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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.

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.

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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 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
Swipe to Navigate
with industrialization and mass production. Rapid population growth !"
OK increases demand for goods and services. England becomes first country to RISE OF
formally adopt gold standard—meaning currencies are convertible to a AUTOMOBILES AND
AIRPLANES
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

%
&
'

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1748
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1754
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1759
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1765
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|1771
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1776
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1782
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1787
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1793
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1798
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1804
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1809
|
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1815
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|1821
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1826
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1832
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1837
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1843
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1848
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1854
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1750
TimelineJS 1760 1770 1780 1790 1800 1810 1820 1830 1840 1850

GLOBALIZATION IN CHARTS

Foreign direct investment (FDI) involves establishing ownership

or controlling interest of a business in another country.

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 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.

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 and financing the difference with
foreign credit. For more, watch the video, “Is the US Trade Deficit
a 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.

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.)

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

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 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 , helping to prevent
most economic disputes from escalating into larger conflicts.
The institutions established include:

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 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.

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

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 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-