Global Economy and International Trade

Global Economy and International Trade

The intent of this analysis is to evaluate the importance of international trade to the U.S. economy, specifically focusing on financial linkages, trade patterns and the use of the Gross Domestic product (GDP) as a measure of economic competitiveness and efficiency. Also analyzed are the several factors that continue to be the catalyst of the rapid growth in international trade since the end of World War II. This analysis concludes with an assessment of the several global competitive forces and factors that are most affecting U.S.-based consumers, firms and workers.

The Critical Importance of International Trade to the Global Economy

The global economic systems of nations have grown increasingly integrated due to the continual increases in the complexity and type of trading agreements and alliances, the increased sophistication and speed of trading systems, and the development of common currencies such as the European euro. All of these factors have made international trade for the U.S. economy critical to its stability and growth. Recent studies indicate that these factors have become so pervasive in their integration of the U.S. economy with other nations' that the cyclical nature of economies are now intertwined and highly dependent on each other (Lee, 361). In essence, the global economic system does not differentiate on national or regional boundaries anymore; it differentiates on the valuation of a given currency driven by the many factors that influence its value. For the U.S. economy, the key performance indicators (KPIs) including Gross Domestic product (GDP), Gross National Product (GNP), per capita income, the unemployment rate, interest rate, and Money Supply measures (M1, M2, and M3) all have an impact on currency valuation in the short-term and economic condition of the U.S. In the long-run. All of these factors also affect international trade balances and payments, define the trade patterns, and dictate the speed or velocity of transactions over the financial linkages of global economic networks. They also influence the balance of trade and whether the U.S. runs at a trade surplus or deficit overall and within specific industries. In conclusion, the U.S. economic conditions greatly affect other nations' economies due to the series of integration factors mentioned in this analysis. This level of integration influences the cyclicality of industries as well, which is a recent development from economic research (Lee, 361).

Factors Driving International Trade Growth since WWII

The series of alliances formed for purposes of stabilizing the global economic system following WWII including the Bretton Woods Agreement, General Agreement on Tariffs and Trade (GATT) and formation of the World Trade Organization (WTO) together became the catalyst of for rapid international trade growth and globalization (Gowa, 488, 489). Taken together these alliances and treaties also were instrumental in defining streamlined processes and systems between nations that once automated through information technologies, accelerated international trade growth even more. While global economic systems continued to become more integrated and synchronized over time at the process and transaction level, the corresponding synchronization of economic cycles was further supported by trade agreements (Lee, 361). In effect the combination of agreements set the foundation for much more efficient accomplishment of free trade in post-WWII global economies

A second series of factors related to the promotion of free trade through the reduction of capital controls, elimination of subsidies that had previously been used to protect and are today used to promote local businesses and the definition of intellectual property rights across western nations (Gowa, 489, 490).

The third sets of factors that are driving international trade growth are the cultural ones that are the most criticized and discussed in the context of globalization. These factors include the rapid spread of westernized cultural values and purchasing habits vs. those that are native to a given region of the world. For example, the rapid rise in western culture within India and Muslim-led countries are a case in point. The cultural backlash of globalization continues to be significant and throughout the next twenty years, the successful integration of western-based companies into these 3rd world nations will be a key criteria in global economic growth. Just as the initial economic agreement set the foundation for economic growth, the reliance on culture frameworks including the Hofstede Five Cultural Dimensions Model will be essential for the successful integration of westernized companies into foreign markets where cultural norms, values and beliefs must be respected and taken into account during any expansion strategy. The bottom line is global trade growth will continue to become more pervasive and the accuracy, speed and complexity of transactions will continue to increase over time due to these factors.

Assessment of Global Competitive Factors Influencing American Consumers Firms, and Workers