International Trade

Globalisation has emerged over the past 30 years bringing new dimensions to the traditional economic thinking around international trade. Discuss the economic, political and social impacts of international trade in the 21st century. Globalisation is the trend towards markets crossing international and regional borders, lessening the differences in customers’ wants1. The process of globalisation, assisted by the technological revolution in communications and computers, is radically altering the shape of world markets, as well as the nature of business and everyday life.

The economic, political, and social significance of international trade has been essential for the growth of globalisation. The restrictions to international trade would limit the nations to the services and goods produced within its territories, and they would lose out on the valuable revenue from the global trade. Globalisation has not only changed the way we live it has improved efficiency in flow trade and finance, modernised technology for consumers and increased wealth. International trade is the exchange of goods and services between countries.

This type of trade gives rise to a world economy, in which prices, or supply and demand, affect and are affected by global events. Economically it can be extremely complicated especially the fact that all countries whether they like it or not, are related to each other in one way or another. For example, an increase in the price of one commodity such as oil creates a long and complex chain of events which makes analysis of all the causal relationships virtually impossible. The risk of the exchange rates can also be a impact between countries due to the different currencies around the world.

During recession, countries suffer local pressure to change laws governing International trade to protect the local industries. The most painful and memorable of such incident is the Great Depression. However, nations with strong international trade have had the power to control the world economy and this has allowed them to reduce poverty. Trade has also allowed countries to increase in profits and sales which have allowed businesses to expand internationally. Political impacts of international trade are not taken lightly as there may be many impacts which may affect the trade of goods and services between the countries.

The risk of non- renewal of import and exports licenses can affect the consumer and supplier, this is because if a license is not renewed jobs will be lost and consumers will be dissapointed as their good or service is no longer being offered to them. The risk of war is also dangerous as it can leave the country in harm and have a huge impact as businesses will no longer want to provide their goods and services to the country at war. If war is declared between to countries this impacts the economy greatly.

Through diversifying cultrally and socially a nation becomes more open and desirable to tourists. It allows for major growth and change as well as initiating connection with other countries. Therefore, if more tourists are willing to come to a country it further increases economic growth. International trade may also impact the way individuals behave towards each other, as new customs from overseas are learned and adapted.

According to the Australian Department of Foreign Affairs and Trade, the growth in exporting and companies becoming global has created over 250,000 new jobs. Conclusively, international trade in goods, services and finance has been increasing at an exponential rate which is giving consumers a wider choice of products and services to choose from. Globalisation has not only changed the way we live it has improved efficiency in flow trade and finance, modernised technology for consumers and increased wealth. The process of globalisation, assisted by the technological revolution in communications and computers, is radically altering the shape of world markets, as well as the nature of business and everyday life.

Economics Paper 5 International Trade and Finance Speech Financial Pitfalls 2 Ladies and Gentlemen of the House, good afternoon to you all. I would like to thank you for the opportunity to speak to you this today on such an important topic – our economy. Our economy is in crises mode. To say that our economy has slowed down would be an understatement. The economy, to date, has taken a step backwards and the direction we are heading will take us from a record long-lasting recession to an all-out financial depression. Americans consume far more goods than we produce on a monthly basis.

What that means, simply put, is that we continue to build more debt and get poorer with every passing month. Think of it like this – the average person goes through a certain amount of managed stress each day. When outside stress, or variables are added to daily stress it places more pressure on the body and mind. If this outside stress isn’t dealt with or managed, and as more is added, the body will either explode or shut down. Our economy is like the average person’s body. Most of us do not understand the current economic state of affairs.

Not that we wouldn’t be able to comprehend the status, but most are unaware, as the media and national political heads are sheltering Americans from the truth and not diving in to the true issues at hand. We currently have a surplus of imports in our great nation. This should be of no surprise to us – countries that we currently hold the largest amount of deficit through imports are: •China •Mexico •Japan Financial Pitfalls 3 With the Chinese enjoying a spike in export capital over nearly past ten years, they have become a giant on the global economic scene.

