# The Second Globalization

Business I · Economic History · https://tryals.app/learn/business-i/the-second-globalization

## The World Flattens Again

A **second globalisation** began in the 1980s, fundamentally changing what moves and how. While the first era (1870-1914) moved bulk commodities and people, the second moves components, tasks, and data.

**Key drivers:**
- **Container shipping**: Standardised boxes cut handling costs by 90% plus, making component shipping viable.
- **ICT**: Real-time communication made cross-border coordination feasible.
- **Trade liberalisation**: GATT, WTO, and regional pacts lowered barriers.
- **China's opening**: 800 million workers joined the global pool in 1978 and 2001.
- **Capital liberalisation**: Financial deregulation allowed freer capital flows.

**Global value chains** fragment production globally. Each stage goes where costs and quality are optimal, meaning $\text{Trade in tasks} > \text{Trade in goods}$.

## Chains and Backlash

**Winners and losers**: Consumers gained lower prices and variety. Rich-country manufacturing workers lost wages to cheaper competitors, while emerging Asia saw historic poverty reduction. This distribution drives modern political backlash like Brexit and tariffs.

**Limits**: Geopolitical rivalry, pandemics, and security concerns now drive **re-shoring** and **friend-shoring** to relocate supply chains.

| | 1870–1914 | 1980s–present |
|---|---|---|
| What moved | Bulk goods, people | Components, tasks, data |
| Key technology | Steamship, railway | Container, ICT |
| Production | Made in one country | Sliced across value chains |

> **Tip:** The container is the unsung hero: cutting handling costs by 90% made it profitable to ship parts, not just finished goods, enabling global value chains.

## Practice questions

9 of this lesson's 14 practice questions, with answers. The full set is in the app.

### 1. Which factors have begun to slow or reverse the second globalisation?

A. Geopolitical rivalry (US-China tensions)
B. Security concerns about critical components
C. Container ships becoming too large for ports
D. Pandemic-exposed supply-chain fragility

**Answer:** A. Geopolitical rivalry (US-China tensions); B. Security concerns about critical components; D. Pandemic-exposed supply-chain fragility

**Why:** Pandemics, geopolitics, and security, three forces pushing toward re-shoring. Container size is not a significant constraint.

Page: https://tryals.app/practice/business-i/the-second-globalization/which-factors-have-begun-to-slow-or-reverse-the-second-globalisation

### 2. Order the second globalisation's milestones.

**Answer:**

1. Container shipping scales (1960s-80s)
2. China opens its economy (1978)
3. WTO founded, replacing GATT (1995)
4. China joins the WTO (2001)
5. COVID-19 exposes supply-chain risks (2020)

**Why:** Containers, China's opening, institutional deepening, full integration, and then the shock that questioned it all.

Page: https://tryals.app/practice/business-i/the-second-globalization/order-the-second-globalisations-milestones

### 3. In the second globalisation, a large share of trade is in components crossing borders several times before final assembly.

**Answer:** True

**Why:** True. Production is fragmented into value chains, so intermediate goods cross borders repeatedly and gross trade figures double-count the same value. That is why value-added trade statistics were developed, and why a tariff on components taxes a domestic exporter's own inputs.

Page: https://tryals.app/practice/business-i/the-second-globalization/in-the-second-globalisation-a-large-share-of-trade-is-in-components

### 4. China's WTO entry in 2001 added roughly how many workers to the global labour pool (in millions)?

**Answer:** 800 (within ±100)

**Why:** About 800 million, the largest single supply shock in labour-market history. It pushed down the global price of low-skill labour and reshaped trade patterns.

Page: https://tryals.app/practice/business-i/the-second-globalization/chinas-wto-entry-in-2001-added-roughly-how-many-workers-to-the

### 5. Containerisation, fibre optics and barcodes are all credited with enabling global supply chains. What did they have to make cheap together?

A. Labour, which each technology replaced in a different industry
B. Capital, by lowering the cost of borrowing for exporters
C. Coordination at a distance: moving, tracking and deciding
D. Tariff compliance, by automating customs documentation

**Answer:** C. Coordination at a distance: moving, tracking and deciding

**Why:** The three are complements. Cheap freight without cheap information gives you bulk commodity trade, not a chain in which a part is made in one country for assembly next week in another.

Page: https://tryals.app/practice/business-i/the-second-globalization/containerisation-fibre-optics-and-barcodes-are-all-credited-with

### 6. First globalisation (1870-1914) or second (post-1980)?

**Answer:**

- First globalisation: Trade in bulk commodities (grain, cotton), Gold-standard fixed exchange rates
- Second globalisation: Global value chains with components crossing borders multiple times, ICT enabling real-time coordination

**Why:** The first moved commodities under gold; the second moves tasks under floating rates and fibre optics.

Page: https://tryals.app/practice/business-i/the-second-globalization/first-globalisation-1870-1914-or-second-post-1980

### 7. Match each trade term to its meaning.

**Answer:**

- Global value chain → Production stages spread across countries
- Re-shoring → Bringing production back to the home country
- Friend-shoring → Moving supply chains to allied countries
- Trade in tasks → Each country adds a step, not a whole product

**Why:** The vocabulary of 21st-century trade, chains, re-routing, and the shift from products to tasks.

Page: https://tryals.app/practice/business-i/the-second-globalization/match-each-trade-term-to-its-meaning

### 8. The first globalisation moved grain, cotton and migrants; the second moved components, services and instructions. What technological change explains the difference?

A. Air freight made it possible to move goods faster than by sea
B. Manufacturing became more capital-intensive, which required larger markets
C. Cheap communication and containerisation cut coordination cost
D. Trade agreements removed tariffs, which had blocked component trade

**Answer:** C. Cheap communication and containerisation cut coordination cost

**Why:** Baldwin's 'second unbundling': once coordination became cheap, production stages could separate geographically and each go where it was cheapest. Tariffs fell too, but a tariff cut without cheap coordination would still leave the factory in one piece, the binding constraint was information.

Page: https://tryals.app/practice/business-i/the-second-globalization/the-first-globalisation-moved-grain-cotton-and-migrants-the-second

### 9. Why did global value chains fragment production across countries?

A. Governments required it
B. Each stage sits where its cost-quality mix is best
C. Transport costs increased, making local production expensive
D. One country could not produce anything alone

**Answer:** B. Each stage sits where its cost-quality mix is best

**Why:** Fragmentation is an optimisation: locate design where skills are high, assembly where labour is cheap, logistics where infrastructure is good. Falling transport and communication costs made this cost-effective.

Page: https://tryals.app/practice/business-i/the-second-globalization/why-did-global-value-chains-fragment-production-across-countries