Globalization stands for the mixing of international economies and cultures through the practice of international trade and investment as well as advancements in technology. Global trade and foreign investments present an array of advantages both for consumers and producers across the world and advancements in technology have given smaller businesses with fewer resources access to the international markets.
In fact, 33% of the value of US exports in 2017 came from firms considered small-medium enterprises. Advantages for any business doing business overseas include access to larger markets, the possibility of reducing production cost and the possibility of gaining access to information and technologies not available in their home country. Consumers will enjoy generally lower prices for goods and more options for buying goods as foreign competitors gain access to US markets.
Before a business can be successful globally it must gather knowledge about the barriers to entry in the market it is pursuing. Whether the organization is looking overseas for a new market to enter or options to reduce production cost, it must gain knowledge about the political, cultural, and economic climate it is about to enter.
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Although the spread of globalization does tend to blend some consumer preferences between international markets, most businesses will have to localize their product or marketing strategies to be effective in foreign markets. Businesses looking for cheaper materials or labor must be aware that foreign governments may have lower quality standards for the materials sold there or possibly no regulation at all.
Foreign governments will also have different labor laws some of which may be more relaxed than the laws in the US, but companies must also consider corporate ethics when making decisions. Advancements in technology like the internet as well as the creation of global institutions like the World Trade Organization are smashing the barriers between markets and fostering the growth of global trade. The internet has given all businesses the ability to operate and communicate anywhere in the world easier and faster than ever before.
The World Trade Organization was created to promote global investment and trade by acting as the world’s trade police force. The WTO is populated by 164 nations that account for 98% of all world trade and it uses its influence to enforce trade rules and treaties that are signed by member states. In the long run, global trade will only increase and businesses will have to adapt to take advantages of its opportunities.
Businesses will have the opportunity to cut cost and increase their sales as they enter markets and companies that do participate in global trade will ultimately be more profitable than those who do not. However, in the next seven years, the global markets may run into some turbulence due to “Made in China 2025.” Made in China 2025 is a 10-year program the Chinese government has created to revamp their manufacturing base by focusing on the rapid development of its technology industry.
The Chinese are attempting to lower their dependence on foreign technology and doing so by subsidizing sectors such as information technology, telecommunications, new energy and more. They have also begun encouraging Chinese firms to invest in foreign companies to acquire their technology. The policy also forces foreign companies operating or investing in China to enter joint ventures with Chinese firms that require them to share their intellectual property and advanced technology. China has faced criticism for its program across the globe.
Most American and European firms that do business with China have been constrained by the regulations of the program and suffered losses in profit due it. President Donald Trump has heavily criticized China calling their policy unfair and a threat to national security. President Trump demanded that China change their 2025 policy and after they refused, he responded with tariffs on $200 billion worth of Chinese imports.
The tariffs are meant to slow down China’s progress with 2025 and pressure them to change their policy. China didn’t give in to Trump and imposed tariffs of its own on $16 billion worth of American exports. The trade war’s tariffs have resulted in an increase in product prices for American consumers. Many American companies rely on Chinese imports for their supply chain and the tariffs increase their cost of production. The increase in cost is passed on to the consumers in American markets in the form of increased prices.
A small silver lining in the trade war falls on American businesses who don’t do business in China. Without being affected by the trade war they will be more able to compete on price and a greater opportunity to shift consumer preference towards their brand. Some consumer preference has already been swung away from foreign-made products during President Trumps time in office and his call for patriotism.
Globalization has integrated the economies of the world in such a way that China’s 2025 policy and the ensuing trade war was felt across the world. It has resulted in a number of international institutions like the WTO and G20 being created in order to regulate the economies of the world and protect the peace. President Trump was able to meet with Chinese President Xi Jinping at the G20 summit and the two agreed to put a pause on the Trade war.
The financial markets immediately responded, and the Dow Jones Industrial Average jumped up over 450 points after the news broke. If talks continue and the trade war comes to an end American firms will be able to operate in China with more success and be more profitable. As the firms find success in Chinese markets, they will be able to expand and hire more workers domestically and abroad.
As the firms gain profit and grow in size, they will be more able to distribute wealth to their employees and contribute to the flow of wealth in American markets and across the globe. Poorer countries also benefit from the prosperity of globalization as foreign investors drive new wealth into poor nations by setting up operations for cheaper manufacturing.
Some of the poorest countries receive the largest relief when foreign investors begin hiring their citizens and contributing to the bettering of their host nation. The standard of living in the US will only get better with the advancing of global trade in the future. As US firms are able to increase profits, they will be more able to reduce unemployment and spread wealth to Americans.