On a closer level, one that strikes the heart of every American man and woman, the impact of this surplus is being felt in our automotive industry – the true backbone of this great country. China has grown into an auto-parts monster as they have increased over 900 percent in exports since the beginning of the century. How are they doing this? By producing quality parts at a cheaper rate is nothing new but the Chinese are being criticized by many for benefitting from illegal currency manipulation which leads to unfair trade policies.

These policies pose a real threat to American automotive jobs in the near future. International trade has a significant effect on the Gross Domestic Product. The GDP is the true market worth of officially recognized goods or services produced in a country. Think about this for a moment – if you were to go into a department store and found two shirts that were identical in color, material and stitch but one was priced ten dollars higher than the other. Which one would you choose? Easily you would pick the cheaper product and that is the issue American consumer’s face each day.

Larger corporations have the ability to mass-produce products and pay their workers far less than those here in the states. They do this across the globe in what is called slave labor. As a result, there are fewer jobs available in the United States, more across the globe, and more goods being imported into the country and a more dramatic effect on our economy. Financial Pitfalls 4 We have exhausted our means to generate additional income for our nation through tariffs and sanctions on goods being brought into the country.

The taxes levied on goods and the limits placed on incoming products and goods can impact and possibly obstruct international trade. This may also increase production costs and the possibly have an effect on the foreign exchange market. Exchange rates are driven for the most part by the amount of currency bought and sold either through speculation or international asset transactions in either services or goods. There are two types of exchange rates: short-term and long-term. The short-term exchange rates swing from minute to minute and are caused through changes in supply and demand for money as it is being sold from one country to another.

Long-term rates are more directly affected through national monetary policies created by global governments. This has a global effect on economics. With our current national election trail heating up and the nation’s economic state of affairs in the center of discussion, there will be promises made by each candidate. The focus will not only be today’s economy but how we will move out of the red and back into the black. There are many ideas but in my mind it is simple as an old saying – you must spend money to make money. For us o make money and become financially independent, better yet, a global leader in economics, we must learn from our past. Financial Pitfalls 5 As President Bill Clinton discussed in a recent interview with Fortune Magazine, he laid out the three keys to bring our economy back – •Unleash the large amount of capital that is being held but not invested •Accelerate the resolution of the home mortgage crisis •Bring back manufacturing Sounds easy but it isn’t – this is not a short fix to a growing crisis but will take time for us to work together to climb back to the top.

Business Name: Institution: Focus on the American oriented activities of an Asian firm The economic performance of Asia has increased the interest of American firms in the region. This is evident in the article “Production Networks in East Asia: Strategic Behavior by Japanese and U. S. Firms”. The article explores the strategic behavior of firms in the U. S. And Japan considering the eastern Asia production networks. The article achieves this by comparing the behavior of firms in the aforementioned countries, in East Asia and Latin America.

It is evident that there are strategic similarities in East Asia by the two factions but a significant difference in their approach towards the Latin American market. For instance, the firms from both countries show a similarity in the link between arms length fragmentation and geographical proximity. The different strategies employed for the two regions can be attributed to their diversity. These differences have crucial implications for the policymakers in the American firms venturing into East Asia.

Despite the sentiments against foreign direct investments (Fids), it is evident that the strategy of American firms to use this approach has some positive outcomes for the region. Some of the concerns against FAD is that there is resource exploitation and the substitution of imports. This results in unwelcome political economic tendencies for countries. Despite this, the scenario in East Asia has shown the development of economic strategies that are new. This is due to the support of the required economic climate. This has resulted in the developments witnessed in the region by American firms and their activities.

International Trade International trade has influenced economic growth significantly. These are the sentiment of the article International Trade and its Effects on Economic Growth in China, where the author explores the influence of global trade on china. According to the article, it is evident that the Chinese economy has experienced considerable growth. The growth has made the country a target for the world as a market. The article uses the perspective of production to analyze the economic growth of the country.

The economic reforms to open the Chinese market have been cited to be some of the factors, which have bolstered economic growth. Some of the industries in the region acquired specialization due to their comparative advantages. Considering tans, ten economic development AT ten region coalesces Walt International trace. There are static benefits realized by China due to international trade. This includes imports, which have an embodiment of high technology. The dynamic effects of international trade are the enhancement of human capital.

