Economic Impact of Globalization on U.S. National Interests and National Security U.S National Security Policy The following paper is due to review the economic impact of globalization on U.S. national security and national interests. Paper is considered to understand the negative and positive influences of economic globalization. The main question is whether Globalization presents a threat to national security. Student: Ekaterine Makhatadze 5/18/2014

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Table of Contents

Introduction ........................................................................................................... 3

Implications of globalization on U.S national interests and national security.. 4

Positive economic impact of globalization on U.S. national interests ..................... 4

Negative economic impact of globalization on U.S. national security .............. 6

Conclusion ........................................................................................................................................ 8

References ……………………………………………..…………………………………………………………………………………….…10

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1. Introduction

Globalization is defined in many different ways. It’s clear that because of this multifaceted

phenomenon interdependencies are growing in all aspects and the world is becoming more

and more united. At the same time, various types of threats are becoming global; effects are

more dangerous for both the state and civilians. Apart from this, there is a link between

globalization and national interests. The link is considered as necessary, but at the same time

it is threat to security.

Globalization is a broad term. In this paper, it is considered as changes to and effects on

goods, services and factors of production between U.S. and the rest countries of the world.

The question is whether globalization is a positive process and does not represent a threat to

national interests and national security.

Globalization raises important issues for U.S. national interests and strongly impacts on its

national security. It has a dual influence on U.S. Firstly; it promotes a faster development of

economy and technical progress. On the other hand, the process of globalization may

experience environmental impact of the global economy that causes financial crisis and

threat to national interests and security.

Globalization, the rise of China, the prospect of an unsustainable debt burden,

unprecedented federal budget deficits, the success of mixed economies with both state-

owned and private businesses, huge imbalances in international trade and capital flows, and

high unemployment have brought economics more into play in considerations of national

security. There is a core task about globalization in U.S. National Security Strategy -

“globalization has both opened opportunities and intensified the dangers Americans face

from terrorism, the spread of deadly technologies, economic upheaval, and changing

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climate”. As we see, economy and the impact of economic globalization is one of the top

issues to U.S. national interest and national security.1

In this paper, here is an attempt to find out what are the impacts of globalization on U.S.

national interests and national security in economic issue. The paper ends with a concluding

discussion.

2. Implications of globalization on U.S national interests and

national security

2.1 Positive economic impact of globalization on U.S national interests

Economic impact of globalization is one of the most important issues that are considered

by many researchers. Nowadays the economic effect on national interests and national

security is one of the most debated issues in the world.

In a positive context globalization can be considered as a process of integration of goods

and capital markets across the world, where thresholds to international trade and foreign

investment are reduced. Markets are global and many corporations are successful and more

powerful than many countries.

International trade is a benefit of globalization. United States is the world’s largest

economy. America’s increasing interdependence with the rest of the world makes surplus for

U.S national interests and economic development. Economic engagement with the world

plays a key part in the U.S economic revival. America is a partner to a number of

1 Nanto, D.K., Economics and National Security: Issues and Implications for U.S. Policy, Congressional Research

Service. January 4, 2011.

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international trade agreements, including the General Agreement on Tariffs and Trade

(GATT) and the International Trade Organization. United States helped created and lead two

international institutions that are beneficial to U.S national interests. They are –

International Monetary Fund and World Trade Organization.

The roots of economic globalization should be started during the Clinton administration.

President Bill Clinton enjoyed a spectacular start on trade. Administration completed the

Uruguay Round in 1993 and won congressional approval for both the round and the North

America Free Trade Agreement (NAFTA). It launched the Free Trade Area of Americas

(FTAA) and the Asia-pacific Economic Cooperation initiative (APEC) aiming to achieve “free

and open trade and investment” in the huge and dynamic region by 2010 and 2020. U.S.

continues to achieve economic heights.2

The U.S. relies heavily on the import of raw materials and the exports of finished goods.

Because of the significance for American economy and industry, much weight has been

placed on trade police by elected officials and business leaders. According to the U.S Census

Bureau and the U.S Bureau of Economic Analysis total March export was $193.9 billion and

import had reached $234.3 billion. United States had $40.4 billion goods and services deficit

in March 2014. From the March review of Bureau of Economic Analyses the number of

service categories will increase from seven to nine. The new categories are: maintenance and

repair services, transport, travel, insurance services, financial services, charges for the use of

intellectual property, telecommunications, computer and information services, other

business services and government goods and services. Data shows that United States is

continuing to maintain its position.3

According to the 2010 National Security Strategy, the Obama Administration aims to open

foreign markets for U.S. goods and services by negotiating and enforcing multilateral

agreements. Open markets will be crucial to U.S. companies and workers, according to the

NSS statement, as they strive to compete in an increasingly globalized world.4 Free trade

2 Bergset, F.C., A Renaissance for U.S. Trade policy, Foreign Affairs, November/December 2012 issue.

3 Bureau of Economic Analysis, U.S. International Trade in Goods and Services March 2014, 6 May, 2014

4 Nanto, D.K., Economics and National Security: Issues and Implications for U.S. Policy, Congressional Research

Service. January 4, 2011.

