The Winners and Losers of Globalization

Globalization benefits all countries when a country specializes in a product or service and then exchange that good or service with other countries. But these benefits of globalization are never evenly distributed across the whole economy of a given country. There are always winner and losers.

When it comes to winners and losers, it is helpful to distinguish between long term and short term effects of international trade. The short term winners are manufacturers who produce exportable goods and the consumers who buy imported goods. For instance, American manufacturers benefit to the extent that they can expand their market overseas, while American consumers benefit to the extent that they pay less for imported goods than for domestically produced goods.

The short terms losers are the the domestic producers of importable goods whose prices must now compete with imported goods, and the consumers of exportable products who now have to pay more because of the additional international demand. When Chinese textiles are sold in America the losers are American producers of textiles because Chinese imports are cheaper than American products, while consumers in China also lose because they now have to pay more for textiles because of the rise in international demand.

In the long term the picture looks a little different though. Lets say in exchange for the textiles China exports, it begins to import large amount of cheap wheat from America. The short terms winners are the US producers of wheat and the Chinese consumers of wheat. The long term winners and losers will depend on the factors of production - mostly capitol, land and labor.

To understand the long terms effects of a wheat/textile exchange it is necessary to know that the production of wheat requires a lot of land and just a little labor, while the production of textiles requires a lot of labor and only a little land. In this example the long term winners will be American landowners and Chinese workers, while the long term losers will be Chinese land owners and American workers. The reason is as follows: As the demand for wheat increases internationally the demand for land will increase in America which will drive up rent, while the expansion of the textile market in China will increase the demand for labor which in turn will drive up wages. As textile production in America shrinks, the demand for labor will decrease which will lower wages, while the demand for land in China will decrease, resulting in less rent for landowners in China.

The short term winners and losers of globalization are not necessarily the same as the parties that experience long term gains and losses.

Source: The Bedside Baccalaureate