Globalisation and the U.S. Economy

Globalisation is a fascinating concept: you buy goods that are cheap because they were made in a country where the production costs are lower and then you wonder why the company down the road making the same local goods at local prices goes out of business!

Seriously though, that may be a bit harsh as there are (some) good sides to globalisation. Take, for instance, specialist software developers - we've had first hand experience that if you can't find a local developer it's OK that you go shopping in Australia and Holland if that's where you find the exact skills you've been looking for.

But it's the original opening scenario that is worrying and very topical - The United States, in desperate attempts to stave off a recession, is planning tax rebates to boost the economy. Individuals will get up to $600 and married couples up to $1200. Those couples with children will get an additional $300 per child.

Now this may seem surreal and a little sensationalist giving people back the money they paid to government, to the tune of $100 billion for households and $50 billion for business, so that they can spend more to then help their own economy. Will it boost the fortunes of the world's (current) biggest polluter? Maybe, we'll have to wait and see.

But what does this have to do with globalisation? The fact is that the tax plans have caused Asian markets to rally on the news. Why?

As somebody interviewed in that BBC news story remarked:

"The markets are reacting to news that Bush and Congress have agree[d] to accelerate tax rebates for US consumers so they can go out and buy more exports from Asia"

So it looks like the American economy does well by its own people buying boatloads of foreign goods. That seems to be a very precarious situation to be in and a huge green flag to encourage rampant consumerism in order to further even greater globalisation.

So what happens when the Asian economies develop to such an extent that their prices catch up with those in the West? Where do consumers buy their cheap goods? Does the economy stumble again? Is this a scary enough scenario to get everybody to buy local?