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allows U.S residents to purchase the goods that are imported at a lower price and export

produced goods at a higher price. They can create an unambiguous increase in real income.

Rising productivity in any good and in any country, has the great effect of raising income in

U.S. Americans can move to other countries and find surplus by improving their economic

activity. They can collaborate with foreign companies and simply influence on them by

showing American style of economy. Usually, it is the source of their high wage and

income.5

U.S. achieved economic influence on other countries by companies and organizations.

McDonald’s produces goods in many countries and sells it in 119 states, requiring the

communication from America to these countries. United States in the help of McDonald’s

success got a greater access to global marketplace of goods. Investments and support

initiatives gained a strong economic influence. According to it, McDonalds is the symbol of

American entrepreneurship and capitalism in the world.6

2.2 Negative economic impact of globalization on U.S. national Security

Widespread belief about positive sides of globalization is often rejected. In spite of its

positive effect on economic development and national interest it is considered as a serious

threat to national security. Mendelssohn characterizes the US debate in stark terms. "The

protectionist and anti-trade rhetoric in the primaries suggests that many Americans see

global economic change in zero-sum terms. Asia rises, we decline. Economic inequality is

reduced between countries, but widens within our own societies. Globalization is no longer

something we do; it is something that others do to us"(Watt,N.). This phrase definitely

mentions the dark side of U.S. globalization.7

5 Beverly, C., Fogarty, E.A., The impact of globalization on the United States, United States of America: Praeger

Publishers, 2008. 6 Mdinkens, G,. The impact of globalization on business enterprises: McDonald’s, July 2006

7 Watt, N. “Globalization needs America. America needs globalization”, The Guardian, June 9, 2008

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There are many types of negative economic impact of globalization on U.S. national

security and national interests. U.S relation with other countries may decline economic

strength of the U.S. The U.S. still produces about a quarter of world GDP. There is a threat

that economic growth in other countries will reduce this share to less than twenty percent in

the next few years. 8.

As the U.S. stake in the global economy has grown, American policy has followed a dual

strategy. Efforts to promote opportunities for American exporters and foreign investors

remain concentrated in its multilateral drive to remove the barriers of others, while its

unilateral and bilateral policies have increasingly erected such barriers to protect American

firms that compete with imports. On the other hand, U.S faces the threat of rising import.

According to the American Institute for International Steel, imports increased by 16.9%

from 28.5 million tons in 2011 to 33.3 million tons in 2012. China had surplus production

last year due to weak economic conditions in U.S market. China’s export to the U.S rose by

34% by 2012. In 2013 overall imports surged by 2-3%. The rising level of imports is

impacting process in the U.S. market.9

China plays a central role in the goal of achieving more balanced economic growth and

creating new sources of external demand for the U.S. economy and for U.S. goods and

services. U.S-China economic interdependence is one of the best examples of economic

globalization. Chinas economic development and U.S. dependence on it can be a threat to

U.S. national security. Economic interdependence between two states is a result of

globalization. The largest economies are geopolitical rivals as well and interdependence

won’t remove the causes of U.S.-China security competition. China’s debt to U.S, which is a

weapon in its hand, could be a threat to U.S. national security. China’s technology and

economic development, investments in U.S could be harmful to U.S national interests.

Investment made by Chinese state-owned or controlled companies can also pose economic

8 Lewis, J. A., Globalization and National Security, December 2004

9 Trefis Team, U.S. Steel Faces The Threat Of Rising Imports In 2013, March 13, 2013

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security threats. The Chinese government provides significant financial and logistic support

to it.10

Financial crisis and its impact is one of negative side of globalization. It is said that

instability in countries around the world caused by the global economic crisis is the primary

near-term security threat to the United States. The Global Financial Crisis demonstrated

strongly how interconnected the economies of the world have become and how quickly

conditions in one market can be transmitted across the U.S. economy and other countries

from the world. In 2008 the world economy faced its most dangerous crisis since the Great

Depression of the 1930s. The contagion, which began in 2007 when sky-high home prices in

the United States finally turned decisively downward, spread quickly, first to the entire U.S.

