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What were the Mercantilist's views on trade? What are the new
of Mercantilism? Discuss? a/ The Mercantilist’s views on trade:
Economic philosophy in the 17th and 18th centuries, in England, Spain, France, Portugal and the
- Export surpluses brought an inflow of gold and silver.
- Trade policy was to encourage exports and restrict imports.
- One nation gained only at the expense of another.
Mercantilism posits that a nation should prioritize maintaining a trade surplus by exporting more than it imports To achieve this, mercantilists support the implementation of high tariffs to limit imports and encourage exports This economic theory emphasizes the importance of government intervention in securing a favorable balance of trade.
To recognize the importance of International Trade.
Mercantilism advocates that governments should implement policies aimed at boosting their reserves of gold and silver This economic theory, prevalent among Europeans from the 16th to the 18th century, typically involved promoting exports while restricting imports to enhance national wealth.
Mercantilists supported high tariffs to promote exports while limiting imports, advocating for government intervention to achieve a favorable balance of trade However, a significant weakness of mercantilism lies in its reliance on state control over economic activities.
The primary issue with the mercantilist perspective is its belief that trade operates as a zero-sum game, suggesting that one nation's gain inherently results in another's loss This economic philosophy is fundamentally flawed, as it ultimately undermines a country's long-term prosperity and primarily benefits only a select few individuals.
- In the 1770s, Adam Smith argued that import restrictions would reduce the gains from specialization and make a nation poorer He used an absolute advantage to explain the benefits of trade.
How are the Adams Smith (Theory of absolute advantage) 's views
Adam Smith emphasized the benefits of trade, asserting that gains from trade arise through specialization and the division of labor, which enhance productivity and efficiency He advocated for free trade policies, arguing that minimal government intervention allows for a more dynamic economy and fosters competition Smith believed the proper role of government in the economic life of a nation was to maintain order, protect property rights, and provide public goods, while allowing the market to operate freely to maximize wealth and prosperity.
According to Adam Smith, a wise family leader should avoid attempting to produce items at home if the cost of making them exceeds the price of purchasing them.
- Specialization and trade among regions and countries are based upon the same principle as among individuals.
- 1776 Adam Smith, The Wealth of Nation
• Word’s wealth is not a fixed quantity
♦ Increase the general level of productivity within a country
- Adam Smith argued that a country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it
Smith argues that nations should focus on producing goods in which they hold an absolute advantage, subsequently trading these products with other countries to obtain goods they do not produce as efficiently.
How were gains from trade generated ?
In the 1770s, Adam Smith contended that import restrictions diminish the benefits of specialization, ultimately leading to a nation's impoverishment He introduced the concept of absolute advantage, which posits that a country possesses an absolute advantage in producing a product when it can do so more efficiently than any other nation.
When one country has an absolute advantage in producing a specific good while facing an absolute disadvantage in another, both nations can benefit by specializing in their respective advantageous products By focusing on their strengths and trading a portion of their output, each country can acquire the goods in which they are less efficient, leading to mutual gains from trade.
What policies did Adam Smith advocate in International Trade ?
Smith argues that nations should focus on producing goods in which they possess an absolute advantage and subsequently engage in trade for products made by other countries This strategy optimizes production efficiency and enhances international trade benefits.
- Specialization and trade advantage both countries.
- Adam Smith and other classical economists advocated policy of laissez-faire, or minimal government interference with economic activity.
- Free trade would cause world resources to be utilized most efficiently, maximizing world welfare.
What did he think was the proper function of government in the economic life of the Nation?
- As one might expect from Smith’s conviction that markets were extremely efficient, he was in favor of a government that did not hamper the working of the market
- However, Smith emphasized the fact that the government should + Maintain law and order
+ Ensure the defense of the nation from foreign enemies,
+ Erect and maintain public works that private citizens would not build
+ Subsidize education for those who could not afford it, and
+ Regulate international trade when free trade endangers ‘infant industries’ or compromises national security
In what way was Ricardo's law of Comparative Advantage superior
to Smith's Theory of absolute advantage?
( Compare the theory of Absolute Advantage and Comparative Advantage )
- Why this theory is more relevant to the modern trade situation?
- How do gains from trade arise with Comparative Advantage?
* Compare the theory of Absolute Advantage and Comparative Advantage
- David Ricardo refined this idea into the Law of Comparative Advantage
- Adam Smith argued that a country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it
– Even if a nation has an absolute cost disadvantage in the production of both goods
– Specialize in and export the good in which it is relatively less inefficient Where its absolute disadvantage is the least.
– Specialize in and export that good in which it is relatively more efficient Where its absolute advantage is greatest
Comparative Advantage superior to Smith’s Theory of Absolute Advantage:
Countries vary significantly, and these differences create potential benefits from trade Each nation has a comparative advantage in producing specific goods, allowing them to gain mutual advantages through trade.
* This theory is more relevant to the modern trade situation?
Cheaper currencies can enhance export competitiveness, and Vietnam's commodities maintain a price advantage despite currency declines in other exporting nations In response to China's yuan depreciation, many countries, including developed ones, have adjusted their foreign exchange policies to boost exports Each country targets specific market segments, leveraging brand value and comparative advantages As a developing exporting nation, Vietnam benefits from a cost-effective and hardworking labor force, attracting investment in labor-intensive sectors like textiles and footwear Currently, Vietnam ranks as the second-largest textile exporter to the U.S., following China.
While fluctuations in forex rates can create challenges for exporters, the level of competition differs across various markets Exchange rates influence a portion of exporters' competitiveness; however, factors such as production costs, brand value, and product quality are more crucial Nonetheless, these aspects remain areas of vulnerability for Vietnamese producers.
Thus, the most important thing is still the long-term strategy of enterprises in building brand, reducing costs, improving product quality, and meeting standards in difficult markets.
Vietnam is rapidly enhancing its integration into global trade by signing 10 free trade agreements (FTAs) and is currently in the final negotiation stages for additional agreements, including the Vietnam-EU FTA and the Trans-Pacific Partnership (TPP).
*Gains from trade and Comparative Advantage?
Sources of Gain From Trade:
– Most sources of gain are analogous to how individuals gain from trade
– Comparative advantage focuses on: Differences inability to produce goods
– Other sources of gain, not in this model: Differences in tastes & Economies of scale
• Accumulated Physical and Human Capital
• Difference in cultures & social institutions
• Dynamic comparative advantage – “learning by doing” which develops industry-specific expertise
– “Infant Industry” argument for tariffs & subsidies:
• Difference in natural resources, topography, climate may play an initial role – but acquired advantages dominate differences in initial conditions
• Technological change and governmental policies: China – workforce/technology, Canada – resources, Alberta – oil, India – technology/skilled people, Mexico – greenhouse/climate, NewZealand – sheep.
What are the source of comparative advantage?
A/ Factors that determine how countries will specialize in international trade
Trade-Based on Absolute Advantage: Adam Smith: difference in climate condition, resources (land, ), labor productivity
B/ The Sources of Comparative Advantage
Countries’ comparative advantage stems from:
- Accumulated Physical and Human Capital
- Difference in cultures & social institutions
- Dynamic comparative advantage – “learning by doing” which develops industry-specific expertise
“Infant Industry” argument for tariffs & subsidies
- Difference in natural resources, topography, climate may play an initial role – but acquired advantages dominate differences in initial conditions
- Technological change and governmental policies
What is meant by labor-intensive commodities? Capital-intensive commodity? What is meant by capital - abundant nation? What does
Industries differ in factor intensities :
Examples: labor-intensive commodity vs Capital- intensive commodity
- Agriculture uses lots of land
- Textiles & apparel use lots of unskilled labor
- Autos use lots of capital
- Computers use lots of human capital
Definition: Good X is capital-intensive and good Y labor-intensive if
KX/LX > KY/LY for all relative factor prices (r/w) the firm always maximizes profits / minimizes cost by using relatively more capital in
The United States is a capital-abundant nation, characterized by a higher ratio of capital to labor (K/L) compared to Mexico, which is labor-abundant This means that the amount of capital available per laborer in the U.S exceeds that in Mexico Consequently, while the U.S has more capital relative to its labor force, Mexico possesses a greater labor supply relative to its capital resources Thus, the U.S is capital-rich, whereas Mexico is labor-rich, highlighting the contrasting economic structures of the two countries.
What does the Heckscher and Ohlin theory postulate ?
