Globalization: Why What’s Happening in the World Hits Your Wallet So Hard
What’s happening in the world can massively impact what happens to the U.S. dollar, your work, and your investments.
Globalization has made the world economy more interconnected than ever before. What happens in one part of the world can have ripple effects that impact people, businesses, money, and investments half a world away.
Let’s dive in a little further.
What is globalization?
In its simplest form, globalization is the process of the world becoming increasingly interconnected. You can see this in the rise of international trade, the spread of technology and information (hello, crypto), and the increasing number of people living and working abroad.
Globalization has many benefits, including allowing businesses to expand into new markets and increasing consumer access to goods and services. However, there are also some downsides. It can lead to a race to the bottom in terms of wages and working conditions.
Why has the world grown more interconnected?
Technological advances accelerated globalization, making it easier for people to connect with each other and transport goods and services around the world. One of the most important aspects of globalization is the rise of international trade. It’s now easier for businesses to sell their products in foreign markets.
When trade and the supply chain are disrupted
The Covid-19 pandemic created a perfect storm that disrupted global supply chains and sent prices soaring for many goods in the marketplace.
The December 2019 virus outbreak in Wuhan, China, resulted in the country shutting down factories and businesses in an attempt to contain the spread of the disease. This generated a ripple effect on countries worldwide that relied on China for goods and materials as production reached a standstill.
While some businesses could quickly adapt and find alternate sources for goods, others were not so lucky. The result was widespread shortages of essential items such as medical supplies, food, and personal protective equipment (PPE).
The sudden increase in demand for these items and the decrease in supply led to prices skyrocketing. For example, the cost of N95 masks, used to protect healthcare workers from contracting the virus, went from $0.97 in January 2020 to $7.77 by April 2020, an increase of over 700%.
The same was true for other items such as hand sanitizer and disinfectant wipes, which saw prices increase by over 400% and 300%, respectively.
Supply, materials, and housing prices
Why was there a sudden rise in housing prices in 2021? One reason is the cost of materials. The price of lumber, for example, more than doubled from April 2020 to 2021. Add in a pandemic-related shutdown of sawmills and a decrease in the supply of trees being harvested. Yet those aren’t the only factors that impacted housing prices.
The other factor is low interest rates, which make it cheaper to borrow money. More homeowners and businesses leveraged the low interest rates to invest and buy homes. Demand has cooled off as interest rates have begun to rise, leading to fewer buyers and lower prices.
What’s happening in summer 2022: the demand for oil in Europe and a banking crisis in China.
As tensions between Russia and the West continue to simmer, Europe’s dependence on Russian oil is under scrutiny. The continent imports around 30% of its oil from Russia. Relations between the two countries are at an all-time low, leading to disruptions.
A major natural gas pipeline from Russia to western Europe shut down [July 11, 2022] for annual maintenance as Germany prepared to give the green light for 10 coal-fired power plants to restart because of concerns that Russia may not resume the flow of gas as scheduled.
In addition, many European countries have been hit hard, and are struggling to meet their own domestic demand as winter looms.
But what do the tensions between Europe and Russia mean for American consumers?
Well, for one, we’re paying more at the pump. Oil prices have risen sharply in recent months as tensions between Russia and the West continue to mount. And as the U.S. exports record amounts of oil to Europe, Americans are paying more.
But it’s not just higher prices at the pump that we have to worry about. Europe’s dependence on Russian oil also gives the Kremlin considerable leverage over countries in the region. For instance, Russia has been known to use its energy supplies as a political weapon, threatening to cut off countries that don’t toe the Kremlin line.
Oil prices have a significant impact on the stock market in the United States. Here’s why.
The U.S. economy is highly dependent on oil. Oil is used to produce vehicle-powering gasoline and is used in the production of many other products and materials.
When oil prices increase, it costs more to produce these products and materials. This ultimately leads to inflation, which can negatively impact the stock market.
Oil prices are also an influential factor in world economic growth. Economic growth slows when oil prices are high, potentially leading to recession. This can also harm the stock market.
Oil prices are a major concern for investors and can impact stock prices. High oil prices can lead to stock market sales.
A banking crisis in China
Some rural banks in Henan and Anhui, China, have been facing difficulties lately; their customers are feeling the pain. As a result, nearly 400,000 consumers have been unable to access their money when needed.
But experts worry that a much bigger financial problem could be looming [in China], caused by fallout from a real estate crash and soaring bad debts related to the Covid-19 pandemic.
Many of these banks have closed down or are on the verge of collapse. So far, the Chinese government has been reluctant to assist these rural banks, leading to many American investors becoming extremely worried about the future of their Chinese investments.
As a result, American companies that have invested in these rural banks are now at risk of losing their money. This is yet another example of how globalization is impacting the American economy.
Here’s why banking crisis in China impacts the United States.
When Chinese banks have trouble, it affects the global economy.
The U.S. imports a lot of goods from China. If Chinese consumers have less money to spend, American companies will sell less to China. That could lead to job losses in the U.S.
The U.S. also has a lot of investments in China, so if the Chinese economy weakens, that could mean losses for American investors.
And finally, if the Chinese government starts selling off its holdings of U.S. debt to raise cash to prop up banks, that could lead to higher interest rates in the states. In effect, it would be more expensive for Americans to borrow money.
So while the banking crisis in China may seem far away, it could seriously impact ordinary Americans’ lives.
Globalization and the markets
The globalization of the world economy has had a profound impact on the stock market. In the past, the stock market was mainly influenced by events in the United States. However, with the rise of international trade, the stock market has become increasingly interconnected with the rest of the world. This is because U.S.-based businesses often have operations in other countries, and their stock prices can be affected by events in those countries.
The same is true for the crypto market. The rise of global trade has created a truly global marketplace for cryptocurrencies. This means that the price of Bitcoin or Ethereum can be affected by events in any country.
Why you should pay attention to international events
The point is that what happens in the world can directly impact your wallet. So it’s important to stay up-to-date on the latest news and events, even if they seem far removed from your everyday life.
So how can you stay aware of what’s happening globally? Here are a few tips:
Follow the news. Keep up with the latest headlines to know what’s happening worldwide.
Check the stock market. Pay attention to how different markets are performing. You’ll have an idea of how global events are impacting the economy.
Monitor your investments. Keep an eye on any investments. This way, you can see how they’re performing in different global markets.
You can stay informed about what’s happening in the world and make better financial decisions by following these tips.
Who knows? The next global event could have a powerful impact on your bottom line.