The spillover effect is the domino effect you never expected. You didn’t know that burrito would give you food poisoning, causing you to miss that job interview. Or that meeting your dog’s dog-friend’s owner would lead to you getting your next job.
The spillover effect is like that, but with big-picture economics as opposed to personal economics.
It’s when an event happens that results in an unexpected economic consequence on a large scale…”spilling over” into other areas. Negative externalities are oftentimes spillover effects. For instance, a firm that's polluting...leading to higher healthcare costs and cancer rates nearby.
On a larger scale, things that happen with the U.S.’s economy oftentimes have a spillover effect to other areas of the world. Which is why everyone knows about America, but Americans don’t know about everyone else. Except China. We know about China.
Since China is now the second largest economy after America, it too is having spillover effects onto other nations’ economies. China’s economy was growing like crazy, but has recently slowed. This means they’re buying less from other countries, and that effect is rippling through all of those economies.
For instance, take the U.S. and China trade war. While this obviously affects the U.S. and China (since tariffs suck for both sides, putting a damper on GDP), it also affects other nations that trade with the U.S. and China. Since the world is so globally connected nowadays, domino effects are increasingly common. When the dominos continue to fall, affecting outside parties, you have a spillover effect.
Countries like North Korea are pretty immune to spillover effects, since they’re pretty independent of the international economy. Welp, that’s one thing going for their economy.
Related or Semi-related Video
Finance: What is Balance of Trade?14 Views
Finance a la shmoop... what is balance of trade...up, down, up, down yeah all right [Squirrels riding a see-saw]
think of balance of trade the same way you would think of that seesaw in your
schoolyard instead of the big-boned third-grader
weighing in against the you know waiting to grow kindergartner when it comes to [Ship sailing out of harbor]
international economies and the goods they buy and sell from into each other
we have exports this guy and imports this guy if two countries have a balance
in trade well then the financial weight on this seesaw thing here is even the
three future NFL linemen weigh about the same as eleven future tax auditors yeah [Linemen players and tax auditors in a see-saw]
but that's rarely the case when countries trade among each other
and if you're on the seesaw you want to be heavy like fat with feet firmly
planted on the ground where you are exporting or selling to another country [Goods travelling to foreign countries]
a whole lot more stuff than you're importing what you want is to be
collecting boatloads of their currency or oil or velcro kilts from Scotland and
as you capture more and more of their trade or wealth [Wealth sucked into the US]
the powerful imbalanced one well that'd be you here you get to have more and
more influence on them and the world they live in is there a way to gain this
system cheat? well sorta yeah politicians and governments get very nervous when
the balance of trade is not in their favor and they have the ability to pile [Imports and exports pile on a see-saw]
a bunch of books on their side of the seesaw to help their skinny accountants
compete better how do they do this magic you ask okay yeah we know you didn't ask
but we'll tell you anyway they smack a tax on goods they import from you like
the US government in the middle of our loss of dominion over the auto industry [Auto industry logos land in a seesaw]
to Japan and Korea and Germany well we placed a big fat tax on foreign cars
being imported into the US and we still lost the war there so yeah the seesaw ie
the balance of trade isn't always fair and by the way if you ever see this guy
coming run at least feed him [Man running in a park]
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