The Heckscher-Ohlin theory argues that trade occurs due to differences in labor, labor skills, physical capital, capital, or other factors of production across countries.
- Countries have different relative abundance of factors of production.
- Production processes use factors of production with different relative intensity.
They wanted to explain this increase in trade during the “golden age” of international trade.
A nation will export goods that are produced using its abundant and inexpensive resources while importing goods that rely heavily on its scarce and costly resources This principle highlights the relationship between a country's resource availability and its trade patterns, emphasizing the importance of factor endowments in determining export and import dynamics.
-Or: The relatively labor-rich nation exports the relatively labor- intensive commodity and imports the relatively capital -intensive commodity.
The Heckscher-Ohlin theorem posits that a country will have a comparative advantage in producing goods that utilize its abundant factors of production, leading to exports of these goods Conversely, it will import goods that require factors of production that are relatively scarce within its economy.
What can we say from the trade pattern between the two countries?
Trade involves the exchange of goods and services between nations, with imports referring to goods brought into a country and exports indicating those sold to other countries Developed nations dominate global trade, holding a larger share compared to developing countries.
- Trading globally gives consumers and countries the opportunity to be exposed to goods and services not available in their own countries, or which would be more expensive domestically.
- The importance of international trade was recognized early on by political economists like Adam Smith and David Ricardo.
To grasp the evolution of modern global trade, it is essential to examine historical trade practices among countries Initially, economists formulated classical theories focused on country-based perspectives However, by the mid-twentieth century, the focus shifted towards firm-based perspectives, giving rise to modern theories Both classical and modern categories encompass various international trade theories that explain the complexities of trade relationships.
What is the primary function of tariffs in industrial nations? What
to protect domestic industries, and to remedy trade distortions (punitive function) The revenue function comes from the fact that the income from tariffs provides governments with a source of funding.
What are the advantages and disadvantages of Ad valorem and Specific Tariff?
Ad valorem tariffs offer the benefit of adjusting tax charges in accordance with fluctuating import prices, thereby providing consistent protection for domestic producers However, a notable drawback is the challenge of accurately determining the value of imports, which can complicate the taxation process.
A specific tariff is advantageous as it simplifies the application process on imports, regardless of their pricing, providing protection to domestic producers during economic downturns By increasing the price of cheaper foreign goods, it encourages consumers to opt for local products However, a notable drawback is that it fails to deter the consumption of relatively expensive imports, as the fixed tax amount becomes less significant when the prices of foreign products rise.
What is meant by the consumption, production, trade, revenue, and redistribution effects of a tariff?
Consumption Effect: The imposition of import duty on a particular commodity has the effect of reducing consumption and also the net satisfaction of the consumers.
The protective or production effect of tariffs aims to shield domestic industries from foreign competition by limiting the influx of imported goods This restriction enables local producers to enhance their production of import substitutes, a phenomenon known as the import-substitution effect, as described by Ellsworth.
The Terms of Trade Effect indicates that when foreign supply of a good remains perfectly constant in price, imposing a tariff is unlikely to enhance the terms of trade for the country imposing the tariff Conversely, if the foreign supply is not perfectly elastic, the impact of a tariff on the terms of trade can differ based on the elasticities of demand and supply in both trading nations.
Revenue Effect: The imposition of import duty provides revenues to the government The revenue receipts due to tariff signify a revenue effect.
The imposition of tariffs results in decreased consumer satisfaction while simultaneously increasing producer surplus and generating revenue for the government Consequently, tariffs create a redistributive effect within the tariff-imposing country, benefiting domestic producers at the expense of consumers.
An import quota is a trade restriction that limits the quantity of a specific good that can be imported into a country during a given timeframe While both import quotas and equivalent import tariffs aim to protect domestic industries by controlling foreign competition, they differ in their mechanisms and effects Import tariffs impose a tax on imported goods, generating revenue for the government, whereas import quotas restrict supply, often leading to higher prices without direct revenue generation The revenue effect of a tariff is straightforward, as it produces government income, while an import quota may create economic rents for domestic producers but does not provide direct revenue to the government.
A limit on the quantity of imports
Can be mandatory or voluntary, and can be legislated or negotiated with foreign governments
A Tariff Rate Quota (TRQ) permits a specified quantity of a product to enter a country at a reduced or zero tariff rate, while imposing higher tariffs on any amounts that surpass this quota This system can significantly impact trade dynamics and market prices by limiting the volume of imports and protecting domestic industries from foreign competition.
