoting “Buy retaliate
America” policies
Makes government purchases more expensive
<https://piie.com/blogs/trade-investment-policy-watch/buy-
american-bad-taxpayers-and-worse-exports>

Saves few jobs at very high cost

Imposing tariffs to <https://piie.com/blogs/trade-investment-policy-
save US watch/preserving-manufacturing-jobs-one-company-time> to
manufacturing jobs
taxpayers and consumers
at specific
companies With global supply chains dominating world trade, it is
difficult to hit another country and avoid hitting your own
<https://www.piie.com/publications/policy-briefs/trump-
tariffs-primarily-hit-multinational-supply-chains-harm-us> or
your allies

Does not improve <https://piie.com/blogs/trade-investment-

Restricting imports policy-watch/public-comment-trump-administration-report-
from specific significant-trade> the overall US trade deficit
countries to try to
reduce bilateral Bilateral trade deficits are not an appropriate measure
trade deficits <https://piie.com/publications/policy-briefs/five-reasons-
why-focus-trade-deficits-misleading> for economic
improvement
Not a successful negotiating strategy for trade deals
Countries can and will retaliate

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READ MORE

TRUMP'S TRADE WAR TIMELINE: AN

UP-TO-DATE GUIDE
Keep track of all of President Trump’s most pressing
trade conflicts with links to the latest available data
and analysis.

<https://piie.com/blogs/trade-investment-policy-
watch/trump-trade-war-china-date-guide>

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01/09/2023, 15:55 What Is Globalization?

HOW THE UNITED STATES SHOULD

CONFRONT CHINA WITHOUT
THREATENING THE GLOBAL
TRADING SYSTEM
The Trump administration’s willingness to violate
trade rules to maximize its negotiating leverage is
undermining its important and legitimate objective to
persuade China to reform its problematic economic
system.

<https://piie.com/publications/policy-briefs/how-united-
states-should-confront-china-without-threatening-
global>

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01/09/2023, 15:55 What Is Globalization?

THE PUBLIC HAS MIXED VIEWS ON GLOBALIZATION

How do Americans feel about globalization? Listening to the debates can be

confusing. Not surprisingly, polls vary widely depending on how and when
the question is posed.

This Pew Research poll

<https://www.pewresearch.org/global/2018/09/26/americans-like-many-in-other-
advanced-economies-not-convinced-of-trades-benefits/>finds more support than
not for free trade agreements. But a 2016 Bloomberg poll asked, “Do you think
US trade policy should have more restrictions on imported foreign goods to
protect American jobs, or have fewer restrictions to enable American consumers
to have the most choices and the lowest prices?" This resulted in 65 percent

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<https://news.gallup.com/opinion/polling-matters/190427/american-public-opinion-
foreign-trade.aspx> of respondents wanting more restrictions, the opposite of the
sentiment expressed in the Pew poll.

Globalization can be a hard sell to the public

<https://piie.com/newsroom/short-videos/why-after-200-years-cant-economists-sell-

because the benefits are widely distributed and not

free-trade>

as easily understood, compared with the personal costs to

very specific companies or workers.

The problem is compounded because policymakers have done little to help

<http://www.oecd.org/els/soc/dividedwestandwhyinequalitykeepsrising.htm> workers

and communities adjust at a time when the wealthiest Americans have

gained the most in recent years. In general, younger people are more
supportive <https://piie.com/publications/policy-briefs/protectionism-2016-election-
causes-and-consequences-truths-and-fictions> of free trade, as most have never

known a world without the current system.

Before 2016, Republicans generally favored US trade deals and Democrats

generally voted against them. President Trump canceled TPP and
threatened withdrawing from NAFTA, the Korea-US Free Trade Agreement
(KORUS) (later revised and signed), and the WTO. His administration
negotiated the US-Mexico-Canada Agreement
<https://www.tradetalkspodcast.com/podcast/57-its-fun-to-discuss-the-usmca-the-new-

nafta/> (USMCA) to replace NAFTA; the agreement entered into force in

2020. Some GOP congressional members spoke out against Trump on

certain trade issues (see example <https://piie.com/newsroom/short-
videos/senator-orrin-hatch-argues-against-auto-tariffs>) or drafted bills to limit his

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01/09/2023, 15:55 What Is Globalization?

authority on tariffs. The Trump administration pushed for more power

<https://piie.com/blogs/trade-investment-policy-watch/navarro-asks-congress-give-

trump-absolute-authority-over-us> to impose tariffs.

SUSTAINING GLOBALIZATION THROUGH POLICY

ACTION

The global economy has yielded enormous economic gains for the United
States, but problems undoubtedly remain. There are abuses within the
system and rules need to be updated <https://piie.com/publications/policy-
briefs/dispute-settlement-crisis-world-trade-organization-causes-and-cures>. Trade

agreements should account for the modern digital age. Disputes continue on
the trade of certain goods—whether items are flooding other markets too
much, how industries are being subsidized, lingering protections on specific
goods or economic sectors, etc. Solving these types of issues, which will
inevitably arise and change over time, is best done through negotiation and
coordination with trading partners—applying due process—in order to
prevent costly trade wars, where more and more barriers end up hurting all
sides.

But trade negotiations can only go so far. Not enough has been done to help
those who have lost out from trade competition. And the reality is that the
problems people face today go far beyond the effects of globalization.
Manual work is increasingly being automated, lowering demand for
workers. Wages are stagnant <https://www.vox.com/the-big-
idea/2018/7/31/17632348/wages-lagging-inequality-income-recovery-recession-wage-

puzzle-economics>, as health care and higher education costs rise. Inequality is

widening <https://www.piie.com/microsites/how-fix-economic-inequality>.

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01/09/2023, 15:55 What Is Globalization?

Domestic policies that support not just those left behind

because of trade competition but all Americans will
maximize gains while ensuring inclusive growth critical for
national well-being and preventing erosion of multilateral
systems that the United States helped build and that have
served the country—and the world—well for most of the last
century.

The global market still has great potential for the US economy. With anyone
in the world now a text, click, call, or plane flight away, 95 percent of
potential customers for goods and services are outside the United States,
ready to buy goods and services from other countries if US producers are
barred from their markets. If American producers want to reach those
consumers, the United States must let producers from overseas reach
American consumers, as they have over the years for cars, appliances,
smartphones, and other products Americans want. More open trade could
add another $540 billion <https://piie.com/publications/policy-briefs/payoff-
america-globalization-fresh-look-focus-costs-workers> to the US economy by 2025,

equivalent to $1,600 a year in income per person.

Here are some of the crucial areas that economists have proposed the United
States should focus on, as outlined in many studies at the Peterson Institute
and other policy organizations. While these goals are simply stated and
obviously will pose challenges to resolve, the stakes are high to rebuild trust
in a global system that has helped secure prosperity and peace.

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01/09/2023, 15:55 What Is Globalization?

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01/09/2023, 15:55 What Is Globalization?

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01/09/2023, 15:55 What Is Globalization?

THE GLOBAL ECONOMY MOVES FAST. WE

HELP YOU NAVIGATE IT.
SUBSCRIBE TO THE PIIE INSIDER WEEKLY NEWSLETTER

Email SUBSCRIBE
I agree to receive communications from the Peterson Institute for International
Economics and to the privacy policy.

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01/09/2023, 15:55 What Is Globalization?

GLOSSARY

Goods are physical, produced items traded between countries, like corn,
machinery parts, or chemicals.

Services are business activities conducted between countries, such as

tourism, finance, insurance, real estate, science exchanges, professional
services, business management, education, health care, arts, entertainment,
accommodation, and food services.

Exports are goods and services that are sold to individuals or companies
outside of their country of origin.

Imports are goods or services purchased from outside the country.

A trade deficit occurs when spending on imports exceeds what is earned

from selling exports. A trade surplus is the opposite, when earnings from
exports top spending on imports. A country’s trade balance, either a surplus
or deficit, is not affected by tariffs or trade agreements but by larger
economic factors, like government spending and monetary policy.

Protectionism is the term for government restrictions on international trade

aimed at blocking foreign products and driving companies and consumers to
purchase domestically produced goods and services. The government may
enact taxes on imports (called tariffs), limits on the quantity of imports
(called quotas), subsidies to domestic industries, or other regulations. Tariffs
are paid by domestic importers, not foreign governments or exporters.

Trade liberalization is the opposite of protectionism—when countries allow

people and businesses to buy and sell across borders with fewer restrictions.
In this context, liberal refers to more free or open trade.

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01/09/2023, 15:55 What Is Globalization?

CREDITS

Written by Melina Kolb

Edited by Madona Devasahayam, Helen Hillebrand, and Steven R. Weisman
Graphics by William Melancon
Videos by Daniel Housch
Chart data collected by Christopher G. Collins and Soyoung Han
Additional research by Anjali Bhatt, Cathleen Cimino-Isaacs, and Zhiyao
(Lucy) Lu

Special thanks to C. Fred Bergsten, Chad P. Bown, Cullen S. Hendrix, Gonzalo

Huertas, Gary Clyde Hufbauer, Douglas A. Irwin, Fredrick Toohey, Jeffrey J.
Schott, and Eitan Urkowitz for their contributions.

This feature was first published on October 29, 2018 and last updated on
August 24, 2021.

© 2021 Peterson Institute for International Economics. All rights reserved.

The Peterson Institute for International Economics is an independent

nonprofit, nonpartisan research organization dedicated to strengthening
prosperity and human welfare in the global economy through expert analysis
and practical policy solutions. The Institute discloses all sources of funding,

https://www.piie.com/microsites/globalization/what-is-globalization 42/54
01/09/2023, 15:55 What Is Globalization?

which comes through donations and grants from corporations, individuals,

private foundations, and public institutions, as well as income on the
Institute’s capital fund and from publishing revenues. Donors do not
influence the conclusions or policy implications drawn from Institute
research. All Institute research is held to strict standards of replicability and
academic integrity. Visit piie.com <http://piie.com> to learn more.

For more updates from the Peterson Institute, subscribe to the newsletter
<https://piie.com/subscribe>.

PHOTOS

Associated Press/Abe Fox

Flickr/Levan Ramishvili and Leon Yaakov
Library of Congress
National Aeronautics and Space Administration
National Archives and Records Administration
Reuters/Daniel Acker, Russell Boyce, Marcos Brindicci, Larry Chan, Kevork
Djansezian, Regis Duvignau, Gary Hershorn, Leah Millis, Charles Platiau,
John Sommers II, and Piroschka van de Wouw
Senate of Berlin
US Air Force
US Army
US Census
US Marine Corps
William Henry Fox Talbot, Public Domain
World Trade Organization
WTO/Jay Louvion, Studio Casagrande
<https://www.flickr.com/photos/world_trade_organization/4681137921/in/album-

72157624105220133/>

https://www.piie.com/microsites/globalization/what-is-globalization 43/54
01/09/2023, 15:55 What Is Globalization?

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