How do countries conduct trade in the global economy?
In 1971, Marc McCreary and his family opened a T-shirt factory in Florence, Alabama. Within a few years, his business was booming, with over 1,000 employees and millions of dollars in sales. Other T-shirt factories also opened in Florence, as people hoped to cash in on the growing market. Florence began calling itself the “T-Shirt Capital of the United States.”
But then the boom went bust. In the early 2000s, imported T-shirts from China and other low-wage countries began flooding the U.S. market. These shirts were comparable in quality to American shirts, but much cheaper. Florence’s factory owners tried to boost productivity and lower costs, but in the end they could not compete. “You can’t fix this by working harder,”
McCreary later told a reporter for National Public Radio. “This is a global situation. None of us could figure this out.” In 2003, McCreary had to close his factory and lay off his workers. The other T-shirt firms in Florence also shut down. Thousands of people lost their jobs, and the economy of Florence suffered a major blow.
For a few years the city struggled with the effects of the plant closings. Then it began to recover. Some laid -off workers enrolled in retraining programs to learn new skills. Others opened their own small businesses. Outside firms, including some foreign companies, relocated to Florence to take advantage of the area’s skilled workforce. Although some laid-off workers had trouble getting back on their feet, most moved on to new and even better jobs.
The story of Florence and the T-shirt industry reflects changes in the American economy as it becomes increasingly tied to the global economy. The global economy is the system of markets and trade that links the countries of the world. Economists generally agree that, despite the challenges of foreign competition, the benefits of participating in the global economy far outweigh the costs. This chapter focuses on one of the most important aspects of the global economy-global trade-and its role in shaping the U.S. economy. It also looks at the financial system that makes trade across borders possible.