- Because the quota raises the domestic price above the world price, + domestic buyers of the good are worse off, and
+ domestic sellers of the good are better off.
- Import license holders are better off
+ They make a profit from buying at the world price and selling at the higher domestic price.
If the government sells import licenses for full value,
+ the revenue would equal that from an equivalent tariff and
+ tariffs and quotas would have identical results.
+ Otherwise, quotas are worse than tariffs Quotas will benefit for the Quota License holder They become a temporary monopoly in importing the product It cause deadwe
How does the revenue effect of an import quota differ from that of a tariff ?
A tariff is a tax levied on imported goods, while an import quota imposes a direct limit on the quantity of imports allowed within a specific timeframe.
- If government sells import licenses for full value, the revenue would equal that from an equivalent tariff and tariffs and quotas would have identical results.
- Otherwise, quotas are worse than tariffs Quotas will benefit for the Quota License holder They become temporary monopoly in importing the product It cause deadweight losses.ight losses.
The Lessons for Trade Policy: Both tariffs and import Quota
+ reduce the welfare of domestic consumers.
+ increase the welfare of domestic producers.
What is meant by dumping? What are the different types of dumping? Why is dumping undertaken? What conditions are required
to make dumping possible? Why does dumping usually lead to trade restrictions? Analyze one case study many government have used: China with steel industry, solar panel
Dumping is the export of a commodity at below cost or at least the sale of a commodity at a lower price abroad than domestically
Persistent dumping occurs when a domestic monopolist seeks to maximize profits by setting higher prices in the domestic market, which is protected by transportation costs and trade barriers, compared to lower prices in the international market where it faces competition from foreign producers.
Predatory dumping refers to the strategy of selling a product at a price lower than its production cost in foreign markets This practice aims to eliminate competition by driving local producers out of business Once the market is dominated and competitors are removed, the prices are subsequently increased to exploit the newfound monopoly power.
Sporadic dumping refers to the infrequent practice of selling a commodity at prices lower than domestic rates or below production costs This strategy is employed to manage unexpected and temporary surpluses of goods while avoiding a decline in domestic prices.
To Find a Place in the Foreign Market.
A monopolist engages in dumping to establish or maintain a presence in foreign markets By reducing the price of his goods below that of competitors, he aims to boost demand despite facing perfect competition This strategy often leads to selling his products at a loss in the international market.
When a monopolist produces an excess of goods that cannot be sold in the domestic market, they often seek to offload the surplus at low prices in foreign markets, though this situation occurs infrequently.
A monopolist often engages in dumping to grow their industry, benefiting from both internal and external economies that result in increasing returns This expansion lowers production costs, allowing the monopolist to sell larger quantities of their product at reduced prices in foreign markets, ultimately leading to higher profits.
A monopolist engages in dumping to foster new international trade relationships by offering goods at reduced prices in foreign markets This strategy not only helps establish new market connections but also allows the monopolist to boost production, reduce costs, and ultimately increase profits.
What conditions are required to make dumping possible?
- The fragmented market, the buyers in the domestic market cannot easily buy the dumped commodity from the foreign market and bring it into the domestic market.
- The elasticity of demand must be different in the two markets The demand should be less elastic in the domestic market and perfectly elastic in the foreign market.
In an imperfectly competitive market, suppliers have the power to set prices for their products, rather than allowing market forces of supply and demand to determine pricing This market structure contrasts with perfect competition, where prices are dictated by the collective actions of all participants.
Why does dumping usually lead to trade restrictions?
When a producer temporarily exports their goods at lower prices, it can negatively impact the importing country's industry This dumping leads to reduced sales for local producers, resulting in financial losses until the market stabilizes.
Long-term dumping can significantly harm the importing country, as it hampers the ability of its domestic industry to adapt and compete effectively When cheap imports persist, the local production processes struggle to evolve, making it challenging to resume normal production once dumping ceases.
- Predator dumping is the most dangerous type, many countries use this kind of dumping to secure the monopoly market.
To safeguard their economies from production stagnation and the potential bankruptcy of local producers, importing countries often implement protective measures such as tariff duties and import quotas A notable example is the United States, which has been imposing duties on frozen shrimp imports from Vietnam for over a decade.
