what is globalisation? why is it so important in trade?
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in general terms, it’s the idea that all the economies are interconnected – the US economy depends on imports from China, the EU, India, etc. – as much as they may depend on the US’s exports.
It’s not really a bad thing, at least when all the countries involved are playing nice with each other. But there’s various other socio-political things happening (eg: Ukraine) that shake things up to destabilize it; there’s other influences that might drag China’s market down, speculation that *perhaps* it’s related to China willing to keep trade open with Russia despite the Ukraine conflict.
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You can think of it as an analogy boiled down much more to a small neighborhood, and childhood kind of activities.
Lets say you start a lemonade stand. Your neighbor down the street also starts a lemonade stand – and while competition for customers is one thing, it actually drives both of you to make better lemonade, and work out the math for what kind of profit margin you can get.
But in doing so, you’re getting lemons from one neighbor, and your competition is getting lemons from another neighbor. Now there’s 2 lemonade stands, and 2 lemon producers.
One of your neighbors knows how to make tools and blow glass, but he’s the only one around to do it – that neighbor ends up supplying both of your lemonade stands with the pitchers & glasses to serve the lemonade; as well as the juicers and other equipment to make it.
You both have to look outside of your neighborhood for sugar – and you are able to negotiate an exclusive deal with a guy in the 2 blocks down. This is great for you because it keeps your costs of transporting the sugar. Your neighbor, however, is able to get superior quality sugar, but has to order it in from the next *city* over, not just 2 blocks away. Your neighbor’s lemonade is considered “better quality”, but it also costs a lot more and they charge more per glass.
That is – in a nut shell – globalization; except the neighbors here are different countries, and when we’re talking any local trade with the sugar, it’s you finding a sugar cane farmer in the same country, while your neighbor is turning to international exports.
In terms of trade, globalisation is the system we have built where supply chains are not confined to a single country or region, but stretch all around the world. So shipping timber from Canada to China, turning it into paper, then shipping that to Belgium to make into books which are sold throughout Europe is globalisation.
Or shipping iron ore from Australia and coal from Brazil to Mexico to product steel and cars for sale in the USA.
Or most of all, manufacturing goods in South East Asia for sale in Europe and North America.
It is important because it is surprisingly recent, and took considerable effort to bring about, mostly through multilateral free trade deals. It massively improved quality of life in many places through more efficient use of labour and resources. It also resulted in many people losing out, especially manufacturing workers in the west. It also exposed the world to lots of risk: the pandemic showed how fragile the supply chains are, and war in Europe showed that producing countries can hold consuming countries to ransom to some extent. This is true of Russian gas going to Europe, but also blockades of Ukrainian grain which is needed to feed much of Africa.
So now there is a big political question on whether to reduce global trade and pursue more protectionist policies (keeping trade within a country), or to make global supply chains more robust.
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