THE GLOBAL ECONOMY
The focus of this study is the operation of the global economy and the impact of globalisation on
individual economies.
International economic integration
Trade, investment, finance, labour and technologies are flowing around the world, so much so
that economies now share each other's ups and downs (to different levels). Governments,
international organisations and businesses have encouraged this process because they believe
that globalisation has more benefits than downsides. The Global Financial Crisis has shown us
the dangers of having such closely integrated economies, leading to “slowbalisation” COVID
showed us the fragility of global supply chains. Dealing with a situation of ‘polycrisis’ in the world
economy (supply chains breaking + invasion of Ukraine + uncertain Middle-East future + climate
change + political distrust and misinformation on the largest scale ever) led to a move towards
de-globalisation or more regionalisation in 2023-24.
SUMMARY :
Globalisation - Economies are more connected and interdependent
Slowbalisation - Aftermath of 2007-2008 global financial crisis
Polycrisis within the world economy leading to
De-globalisation
Regionalisation - dividing huge areas into regions or districts
The global economy
No economy exists independently, economies around the world are tightly linked
- Trade Flows (goods and services being bought and sold)
- Financial flows (movements of money)
- Labour (workers can move between countries)
- Ideas and Technologies can spread
What happens in one country can affect other countries, however, it depends on how closely
integrated you are with the other country
Definition: The global economy is the trade flows, investment flows, financial flows,
labour flows, and the flow of ideas and technologies that occur between nations in the
world.
Globalisation started in the 1970’s-1980’s (not just trading)
Gross World Product :
GWP is the monetary value of all goods and services that have been produced by individual
countries collected together. Measured in $USD.
GWP = 105.5 trillion $USD (2023)
,Globalisation
Definition: globalisation is the breakdown of man-made and natural barriers to the movement of
labour, investment, technology, finance and trade, allowing an increase in cross-border
transactions. Financial barriers have already been dismantled globally the more recent focus
has been on reducing barriers to the trade of goods and services.
The rate of globalisation is measured by
- Social changes
- Cultures spreading
- Economies linking
Globalisation issues
Globalisation hasn’t just happened by itself
- Governments, business, international organisations
Have done things to encourage the process of globalisation
SUMMARY:
Additional Points for Exams: Financial barriers have already been dismantled globally. The
more recent focus has been on reducing barriers to the trade of goods and services.
Globalisation is an increase in cross-border transactions as the interdependence of world
economies increases. The rate is measured by social changes, cultures spreading and
economies linking although governments and firms encourage the process of globalisation.
Trade in goods and services
China has a Comparative advantage production-wise.
GOAL: not free trade (the complete removal of all barriers to trade) more like freer trade
Because some restrictions on trade will always be there Fairer trade
Making sure that the world helps all countries
(instead of developing countries being exploited by richer countries)
CAUSES OF GROWTH in trade flows:
Reduction of man-made barriers
Since the 1970s there has been a sharp drop in protectionist policies
- Tariffs (taxes on imports)
- Quotas (max number of imports)
- Subsidies (help local businesses)
,Sometimes countries reduce these barriers by themselves (unilateral) or through trade
treaties, agreements or trade blocs (bilateral or multilateral)
Regional trade agreements + the ‘rounds’(meetings) of the World Trade Organizations +
Unilateral tariff reductions = Trade ‘liberalisation’ (protection goes down, trade flows increase)
And sometimes we get to see a ‘trade war’, where one country puts its barriers to trade up (e.g.
increases tariffs on imported steel from a country they’re cranky with), which immediately
causes a retaliation by the other country (they put the tariffs up).
This sort of incident can undo years of gradual progress.
E.g - When Biden was elected, he did the same thing, this time by banning imports of
semiconductors (computer chips) from China.
E.g - China retaliated by banning the export of rare materials to make semiconductors. It’s an
eye for an eye, over and over again.