Analyze one case study many government have used: China with steel industry, solar pa-
In 2009, China's Ministry of Finance raised tax reimbursement rates for various mechanical and electronic products, increasing the rate for industrial robotic equipment from 14% to 17%, and adjusting the rates for sewing machines and motorcycles from 11% and 13% to 14% Additionally, a pilot project for "tax refund at the Export Port" was approved by the Ministry of Finance, the General Department of Customs, and the China Tax Administration, with its official implementation taking place in Shanghai City.
To boost exports, China's Ministry of Finance has introduced incentive tax policies for over 600 items, offering export tax discounts ranging from 5% to 17% on products such as shoes, toys, and souvenirs Since July 2009, the government has also implemented a quota policy promoting the export of consumer goods, reducing export taxes to 0% for light industrial products like audiovisual electronics, household electrical goods, children's toys, garments, shoes, as well as plastic and wooden products Additionally, goods and materials including chemical fertilizers, pesticides, preservatives for fruits and vegetables, food, and roofing sheets also benefit from this tax exemption.
(corrugated iron, plastic), raw wood products (wood) Laminated pine, veneer, MDF). o Agricultural products: Fruits, vegetables.
- In terms of loans, Chinese commercial banks have provided short- term loans to exporters that enjoy the rates
Current preferential interest rates range from 4-5% per year, contributing to a significant increase in the export volume of Chinese goods Foreign businesses can benefit from a 0% interest rate support on 30% of their order value when purchasing Chinese goods and materials.
Chinese commercial banks offer loans with attractive interest rates of just 1-2% to stimulate exporters' investments in factory and workshop construction This financial support has empowered Chinese enterprises to manufacture products in large volumes while minimizing costs.
Do you agree or don't agree with Protectionism? What are the
In my point of view, I definitely agreed with trade protectionism Trade protectionism is a policy that protects domestic industries from unfair competition from foreign ones.
Protectionism serves as a politically driven defensive strategy that may yield short-term benefits; however, it ultimately harms a country's long-term competitiveness in international trade.
To foster growth in emerging industries, implementing tariffs can shield domestic companies from foreign competition, allowing them the necessary time to establish their competitive edge This protective measure also provides struggling local industries with an opportunity to recover and thrive.
Protectionism can lead to a temporary increase in domestic employment by enabling local companies to hire workers due to tariffs, quotas, or subsidies However, this advantage is short-lived, as retaliatory measures from other countries can swiftly counteract these benefits.
The lack of foreign competition leads to stagnation in technological advancements, as domestic producers feel no pressure to innovate This absence of competitive urgency results in reduced investment in research and development (R&D) for new products.
• Market Distortion and loss of Economic Efficiency: Protectionism can be an ineffective and costly means of sustaining jobs and supporting domestic economic growth
Export subsidies significantly reduce market access for producers in lower and middle-income developing countries, leading to depressed world prices This adversely affects their output, profits, investment, and job creation, as these nations heavily depend on exporting primary and manufactured goods for economic growth.
High tariffs and import barriers impose extra costs on exporters, functioning as a tax that ultimately harms economies and jobs instead of safeguarding them For instance, a tariff on imported steel can increase expenses and reduce profit margins for car manufacturers and the construction sector.
Tariffs can disproportionately impact low-income families by raising prices on essential goods such as food, tobacco, and clothing, which constitute a larger portion of their budgets As a result, these higher costs can exacerbate relative poverty, making it more difficult for those with limited financial resources to make ends meet.
• Retaliation & Trade Wars: There is the danger that one country imposing import controls will lead to retaliatory action by another.
• Limited choices for consumers: Consumers have access to fewer goods in the market as a result of limitations on foreign goods
• Increase in prices (due to lack of competition): Consumers will need to pay more without seeing any significant improvement in the product
• Economic isolation: It often leads to political and cultural isolation, which, in turn, leads to even more economic isolation
Give some examples and trade tools that developed Nations: US,
1 Tariffs – This is a tax on imports.
2 Quotas – This is a physical limit on the quantity of imports
3 Embargoes – This is a total ban on a good, this may be done to stop dangerous substances
4 Subsidies – If a government subsidizes domestic production this gives them an unfair advantage over competitors.
5 Administrative barriers – Making it more difficult to trade, e.g. imposing minimum environmental standards.
6 Competitive devaluation – manipulating currency to make exports cheaper.
Tariffs on imports of Chinese tires into the US The US imposed tariffs of 35% on imports of tires from China
In March 2018, President Trump implemented tariffs of 25% on steel and 10% on aluminum imports from various countries, significantly impacting international trade Additionally, he increased tariffs on a wide range of Chinese goods, including appliances like refrigerators and washing machines, as well as clothing.
