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Effect of Globalization on the U.S. Economy

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  • 0:04 What Is Globalization?
  • 1:18 Globalization and the…
  • 2:38 How the U.S. Economy…
  • 4:49 Lesson Summary
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Lesson Transcript
Instructor: Jarvista Rivers
Globalization is a concept that comes with positive and negative views and perspectives. In this lesson we will discuss globalization and some of the effects it has on the U.S. economy.

What Is Globalization?

Globalization, in general, is the integration of economies of countries throughout the world. This integration also includes and is not limited to countries' political, cultural, educational, and perhaps religious views. For this discussion, however, we'll focus on the economic impact of globalization.

Globalization has expanded the means by which countries conduct commerce and interact with the rest of the world. The rapid advancement of technology, communication, and transportation has expanded and allowed for broader relationships. As a result of the Internet and various modes of transportation, countries are able to interact and to transact commerce with each other more quickly and efficiently. With just a couple of keystrokes, we can transact business in other countries in a matter of seconds, thereby influencing economies and the participation in globalization.

Often the term globalization has been confused with internationalization. Internationalization means between nations such as international trade, treaties, and alliances. With internationalization, nations traded among themselves using their own capital, resources, and currency. On the other hand, globalization is the integration of nations under one system.

Globalization and the U.S. Economy

The U.S. economy has played a major role in globalization due to the petro-dollar (the U.S. dollar) being the world's reserve currency for well over 70 years. It has been very advantageous for the U.S. financial market compared to other foreign economies, which have to buy, sell, and transact business using the U.S. dollar.

The U.S. dollar as the world's currency has allowed for substantial negotiation power for U.S. corporations, which have given rise to multinational corporations. Trade, negotiations, and relationships were established based on the use of the U.S. dollar through collaborations by force or by threat. While this created more buying power and value for the U.S. dollar, it lessened the value of other countries' currencies, which resulted in poverty-stricken economies, especially in developing regions.

For example, if X country grew bananas in abundance and wanted to sell their bananas to Z country, they would have to purchase and sell with U.S. dollars. A currency's value is increased based on its use and demand for it. Therefore, as these countries were urged in various ways to use the U.S. dollar in their transactions, the value of their countries' currencies declined as a result. The cycle of poverty was continued because the buying power of the countries was lessened by the expensive U.S. dollar.

How the U.S. Economy is Affected

All countries' economies are impacted by globalization. However, let's examine some of the effects of globalization on the U.S economy. While there are numerous effects, we'll discuss only three of them here.

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