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Chapter 21: The Global Economy
DFI or FDI: Direct Foreign
• The purchase of US
businesses, stock and
real estate by
• Political stability and
strict US laws
regarding intellectual
property ownership
(patent law) make the
US the most popular
country for DFI.
Two boys walk past a billboard in
Shanghai, China
Why is FDI important for American
Economic prosperity?
• 40% of US government securities and
about 6% of US industries are foreign
• This frees up US capital for immediate
other uses.
• When other countries put their money in to
buy US debt, they are expecting to gain
from interest payments.
Example: Canadian FDI shows US
Global FDI inflows, top 20 economies, 2006, 2007(Billions of US)
Global FDI outflows: top 20 economies
Projected FDI inflows
Economic Imperialism?
• Because the US
invests in more
foreign economies
than any other
country, we have
been called economic
• Some fear US culture
and materialism is
seeping into other
parts of the world as a
result of economic
• Firms that do
business and have
branches in many
Is globalization a threat or
U.S. Global Trade
• 3rd largest exporter
of goods. Software,
medical supplies
and chemicals are
examples of US
products in demand
• #1 exporter of
services including
education, financial,
and medical.
How do countries regulate
global trade?
Barriers and Trade Agreements
Trade Barriers
• Tariffs: tax on imported goods.
• Quotas: limit amount of good to be imported.
• Economic Sanctions: punishment for political
actions (i.e. embargo on Cuba)
• Health and safety regulations.
Free Trade Movement
• WTO 1995 (World Trade Organization) founded
to promote free trade world wide.
• EU (1993): Largest trading block in the world.
European Union countries eliminated tariffs on
each other, adopted a single currency.
• NAFTA (1993) North American Free Trade
Agreement linking Mexico, U.S. and Canada)
• CAFTA (2005) Central America and U.S.
Protectionism vs. Free Trade
• Protectionists say jobs, infant industries, and national security at risk
without trade barriers.
• Free trade proponents say specialization and global competition
results in higher standard of living and increased cooperation
Trade Deficit
Trade Deficit as % of GDP
• Shows decline but still historically high
Does globalization lead to unfair labor
practices in developing nations?
• Officials raided two
factories in Long
Island NY (2008) they
manufactured clothing
for Banana Republic,
Coldwater Creek,
Express, Gap, the
Limited, Macy’s, and
Victoria’s Secret.
• Workers earned $250
per week for 66