Clothing encompasses textiles, which involve the fabrication of cloth, and apparel, the assembly of that cloth into garments Prior to 2005, the Multi-Fiber Agreement established quota licenses for textile and apparel exporters between the U.S and numerous other countries.
The EU Common Agricultural Policy (CAP) continues to enforce significant tariff rates on various agricultural markets, despite reforms and some reductions in these tariffs This approach aims to elevate prices for domestic European farmers, ultimately enhancing their income.
Escalated tariffs refer to the increased duties imposed on processed food, discouraging countries from adding value to raw commodities A WTO report highlighted that in 2008, the average EU tariff on primary food products was 9.9%, whereas processed food products faced tariffs exceeding 19.4%, illustrating the significant disparity in tariff rates.
European airlines have faced criticism for allegedly receiving unfair government subsidies, with critics arguing that such support distorts competition In response, European governments assert that these measures are necessary to prevent airlines from going bankrupt and to safeguard the industry.
EU announces tariffs on Chinese solar panels
Japan’s 1000% tariff on imported rice
What is the main argument of Trump against Free Trade (use tariff on imported goods from China)
To enhance American trade relationships, it is essential to prioritize national interests in alignment with the United States' national security strategy The Trump Administration has actively pursued this goal by initiating multiple Section 232 investigations and imposing tariffs on steel and aluminum.
The re-negotiation of outdated trade agreements, particularly NAFTA and the KORUS agreement, was a significant focus, with Trump labeling NAFTA as “the worst deal ever.” Following extensive negotiations, the U.S., Canada, and Mexico ratified the U.S.-Mexico-Canada Agreement (USMCA) in late 2019, which, while largely similar to NAFTA, introduces stricter rules of origin that will significantly impact regional value chains The U.S ratified the agreement in late 2019, with implementation set for the summer of 2020.
The Trump administration has taken a strong stance against unfair trade practices, emphasizing the strict enforcement of U.S trade laws, particularly regarding China In July 2018, the U.S implemented 25 percent import duties on $34 billion worth of Chinese goods Following over a year of reciprocal tariff retaliation, the U.S and China reached the Phase-One Deal in early 2020, which deviates from traditional free trade agreements and incorporates elements of managed trade.
What are the main drivers of Globalization? What are the benefits
The four main areas of drivers for globalization are market, government, cost, and competition
Market drivers encompass shared customer needs and adaptable marketing strategies, as the rise of global markets for standardized products allows companies to meet demand in new regions using their existing offerings.
Government influence is also a major driver, with policies leading to reductions in trade barriers and a shift towards an open market economy.
Companies can achieve cost advantages by increasing their economies of scale through higher sales volumes and by leveraging low-cost production methods, such as outsourcing and importing.
The rise of competitive drivers, coupled with increasing trade between nations and foreign direct investment (FDI), has led to greater interdependence among countries and organizations, while also introducing businesses to new competitors.
What are the benefits and challenges of Globalization?
Globalization significantly boosts economic growth by facilitating increased capital flow, leading to higher revenues and enhanced gross domestic product (GDP) through expanded trade in larger and more diverse markets.
Global competition drives companies to improve product quality and affordability, as consumers increasingly seek the best and cheapest options available worldwide This demand compels businesses to enhance their offerings to stay competitive Additionally, outsourcing labor to foreign workers at lower wages further contributes to reduced prices, benefiting consumers.
Collaborative efforts and shared resources foster creativity and innovation, essential for addressing global challenges To effectively tackle issues like conservation and rising carbon emissions, a unified global approach is crucial for success.
Globalization offers significant advantages beyond financial metrics, particularly through cross-cultural exchanges The sharing of ideas, food, music, media, and language fosters valuable connections and enriches societies These cultural interactions enhance understanding and appreciation among diverse communities, demonstrating that the true worth of globalization lies in its ability to unite people through shared experiences.