Despite the politeness experienced by China due to international trade, there are several problems experienced by the country in the economic perspective. For instance, there is a deficiency of intellectual property that is considered independent. In addition, there are development patterns that are unstable. Finally, the absorptive capability in the region is significantly low hence an issue for economic growth. Despite these challenges, it is evident that the development of international trade has been instrumental in the economic progress expensed in China.

References And M, Arrant S W. And Kumara F. (2006). Production Networks in East Asia: Strategic Behavior by Japanese and U. S. Firms. Conference Japan Center for Economic Research. Sun, P and Hesitate A. (2010). International Trade and its Effects on Economic Growth in China. Institute for the Study of Labor. United States International Trade Commission. (2010). Small and Medium-sized Enterprises: U. S. And EX. Export Activities, and Barriers and Opportunities Experienced by U. S. Firms. United States International Trade Commission.

International Trade is a complex but routinely undertaken exercise by nations and various business organizations within nations. Many countries provide incentives for exports to promote trade and increase competitiveness. The basic premise of the theory of comparative advantage is that in order to improve the overall welfare of all countries, a country should specialize in production and export of commodities that it can produce at a lower opportunity cost than others and import commodities that are produced at a lower cost by other countries.

What are the advantages and limitations of International Trade identified in the simulation? Providing a range of choices to the consumers and the overall welfare of the countries engaged in international trade are two of the many advantages of International Trade. However, there are many limitations of international trade – limitations imposed by size of the country and the competitiveness of the industry. In order to overcome these limitations many countries impose trade tariffs, a kind of tax, on the imported goods so that their own industry is protected from dumping.

What are the effects on international trade on the U. S. economy? The World Trade Organization is the global governing body regulating international trade. US has many trade agreements like NAFTA where US has trade agreements with Mexico and Canada. There are many other bilateral agreements with countries like Germany, China. The US economy has gained from the international trade by exporting capital equipment and high tech equipment to other countries while importing consumer goods at a very competitive rate.

At the same time countries like China benefited from the export of consumer goods to US and others by providing better employment opportunities. Explain how changes in fiscal and monetary policies affect exchange rate. The price of goods – both imports and exports – depends upon the exchange rate. The monetary policy is carried out by the Fed while the fiscal policy is carried out by the government through taxes and government spending. Exchange rate between two currencies specifies how much one currency is worth in terms of the other and depends upon money supply.

Fiscal and monetary policies impact the money supply in the market and thus impact the exchange rate. List four key points from the reading assignments that were emphasized in this simulation. International Trade involves comparative advantage, and some countries use tariffs and quotas to protect their own industries. Trade Agreements are a way to provide choices to the consumers and control the flow of goods. How can you apply what you learned from the simulation to your workplace?

Identify goods and services that may qualify for trade promotional incentives. Or produce goods and services that might qualify for incentives. By understanding the quotas and tariffs, identify the level at which the goods and services to be produced. Using the exchange rate concept, identify the currency that needs to be used for invoicing purposes. Concept Summary: Ad valorem anti dumping tariff on the imported watches from Suntzie, though not at the level required, helped Rodamia to help the domestic industry.

Imposing tariff on imported corn from Uthania and Alfazia to protect the infant domestic corn industry is a good decision but at the same time the decision increased the price of corn. This caused a loss in consumer surplus. The negotiated FTA with Alfazia though a right decision may not be very beneficial due to the small size and weak infrastructure of Alfazia. But opportunities exist to invest so that employment can increase and thus help increase the market size. FTA’s can be beneficial to the countries in terms of free trade and availability of goods and access to markets.

Comparative advantage is the basis for international trade. Comparative advantage promotes overall welfare of the participating countries by utilizing the natural resources and other factors of production efficiently. Free Trade Agreements help the counties concerned though trade barriers or restrictions are helpful in certain situation to protect the nascent domestic industries. However, promoting free trade and removing trade barriers should be the goal of all countries for the overall welfare of the countries and the consumers. References .

