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By Root 470 0

Company, ConocoPhillips, Procter & Gamble, Wal-Mart Stores, IBM, and Pfizer Inc.2 These companies often have half or more of their global workforce outside the United States. In 2010, for example, GE employed 133,000 workers in the United States and 154,000 overseas in more than sixty countries, with more than half of its $155 billion in revenue ($83 billion) earned outside the United States.3 Another key indicator of the rising role of globalization in the U.S. economy is the share of corporate profits received from outside the United States, as shown in Figure 6.1. While the data are fraught with measurement difficulties, there is no doubt that corporate profits are increasingly internationalized. The national income accounts suggest that more than 25 percent of corporate profits have come from abroad in recent years, up from around 5 percent in the 1960s.4

In addition to the pivotal advances in information, communications, and transport technologies, changes in geopolitics have played a key role in the emergence of globalization. The first great event was the independence of Europe’s former colonies after World War II. Independence provided the political foundations for subsequent economic development. Then, starting in the 1960s, several developing economies in Asia, most notably Hong Kong, Taiwan, and South Korea, began to join the global market-based trading system, especially by welcoming foreign investments from the United States, Europe, and Japan and hosting export-oriented production facilities in specially designated export-processing zones. Then, in 1978, the biggest change of all occurred: the People’s Republic of China, with around 1 billion people at the time (and 1.3 billion today), opened its economy to global trade, finance, and foreign investment. In 1991, India followed suit. By now virtually all of the world is linked through trade, finance, and production.

Figure 6.1: Foreign Profits as a Percentage of Total Corporate Profits, 1948–2010

Source: Data from U.S. Bureau of Economic Analysis.

The main economic implication of globalization is that a tremendous and rapidly expanding range of sophisticated economic activities that once were carried out only in the United States, Europe, and Japan can now be carried out even more profitably in China, India, Brazil, and elsewhere. Goods and services that were once produced in the United States and Europe are now produced in developing countries around the world and then exported to the high-income economies as intermediate or final products. As the production of a widening range of goods and services is relocated to the emerging economies, U.S. employment and incomes are subjected to tremendous upheaval.

In 1985, merchandise trade between China and the United States was balanced at $3.9 billion in each direction, a level equal to 0.09 percent of U.S. GDP that year. By 2009, China’s exports to the United States had soared to $296.4 billion, equal to 2.1 percent of U.S. GDP and roughly 19 percent of the value added (output minus inputs) of U.S. manufacturing. U.S. exports had also increased substantially, to $69.5 billion. China’s merchandise exports to the United States are overwhelmingly manufactured goods (around 98 percent) and span a remarkable breadth of sectors.5 More than half, however, are concentrated in a few key sectors: computers, telecommunications equipment, television sets, other electronics, textiles, apparel, footwear, furniture, and toys. The United States lost around 2 million jobs in those sectors between 1998 and 2009.6

The new globalization is fundamentally changing the world economy and global politics. In 2010, China overtook Japan as the second largest economy in the world, when converting both countries’ national incomes into a common currency using market exchange rates. (If we compare national incomes according to purchasing power rather than market exchange rates, China overtook Japan as early as 2001.) Most likely, China will overtake the United States within the next two decades and perhaps by 2020 using purchasing-power-adjusted