The rapid global spread of technology has transformed industries, with companies like Google, Dell, and Microsoft establishing offices across multiple continents Developing nations attract investors due to their significant growth potential, leading to advancements such as the introduction of motorized farm machinery in Southeast Asia, which has replaced traditional manual labor.
Quick Technological Advances: For developing countries, especially, being able to skip the long technological development processes of industrialized countries brings rapid progress.
Globalization has contributed to reduced inflation rates in Western economies, allowing household incomes to stretch further as each dollar spent holds more value This trend has led to increased real wages and a lower cost of living, making previously unaffordable items, such as laptops, cars, and washing machines, accessible to a larger segment of the population Additionally, global market competition has driven down prices, enhancing consumer purchasing power.
Enhanced open-mindedness and tolerance arise when individuals connect with people from diverse backgrounds Fear of the unfamiliar often diminishes when one engages in conversations about shared challenges, experiences different cultures, and enjoys various cuisines This interaction fosters a greater understanding of our common humanity, enabling people to view others as equals rather than strangers.
Exploitation: Exploiting cheap markets and lax regulations in developing nations has caused pollution and suffering in those countries, even as profits soar abroad.
Globalization poses significant challenges for multinational corporations, particularly regarding high investment costs and effective leadership Establishing a business in a new market, especially in developing countries, demands considerable upfront capital, and often, the necessary infrastructure is lacking.
Multinational corporations encounter significant challenges due to varying laws and legal systems across different countries The complexity of navigating these diverse legal and banking frameworks can hinder their expansion efforts and result in serious consequences for any missteps.
Weak regulation in international business leads to a chaotic market environment, resembling the Wild West The limited number of regulatory bodies means that when issues arise, their effects can ripple across interconnected global markets A notable example of this is the global financial crisis, which significantly impacted numerous countries.
Industrialized nations face significant challenges due to rising numbers of immigrants and refugees, as the influx can strain resources and social systems While these countries may desire to offer assistance, an overwhelming number of arrivals can hinder their ability to support both newcomers and their own citizens effectively.
Localized Job Loss: Globalization can contribute to a decline in job
What is Globalization? Describe the benefits and challenges of the
Globalization refers to the increasing interconnectedness of countries, individuals, and businesses worldwide, driven by advancements in technology, transportation, media, and global finance These forces facilitate the seamless movement of goods, services, ideas, and people across traditional borders, fostering a more integrated global economy.
The benefits and challenges of the current wave of Globalization in the VN’s Economy?
• Rapid increase in foreign direct investment (FDI)
• Increase in enterprises’ awareness, adaptation, and performance
• More favorable legal system for trading activities
• Low competitiveness of nation, enterprises and products
• Issues relating to macro policies and administrative procedure
• Difficulties in the agricultural sector
The ASEAN Economic Community (AEC) offers numerous benefits, such as increased trade opportunities, economic integration, and enhanced competitiveness among member countries However, it also presents challenges, including disparities in economic development and regulatory alignment Vietnam's active participation in various Free Trade Agreements (FTAs) enhances its market access and promotes foreign investment, but it also incurs costs related to competition and market adjustments Joining the World Trade Organization (WTO) has further opened Vietnam's economy, yet it faces challenges like navigating the ongoing trade tensions between the US and China, which could impact its export markets and economic stability.
+Vietnam's economy is integrated with the regional economy
+Create conditions for our economy to narrow the development gap with other countries in the region.
+Acquiring the world's most advanced scientific and technological achievements for economic development.
+Conditions for acquiring and learning management skills of countries in the region.
ASEAN has established various frameworks and cooperation mechanisms across multiple sectors, including education, health, women's empowerment, youth development, children's welfare, environmental protection, cultural exchange, information sharing, rural development, science and technology, and labor These collaborative initiatives and projects provide significant practical benefits to Vietnam.
+Having favorable conditions to exchange culture, education, science- technology, health, and sports with other countries in the region.
What Vietnam actively participates in many FTAS? What are the benefits and costs of Vietnam when we sign in FTAS and join WTO?