The opening case examines why global food prices are rising significantly. For more than two decades, improvements in agricultural productivity and output have contributed to lower food prices, but in 2007, the price of wheat was double its price of just a few months earlier, and the price of corn had risen some 60 percent. Two explanations for the phenomenon are increased demand, and the effects of tariffs and subsidies for bio-fuels. Discussion of the case can revolve around the following questions: Food prices have risen dramatically since 2007.

Reflect on the reasons for the price increase, and discuss the implications of higher prices for consumers in developed and developing countries. For decades, consumers have enjoyed the benefits of increased productivity and output in the global food industry. In 2007, however, everything changed. The price of wheat reached its highest point ever, and the price of corn rose 60 percent over its 2006 price. Two factors contributed to this situation. The first was the increased demand for food from China and India. The second factor involved tariffs and subsidies for bio-fuels.

Farmers in the European Union and in the United States are currently the recipients of subsidies for the production of crops used in bio-fuels. As a result, land that might be used for growing food is being converted to bio-fuel crops, pushing up prices on food. While some experts believe that sugar cane may be a better product for bio-fuel production than corn, tariffs on imported sugar cane effectively are keeping the crop out of the market. While all consumers are feeling the pain of higher food prices, the situation is especially dire for consumers in poor countries where calorie intake could be reduced by as much as -8 percent by 2020.

How has demand for bio-fuels affected the price of food? What are the implications of this trend? Reflect on the role of government in pushing prices up. What role do tariffs and subsidies play in the situation? In your opinion, should the governments of the United States and the European Union bear any responsibility for bringing food prices back down?  In an effort to slow global warming, both the European Union and the United States have adopted policies designed to increase the production of ethanol and bio-diesel.

The policies involve providing subsidies to farmers. The net effect of the subsidies is to encourage farmers to produce less food, and more crops that can be used in bio-fuel production. The situation is exacerbated by high tariffs on alternative products that can be used for bio-fuel production – particularly sugar cane. Most students will recognize that the combined effect of the subsidies and tariffs are creating a difficult situation for consumers, while at the same time protecting producers. Some students may note the irony of the situation.

Consumers, hit by higher prices at the pump are putting more pressure on companies to develop cheaper and more environmentally friendly sources of energy, but in doing so are actually contributing to higher prices at the grocery store. Some students may wonder whether it makes more sense to consider non-food related sources of energy.

Free trade refers to a situation where a government does not attempt to restrict what its citizens can buy from another country or what they can sell to another country. While many nations are nominally committed to free trade, they tend to intervene in international trade to protect the interests of politically important groups. The major objective of this chapter is to describe how political realities have shaped, and continue to shape, the international trading system. In this section, the text reviews seven main instruments of trade policy.

These are: tariffs, subsidies, import quotas, voluntary export restraints, local content requirements, antidumping policies and administrative policies.  A tariff is a tax levied on imports (or exports) that effectively raises the cost of imported (or exported) products relative to domestic products. Specific tariffs are levied as a fixed charge for each unit of a good imported, while ad valorem tariffs are levied as a proportion of the value of the imported good. The important thing to understand about a tariff is who suffers and who gains. The government gains, because the tariff ncreases government revenues. Domestic producers gain, because the tariff affords them some protection against foreign competitors by increasing the cost of imported foreign goods. Consumers lose since they must pay more for certain imports. Thus, tariffs are unambiguously pro-producer and anti-consumer, and tariffs reduce the overall efficiency of the world economy. A subsidy is a government payment to a domestic producer. By lowering costs, subsidies help domestic producers in two ways: they help producers compete against low-cost foreign imports and they help producers gain export markets.

However, many subsidies are not that successful at increasing the international competitiveness of domestic producers. Moreover, consumers typically absorb the costs of subsidies. Country Focus: Subsidized Wheat Production in Japan Summary This feature explores the subsidies Japan continues to pay its wheat farmers. Tens of thousands of Japanese farmers continue to grow wheat despite the fact that the wheat grown in North America, Argentina, and Australia is far cheaper and of superior quality. The Japanese farmers stay in business thanks to the hefty subsidies paid by the Japanese government.

