Globalization Has Benefitted All of Us – Or Has It?
One of the most popular online stock trading newsletters is a Trading Nation. The reason for its popularity is easy to see – it does exactly what it says it will do and more! A trading nation is simply a nation in which domestic trade constitutes a large portion of its gross domestic product. In a similar vein, a trading nation is typically characterized by a currency whose value is highly dependent on the state of the nation’s economic health. In fact, that is perhaps the single most important indicator as to whether a particular currency should be bought sold, or traded – and Trading Nation does a wonderful job of identifying these critical indicators.
Foremost, Trading Nation identifies four primary factors that affect international trade: exports, imports, the quality of the nation’s goods (which it calls “patents”), and government spending. Exports comprise a major component of a nation’s GDP. As such, they are the indicator of how well the domestic economy is performing. Importing nations rely on their ability to export commodities (goods or services) which the United States is commonly involved in exporting. In a similar vein, the quality of the nation’s goods (the essence of “patents”) is closely tied to the number of patent applications that are issued in the country.
Obviously, if your nation does not have a favorable balance of exports and imports, it will be difficult to enjoy high levels of international trade. This is the opposite of what happens in a trading nation. When there is excess export competition, importing nations tend to follow suit and pursue excessive protectionist measures to secure their interests. Likewise, when there is excessive import competition, exporting nations tend to respond with protectionist measures to ensure that they retain a competitive advantage. This is how free trade works – the more the international community believes that its consumers or producers are suffering from unfair competition or punishment, the more it wants to do business within the region.
One way that the United States relates to its largest export market is by encouraging exporting nations to develop stronger domestic strategies to promote economic growth. The United States is a significant global exporter of both agricultural products (inherited or otherwise) as well as non-agricultural goods. As a result of our unmatched ability to provide global markets with the agricultural commodities that it has helped to develop, the United States is an amplifier of economic growth throughout the world. Conversely, many developing nations believe that the United States is primarily an exporter of agricultural products and would therefore be willing to take on the United States as a trading partner. While this may happen from time to time, the overall trend of rising international competition means that the status of the U.S. as the largest exporter of both agricultural products and non-agricultural goods is secure.
Of course, protectionism will never disappear. Many nations depend on exporting their raw materials to the largest consumer of these commodities – the United States – for survival. But if the United States withdraws from its global trade obligations, it will significantly reduce the amount of U.S. exports and increase China’s competitiveness. And while China does not currently have an excessive amount of debt, it is investing in nation-building and infrastructure programs that could potentially give it the ability to leverage its excessive domestic resources and become a larger player in the international trading system.
By maintaining our long-standing alliances and building new ones with other nations, the United States can ensure that it remains the largest exporter of goods in the world. The world will continue to benefit from the jobs created by America’s global economy and the wealth accrued by the United States citizens as a result of this success. This is good news for American consumers, who pay more than they need to for consumer products but are still getting a good deal. And this is especially good news for American manufacturers who would otherwise be left behind should the global economy experience a downturn.