Chapter 1 INTRODUCTION: GLOBALIZATION AND INTERNATIONAL TRADE

We live in a world that is highly interconnected by a bewildering array of complex economic transactions, social and environmental problems, and international political collaborations and conflicts. Examples from global economics are found in the news everyday. A decision by American policymakers to subsidize the production of ethanol, a form of gasoline containing an additive produced from corn, is seen by many as a key reason that grain prices are high around the world. The spectacular emergence of China as a major exporter of manufactured goods has affected wages in both rich and poor countries. As large corporations, such as Microsoft, Intel, Toyota, General Electric, and Siemens have expanded their investments in affiliates in many nations around the world, they have built global production networks that share technological knowledge across locations to produce increasingly complex goods that could be sold anywhere. Today, a major cultural product, such as a Hollywood movie or a jazz band’s latest compact disk, is likely to employ creative personnel from around the world, with various components of the product recorded, mixed or edited in different locations. The importance of international connections in trade, investment, and skilled services can be illustrated by considering the apparently simple act of making and bringing to market an item of apparel, say a fashionable woolen men’s suit. The initial task is to design the suit, a highly creative activity that generally takes place in the headquarters of a major fashion label, such as Armani or Hugo Boss. Beyond that, the firm must locate reliable suppliers of raw wool, which could be farmers in New Zealand, Argentina, Scotland, or elsewhere. The wool needs to be spun into yarn and then woven into finished fabrics, tasks that are likely to be