Relation of Globalization in America to Gross Domestic Product

In Stephen J. Dubner’s podcast “Did China Eat America’s Jobs?” Dubner interviews David Autor, an M.T.I. labor economist, who not only analyzes the changes and demands of a labor market, but he studies the effects of trade on the economy as well. Throughout the podcast, Autor discusses his research on the impact of trade between the United States and China, and he emphasizes the negative effects of China’s exports on the United States’ labor market. Although China’s economy has experienced a tremendous improvement, Autor describes how America’s economy has suffered as a result of China’s success and utilizes important economic concepts to emphasize his point.

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One of the economic concepts that Autor mentions is globalization and its relation to gross domsetic product . Globalization occurs when businesses in different countries come together to trade and expand their products all over the world. Initially, America viewed globalization as a positive attribute to the nation’s economy because it would send low-wage employees to other countries to perform manufacturing tasks. While the low-wage workers traveled overseas, high-wage workers stayed in America to produce more high-tech and advanced equipment. Americans believed that through globalization, imported products would be provided to citizens at a lower cost. However, globalization can have positive or negative results. A positive consequence of globalization is an increase in gross domestic product. Gross domestic product is the total amount of all final goods within a country’s borders. When there is globalization, the exportation of high-quality goods increases the demand for better educated and skilled workers. As a result of this, the gross domestic product increases. On the other hand, a negative consequence of globalization can be adverse income distribution. As the national income increases, the poor, less educated workers are not paid as much because the higher-waged employees receive more money.

While the wealthier individuals in the United States are thriving, China’s mammoth influence in the global economy causes a drastic change in America’s labor force. For example, because most of the basic consumer goods are being imported into America from China, the same products being made in manufacturing sites or factories in America are shutting down, and as a result of this, the low-income people who work there lose their jobs. Also, even though America’s gross domestic product remains high, its competition with China results in a lower profit margin as manufacturers continue to close down their businesses. When there is a drop in the labor market, low-income individuals must use reallocation to figure out the next best job that they are qualified for. Because it is difficult to reallocate, the labor force participation rate decreases as low-wage workers stop searching for work. The low-wage workers become discouraged, and eventually, they become classified as unemployed. Although it is difficult to develop a solution to the drop in maunfacturing jobs in the United States, some ideas include the earned-income tax credit, which would provide money to low-wage workers, or to reform the payroll tax, which allows employees to pay the government instead of including the tax in employees’ salaries.     

Although China has become a dominant force in the global market, the country was not always this way, and it did not open itself up to trade until Deng Xiaoping’s rule in the 1970s. Under Xiaoping’s leadership, export zones, foreign direct investment, and market prices for products and labor were developed. After China opened itself up for trade, it was able to create products at low-costs, and the products were exported overseas to numerous countries such as the United States. 

29 April 2022

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