Reduction of natural barriers
e.g. Improved transport systems cost goes down + difficulty of spending goods and overseas
e.g. Improved telecommunication technologies - time lags go down + coordination goes up
EFFECTS OF globalisation on trade flows
1) Composition and Value
ETMs: products with high added value,
- e.g. computers - % of world trade has increased
STMs: products with low added value
- e.g sheet metal (not transformed much) - % of world trade has decreased
Mining and Oil:
- % of world trade has increased mainly due to the rise of China and India
Agriculture: % of the world has not increased
- Mainly due to continued trade barriers (especially in EU and USA)
Services:
- % of world trade has MASSIVELY increased (e.g. education - uni)
2) Direction
Trade Blocs:
The whole point of a ‘trade bloc’ is that the countries that are part of the bloc (‘group’) agree to
break down trade barriers between them
- e.g. EU countries lower tariffs on imports from other EU countries
So OBVIOUSLY trade between members of trade blocs has increased
Problem: - There may be an issue of trade diversion, where countries that are part of trade
blocs focus too much on the countries in the same bloc as them, which just hurts countries that
are outside the trade bloc.
, - e.g Australia is not in the EU- so when the EU countries trade more with each other they
trade less with us!
Regionalism:
- Even when countries in the same region (e.g. Europe, East Asia) are not in a trade bloc
together, they are still more likely to trade more with one another
Problem: countries in the same region may not be specialising as much as they could be if they
were really trading globally.
Political shifts in the world:
It depends on how you measure it, but it is clear that the United States was overtaken by China
as the dominant trading country in the world around 2023 (both roughly $5.3 trillion China vs $5
trillion U.S)
But the main difference is: that China exports much more than the US, but imports a lot less,
which is on purpose because China would rather not rely on buying from other countries.
SUMMARY:
So, China is needed because, in 2023, China bought $219 billion of Australian exports, worth
32.5 per cent of Australia’s total exports to the world (extra information).
China = top exporter with a comparative advantage product-wise
The goal for eis freer trade as some restrictions are going to be there while participating in
fairer trade (assisting all countries)
Sharp drop in protectionist policies as countries reduce trade flow barriers unilaterally through
trade treaties, and agreements of trade blocs.
Trade liberalisation - Protection/trade barriers go down while trade flows go up
Trade wars - One country puts up their trade barriers causing retaliations usually through
tariffs
Regionalism: if countries aren’t in the same trade bloc they’re more likely to still trade with one
another
Financial flows
Money flows around the world for…
1. Currency exchange e.g. trading Aus dollars for Yen
2. Investments e.g. A German company invest in an Italian firm
Both are financial transactions. Financial flows have increased faster than trade flows in
previous decades but are now slowing down to the same speed (less this year compared to
last)
The focus of this study is the operation of the global economy and the impact of globalisation on
individual economies.
International economic integration
Trade, investment, finance, labour and technologies are flowing around the world, so much so
that economies now share each other's ups and downs (to different levels). Governments,
international organisations and businesses have encouraged this process because they believe
that globalisation has more benefits than downsides. The Global Financial Crisis has shown us
the dangers of having such closely integrated economies, leading to “slowbalisation” COVID
showed us the fragility of global supply chains. Dealing with a situation of ‘polycrisis’ in the world
economy (supply chains breaking + invasion of Ukraine + uncertain Middle-East future + climate
change + political distrust and misinformation on the largest scale ever) led to a move towards
de-globalisation or more regionalisation in 2023-24.
SUMMARY :
Globalisation - Economies are more connected and interdependent
Slowbalisation - Aftermath of 2007-2008 global financial crisis
Polycrisis within the world economy leading to
De-globalisation
Regionalisation - dividing huge areas into regions or districts
The global economy
No economy exists independently, economies around the world are tightly linked
- Trade Flows (goods and services being bought and sold)
- Financial flows (movements of money)
- Labour (workers can move between countries)
- Ideas and Technologies can spread
What happens in one country can affect other countries, however, it depends on how closely
integrated you are with the other country
Definition: The global economy is the trade flows, investment flows, financial flows,
labour flows, and the flow of ideas and technologies that occur between nations in the
world.
Globalisation started in the 1970’s-1980’s (not just trading)
Gross World Product :
GWP is the monetary value of all goods and services that have been produced by individual
countries collected together. Measured in $USD.
GWP = 105.5 trillion $USD (2023)
,Globalisation
Definition: globalisation is the breakdown of man-made and natural barriers to the movement of
labour, investment, technology, finance and trade, allowing an increase in cross-border
transactions. Financial barriers have already been dismantled globally the more recent focus
has been on reducing barriers to the trade of goods and services.
The rate of globalisation is measured by
- Social changes
- Cultures spreading
- Economies linking
Globalisation issues
Globalisation hasn’t just happened by itself
- Governments, business, international organisations
Have done things to encourage the process of globalisation
SUMMARY:
Additional Points for Exams: Financial barriers have already been dismantled globally. The
more recent focus has been on reducing barriers to the trade of goods and services.
Globalisation is an increase in cross-border transactions as the interdependence of world
economies increases. The rate is measured by social changes, cultures spreading and
economies linking although governments and firms encourage the process of globalisation.
Trade in goods and services
China has a Comparative advantage production-wise.
GOAL: not free trade (the complete removal of all barriers to trade) more like freer trade
Because some restrictions on trade will always be there Fairer trade
Making sure that the world helps all countries
(instead of developing countries being exploited by richer countries)
CAUSES OF GROWTH in trade flows:
Reduction of man-made barriers
Since the 1970s there has been a sharp drop in protectionist policies
- Tariffs (taxes on imports)
- Quotas (max number of imports)
- Subsidies (help local businesses)
,Sometimes countries reduce these barriers by themselves (unilateral) or through trade
treaties, agreements or trade blocs (bilateral or multilateral)
Regional trade agreements + the ‘rounds’(meetings) of the World Trade Organizations +
Unilateral tariff reductions = Trade ‘liberalisation’ (protection goes down, trade flows increase)
And sometimes we get to see a ‘trade war’, where one country puts its barriers to trade up (e.g.
increases tariffs on imported steel from a country they’re cranky with), which immediately
causes a retaliation by the other country (they put the tariffs up).
This sort of incident can undo years of gradual progress.
E.g - When Biden was elected, he did the same thing, this time by banning imports of
semiconductors (computer chips) from China.
E.g - China retaliated by banning the export of rare materials to make semiconductors. It’s an
eye for an eye, over and over again.
Reduction of natural barriers
e.g. Improved transport systems cost goes down + difficulty of spending goods and overseas
e.g. Improved telecommunication technologies - time lags go down + coordination goes up
EFFECTS OF globalisation on trade flows
1) Composition and Value
ETMs: products with high added value,
- e.g. computers - % of world trade has increased
STMs: products with low added value
- e.g sheet metal (not transformed much) - % of world trade has decreased
Mining and Oil:
- % of world trade has increased mainly due to the rise of China and India
Agriculture: % of the world has not increased
- Mainly due to continued trade barriers (especially in EU and USA)
Services:
- % of world trade has MASSIVELY increased (e.g. education - uni)
2) Direction
Trade Blocs:
The whole point of a ‘trade bloc’ is that the countries that are part of the bloc (‘group’) agree to
break down trade barriers between them
- e.g. EU countries lower tariffs on imports from other EU countries
So OBVIOUSLY trade between members of trade blocs has increased
Problem: - There may be an issue of trade diversion, where countries that are part of trade
blocs focus too much on the countries in the same bloc as them, which just hurts countries that
are outside the trade bloc.
, - e.g Australia is not in the EU- so when the EU countries trade more with each other they
trade less with us!
Regionalism:
- Even when countries in the same region (e.g. Europe, East Asia) are not in a trade bloc
together, they are still more likely to trade more with one another
Problem: countries in the same region may not be specialising as much as they could be if they
were really trading globally.
Political shifts in the world:
It depends on how you measure it, but it is clear that the United States was overtaken by China
as the dominant trading country in the world around 2023 (both roughly $5.3 trillion China vs $5
trillion U.S)
But the main difference is: that China exports much more than the US, but imports a lot less,
which is on purpose because China would rather not rely on buying from other countries.
SUMMARY:
So, China is needed because, in 2023, China bought $219 billion of Australian exports, worth
32.5 per cent of Australia’s total exports to the world (extra information).
China = top exporter with a comparative advantage product-wise
The goal for eis freer trade as some restrictions are going to be there while participating in
fairer trade (assisting all countries)
Sharp drop in protectionist policies as countries reduce trade flow barriers unilaterally through
trade treaties, and agreements of trade blocs.
Trade liberalisation - Protection/trade barriers go down while trade flows go up
Trade wars - One country puts up their trade barriers causing retaliations usually through
tariffs
Regionalism: if countries aren’t in the same trade bloc they’re more likely to still trade with one
another
Financial flows
Money flows around the world for…
1. Currency exchange e.g. trading Aus dollars for Yen
2. Investments e.g. A German company invest in an Italian firm
Both are financial transactions. Financial flows have increased faster than trade flows in
previous decades but are now slowing down to the same speed (less this year compared to
last)