Historically, Vietnam's trade relations were heavily focused on East Asia, resulting in significant losses, exemplified by a nearly US$ 700 billion trade deficit in 2017, with ASEAN alone contributing US$ 65 billion to this deficit However, Vietnam's participation in various Free Trade Agreements (FTAs) and improved trade relations with partners from other regions have played a crucial role in balancing its trade deficit.
Joining FTAs has contributed to raising Vietnamese exports It is evident that the exports reached only US$ 5.4 billion in 1995, US$ 14 billion in 2000, US$48 billion in 2007, and US$ 213 billion in 2017.
It is not denied that FTAs have brought many benefits to Vietnam. Typically, for the Textile and Garment sector, when exporting to the
Vietnam's accession to the WTO significantly impacts its garment export tariffs to the US, reducing them to an average of 25% Without WTO membership, these tariffs would be 150% higher Additionally, if Vietnam establishes a Free Trade Agreement (FTA) with the United States, tariffs could further decrease to as low as 0-5%.
Free Trade Agreements (FTAs) provide numerous advantages, particularly in promoting equal accessibility within the market New-generation FTAs focus on addressing inequality, necessitating government efforts to ensure a level playing field between state-owned and private enterprises This approach facilitates better resource access for private companies Additionally, FTAs contribute to Vietnam's infrastructure development, enhance investment attraction, drive administrative reforms, and eliminate barriers to market entry.
1 It provides consumers with more options and the benefit of lower prices.
Advocates of free trade assert that importing goods from countries with lower or no tariffs offers consumers a wider variety of choices, contrasting with the limitations posed by market monopolies Furthermore, they believe that increased trade freedom leads to lower prices for consumers.
2 It benefits trading countries through competitive advantage.
Countries with abundant resources can gain a competitive edge by specializing in the production of specific goods, becoming exclusive suppliers to other nations This arrangement allows purchasing countries to take advantage of lower prices for these imported products, creating a mutually beneficial scenario for both trading partners.
3.It is a key to economic growth.
Countries participating in free trade often experience stronger economies due to their ability to specialize in products with abundant resources This specialization fosters high productivity levels and encourages healthy competition, resulting in a diverse array of traded goods.
Free trade agreements facilitate the import of products from developing nations by reducing trade barriers, enabling large corporations to benefit from lower labor costs However, this reliance on inexpensive labor often results in significant human costs.
Following the 2001 free trade agreement between Jordan and the United States, a significant rise in sweatshops occurred, as reported by The New York Times in 2006 American retailers began ordering millions of dollars in clothing from Jordan, drawn by the promise of low prices from manufacturers However, this was often achieved at the expense of workers, who were reportedly forced to work up to 20 hours a day for wages below the state-mandated minimum Without the free trade agreement, it is unlikely that American retailers would have made such extensive orders, as trade barriers would have rendered the clothing too costly.
Free trade agreements can lead to significant environmental harm by enabling companies to relocate their production to countries with lax environmental regulations and greater access to natural resources Prior to the implementation of the North American Free Trade Agreement (NAFTA) in 1993, there was minimal demand for timber and metal ores from Mexico However, a 2014 Sierra Club report highlights that NAFTA spurred the development of poorly regulated and environmentally damaging mining operations in Mexico that likely would not have emerged without the trade deal.
Free trade agreements often damage a nation's domestic industries by exposing them to competition from foreign producers with lower costs
Critics of NAFTA contend that the agreement harmed U.S industries by enabling Mexican manufacturers to exploit lower labor costs, thereby undercutting American producers The Economic Policy Institute reported that by 2010, NAFTA had led to the loss of over 600,000 American jobs to Mexico Additionally, the Council on Hemispheric Affairs claims that NAFTA significantly undermined the Mexican agricultural sector by inundating it with inexpensive American crops.
Proponents of free trade agreements argue that they enhance economic efficiency; however, certain agreements can lead to intricate regulatory frameworks that may negatively impact businesses Each bilateral trade deal introduces a multitude of regulations concerning product definitions, tax rates, points of origin, and other trade elements The existence of numerous bilateral agreements globally results in legal complexities for both buyers and sellers.
What are the challenges for VietNam in this period: trade tension
Vietnamese enterprises are being given opportunities to export high-tech goods to the United States However, this rise in exports could lead to a growing trade deficit for the US with Vietnam, which may subject Vietnamese products to increased scrutiny and inspections, potentially impacting export businesses.