financial sector and then to financial markets overseas. The collapse of Lehman Brothers sent

a wave of fear around world financial markets. The result is that the global financial crisis

had the largest and sharpest drop on global economic activity. The spread economic tension

was the top threat to U.S. national security.11

There is one more important issue considering the dark side of globalization. Black market

economy, offshore centers are more and more famous in the world. Actually, “criminal

globalization” undermines economies, finances and countries. International criminal gangs

increase the speed and frequency of its operations. These organizations based on one country

can plan and organize criminal organizations in other countries. Trans-national criminal

organizations negatively effect on U.S. national security and its economy.12

3. Conclusion

Economic globalization usually refers to the increasing interdependence of the world

economies. It reflects the continuing expansion and mutual integration of market. According

to this economic impact of globalization could be one of the national interests. In spite of it

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U.S.-China Economy and Security Review Commission, Chapter 1 -The U.S-China Trade and Economic Relationship, November 20, 2013. 11

MIkkelsen, R., World economic crisis is tom U.S. security threat, Washington, February 12, 2009 12

Huwart, J.Y., Verdier.L. Economic Globalization: Origins and Consequences, OECD Publishing, 2013

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there is a widespread thought that economic globalization does not strengthen the current

regime of global laissez-faire. Even for the U.S. that is considered by the world as the largest

economy, the most developed country and the source for innovations – experienced the

negative results of globalization.

Nowadays globalization is nothing new, nut the key concept of it is still unknown. World

is becoming more united, countries become independent to each other. In spite of negative

sides of globalization economic development is strongly based on this process. Nowadays, it

is totally compacted to compare advantages and disadvantages of globalization. It is clear that

countries, mostly developed states, usually find surplus with connections to the world. U.S.

the largest economy and “leader of the world” can easily deal with the threats coming from

economic globalization. It’s definitely true that “Globalization needs America. America needs

globalization.”13

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Watt, N. “Globalization needs America. America needs globalization”, The Guardian, June 9, 2008

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References

1. Nanto, D.K., Economics and National Security: Issues and Implications for U.S. Policy,

Congressional Research Service. January 4, 2011. Link:

http://www.fas.org/sgp/crs/natsec/R41589.pdf last seen: 17 May, 2014

2. Bergset, F.C., A Renaissance for U.S. Trade policy, Foreign Affairs, November/December 2012

issue. Link: http://www.foreignaffairs.com/articles/58435/c-fred-bergsten/a-renaissance-for-us-

trade-policy last seen: 17 May, 2014

3. Bureau of Economic Analysis, U.S. International Trade in Goods and Services March 2014, 6

May, 2014. Link: http://www.bea.gov/newsreleases/international/trade/tradnewsrelease.htm

last seen: !7 May, 2014

4. Beverly, C., Fogarty, E.A., The impact of globalization on the United States, United States of

America: Praeger Publishers, 2008. Link:

http://faculty.haas.berkeley.edu/jaffee/Papers/105GlobalUCB.pdf last seen: 18 May, 2014

5. Mdinkens, G,. The impact of globalization on business enterprises: McDonald’s, July 2006

6. Watt, N. “Globalization needs America. America needs globalization”, The Guardian, June 9,

2008. http://www.theguardian.com/business/2008/jun/09/economics.useconomy last seen: 17

May, 2014

7. Lewis, J. A., Globalization and National Security, December 2004. Link:

http://csis.org/files/media/csis/pubs/globalization_natl_security_execsum.pdf last seen: 17

May, 2014

8. Trefis Team, U.S. Steel Faces The Threat Of Rising Imports In 2013, March 13, 2013. Link:

http://www.trefis.com/stock/x/articles/173749/u-s-steel-faces-the-threat-of-rising-imports-in-

2013/2013-03-13 last seen: 18 May, 2014

9. U.S.-China Economy and Security Review Commission, Chapter 1 -The U.S-China Trade and

Economic Relationship, November 20, 2013.

http://origin.www.uscc.gov/sites/default/files/Annual_Report/Chapters/%3Cem%3EEdit%20An

nual%20Report%3C/em%3E%202012%20Annual%20Report%20to%20Congress/Chapter%201%

20The%20U.S.-China%20Trade%20and%20Economic%20Relationship.pdf last seen: 18 May,

2014

10. MIkkelsen, R., World economic crisis is top U.S. security threat, Washington, February 12, 2009.

Link: http://www.reuters.com/article/2009/02/12/us-security-usa-economy-

idUSTRE51B64820090212 last seen: 18 May, 2014

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11. Huwart, J.Y., Verdier.L. Economic Globalization: Origins and Consequences, OECD Publishing,

2013. Link : file:///C:/Users/User/Favorites/Downloads/-Economic%20globalisation%20-

%20Origins%20and%20Consequences-%20by%20the%20OECD%20Development%20Centre.pdf

last seen: 18 May, 2014