Chapter 1 THE INTERNATIONAL ECONOMY AND GLOBALIZATION CHAPTER OVERVIEW This chapter introduces students to the international economy and to globalization. The first part of the chapter emphasizes the high degree of economic interdependence that characterizes today’s economies. Economic interdependence includes international trade and international finance. The chapter also focuses on the United States as an open economy. Data is provided that shows U.S. exports as a percent of gross domestic product and the value of U.S. trade with its major trading partners. The chapter notes that many U.S. firms source a portion of the production of their goods in foreign countries, and that goods from all over the world are available in our local stores. The chapter discusses the nature of international competitiveness--for firms, industries, and nations. It is noted that exposure to global competition tends to improve the efficiency of firms. A new section discusses the ongoing debate about whether free trade should apply to cigarettes. Free trade normally increases consumption of a product, but where cigarettes are concerned, is this a good thing? Do countries have the right to ban products they deem unhealthy? This chapter discusses the potential effects that international trade has on workers, and concludes with a look at the backlash against globalization that has emerged in recent years. The advantages and disadvantages of globalization are summarized. After completing the chapter, students should be able to: