Tutorial 1: Globalisation has caused job loss in America and job gain in China. Discuss.

Chang Hoay Yuen (EEE130003)
Lee
Tutorial 1: Globalisation has caused job loss in America and job gain in China. Discuss.

Introduction
(Un)employment is a prevalent issue of economic security, and we observe many claims and counterclaims about the role of globalisation in the causation of unemployment. The growth of “transplanetary and supraterritorial connectivity” of the global economy has positive and negative outcomes on economic security and social equality.
This essay discusses the causality of globalisation on employment in the America (United States of America) and China (People’s Republic of China). It will first examine the economic structure and trend in each nation to provide a clearer picture to the nation’s economy. It will then go on to discuss how globalisation affects employment by highlighting the factors affecting and relating both nations. Finally, a conclusion will be drawn to sum up the discussion.

Part I
Economic globalisation is the increasing integration and interdependence of national, regional and local economies across the physical world through an intensification of cross-border movement of goods, services, technologies and capital.
It is crucial to know the facts and figure of each economy, America and China, before discussing the causality of globalisation on employment. The tables below provide the figures of key economic variables of America and China as of 2014.
Key Economic Variables
Variable
America
China
Population
318,881,992
1,368,260,000
Population Growth Rate
0.77%
0.44%
Labour Force
156,080,000
787,600,000
Gross Domestic Product (GDP)
$17.416 trillion
$10.355 trillion
GDP Real Growth Rate
1.6%
7.7%
Unemployment Rate
6.2%
4.1%

Employment Trend and Structure Unemployment Rate (%)
Year

America

China
2005
5.1
4.2
2006
4.6
4.1
2007
4.6
4.0
2008
5.8
4.2
2009
9.3
4.3
2010
9.6
4.1
2011
8.9
4.1
2012
8.1
4.1
2013
7.4
4.1
2014
6.2
4.1

Trade Balance
Trade Variables
America
China
Exports
$1.575 trillion
$2.21 trillion
Export Partners (Top 3)
Canada (18.9%)
Mexico (14%)
China (7.2%)
Hong Kong (17.4%)
America (16.7%)
Japan (6.8%)
Imports
$2.273 trillion
$1.95 trillion
Import Partners (Top 3)
China (19%)
Canada (14.1%)
Mexico (12%)
South Korea (9.4%)
Japan (8.3%)
Taiwan (8%)
America (7.8%)
Foreign Direct Investment Inflow
$86 billion
$128 billion

Part II
Globalisation has induced transworld production chain and global sourcing of inputs. America adapts a neoliberalism approach to contemporary globalisation through measures of liberalisation, deregulation, privatisation and fiscal constraint, or also known as “The Washington Consensus”. It has restructured its domestic orientated economy, through outsourcing of manufacturing jobs, to reduce the cost of production. According to the Bureau of Labour Statistics, America manufacturing employment fell from 19.6 million in 1979 to 13.7 million in 2007.
More than half of this unemployment decline occurred in the years after the 2001 recession. From 1997 to 2000, while American economy was hollowing out, it was pivoting towards the commercial growth of the Internet. This speculative boom, also known as the dot-com bubble, caused many companies to be grossly overvalued. The future prospect of the stock market bubble attracted personal investors, and people started quitting their jobs to become full-time day traders.
In the east, China integrates with contemporary globalisation by opening up its socialist market economy. China becomes a global hub for manufacturing for its cost advantage of abundant labour supply despite scarce arable land and natural resources as part of its economic reforms. China as a giant producer is highly export orientated, with America being its largest importer. China’s dependence on American households intensified when import demand from Europe declined. Intensifying import competition from a lower wage country such as China reduces domestic demand of goods in America. Correspondingly, jobs disappear and real wages of unskilled workers decline.
Globalisation increases mobility of companies to relocate facilities within a global space. China’s rising levels of industrial output is strongly abetted by foreign direct investment (FDI). According to the United Nations Conference of Trade and Development (UNCTAD), China attracted $128 billion of FDI in 2014 mainly in electronic equipment, machines, engines and pumps, furniture and clothing. Proponents refer to FDI as another form of welfare improving international trade, which is necessary for the growth of a home nation. Education has improved the low-skilled labour which was vulnerable to technology driven operations. Decades ago, larger stock of FDI in China was greenfield, whereas FDI in America focuses on research and skilled labour force. Now, globalisation has enabled overseas education, with people from emerging countries going to America for research and IT education. Thus, America faces greater competition as multinational enterprises shift their attention to relocate in China or India for its comparative labour advantage, and research and high-tech manufacturing.
A review of the causes of financial crises shows countries opened up their economy without fully appreciating inherent domestic weaknesses that exposed their economy to both endogenous and exogenous shocks. The September 11, 2001 attacks during the period which American economy was absorbing the stock market crash narrowed confidence channel in the financial market, also increased transaction costs due to increased security and insurance premiums. 146,100 private sector workers lost their jobs, especially in financial services, restaurants, hotels and air transportation.
Before the financial crisis in 2008, China, like in many other countries, enjoyed stock market and real estate boom. However, as the crisis occurred, financial institutions that had invested heavily in securities linked to the America real estate markets altered their risk attitude, causing capital outflow from emerging economies that have direct linkages to America real estate market. China proved to be very immune to the wealth and capital flow effects. In the beginning of the crisis, China’s net FDI decreased from $143.06 billion to $121.68 billion in 2008. In 2010, the FDI rebounded to almost the pre-crisis level, $124.93 billion. However, as the crisis began to push America and Europe into recession, China was exposed to falling demand for its exports. China’s export fell by 17% in 2009 and rebounded modestly in 2010 as the developed countries slowly recovered.
During this global financial crisis, America’s unemployment rate decreased from 4.6% in 2007 to 9.3% in 2009. The bilateral trade between America and China also decreased by 6.8%. With disadvantages ensuing both nations, the notion that China’s competitiveness is the reason for manufacturing job losses in America cannot apply to a certain extent. In addition, America has been experiencing trade deficit with countries such as Japan, Germany and Mexico, not only with China.

Part III
In conclusion, China is growing its economic strength from its policy reforms that aim to open up its economy, and job loss in America shall not be attributed to competition and trade deficit alone. Financial markets are volatile and its downturn not only affects a nation’s economy and security, but will also spillover to other economies. Thus, employment is very subject to economic choices around, and policy decisions are important to counter setbacks, to prepare for shocks and to achieve economic goals taking account of the influence of contemporary globalisation.