As a result, wheat prices in Japan are substantially higher than they would be if a free market were allowed to operate.  Who are the winners and who are the losers from Japanese wheat subsidies? Students will probably recognize that, as is usually the case with protectionist measures, the subsidies Japan pays its wheat farmers benefit the farmers, but cost the average consumer in the form of higher wheat prices. In fact, in 2004, Japanese consumers covered $700 million in subsidies!

The subsidies also limit imports of wheat, which negatively affects foreign wheat farmers.  Why does Japan continue to subsidize its wheat farmers when cheaper wheat is readily available in international markets?  Thanks to subsidies, wheat prices in Japan are between 80 and 120 percent higher than they are in world markets. In fact, if the subsidies were eliminated, Japanese wheat production would cease entirely. However, at least for now, because politicians count on the votes of the wheat farmers, there appears to be no plan to end the subsidies.

An import quota is a direct restriction on the quantity of some good that may be imported into a country. A tariff rate quota is a hybrid of a quota and a tariff where a lower tariff is applied to imports within the quota than to those over the quota. A voluntary export restraint is a quota on trade imposed by the exporting country, typically at the request of the importing country’s government. While import quotas and voluntary export restraints benefit domestic producers by limiting import competition, they raise the prices of imported goods. The extra profit that producers make when supply is artificially limited by an import quota is referred to as a quota rent. A local content requirement demands that some specific fraction of a good be produced domestically.

As with import quotas, local content requirements benefit domestic producers, but consumer face higher prices. Administrative trade polices are bureaucratic rules that are designed to make it difficult for imports to enter a country. The effect of these polices is to hurt consumers by denying access to possibly superior foreign products. Dumping is variously defined as selling goods in a foreign market below their costs of production, or as selling goods in a foreign market at below their “fair” market value.

Dumping is viewed as a method by which firms unload excess production in foreign markets. Alternatively, some dumping may be the result of predatory behavior, with producers using substantial profits from their home markets to subsidize prices in a foreign market with a view to driving indigenous competitors out of that market. Once this has been achieved the predatory firm can raise prices and earn substantial profits. J) Antidumping polices (also known as countervailing duties) are policies designed to punish foreign firms that engage in dumping. The ultimate objective is to protect domestic producers from “unfair” foreign competition.

This feature explores the dumping charged levied by U. S. Magnesium against Chinese and Russian producers. According to U. S. Magnesium, the sole American producer of magnesium, Russian and Chinese producers were selling magnesium significantly below market value in an effort to drive U. S. Magnesium out of business. The company failed a complaint with the International Trade Commission (ITC) which ultimately ruled in favor of U. S. Magnesium. Suggested Discussion Questions 1. What is dumping? Were Chinese and Russian producers guilty of dumping? How did U. S. Magnesium justify its claims against Russian and Chinese producers?  Dumping is defined as selling goods in a foreign market below the cost of production, or below fair market value.

In 2004, U. S. Magnesium claimed that China and Russia had been dumping magnesium in the United States. The company noted that in 2002 and 2003, magnesium imports rose, and prices fell. While the ITC ruled in favor of the American company, some students might question whether the fact that the Chinese could sell their product at low prices might simply reflect the country’s significantly lower wage rates. . What does the ITC’s ruling mean for American consumers of magnesium? In your opinion, was the ruling fair? Discussion Points: The ITC ruled in favor of U. S. Magnesium finding that indeed China and Russia had been dumping their product in the United States. Fines ranging from 50 to 140 percent on imports were imposed against China, and 19 to 22 percent on Russian companies. Most students will note that while the ITC’s decision is a good one for U. S. Magnesium and its employees. for consumers, the ruling means magnesium prices that are significantly higher than those in world markets.

In general, there are two types of arguments for government intervention, political and economic. Political arguments for intervention are concerned with protecting the interests of certain groups within a nation (normally producers), often at the expense of other groups (normally consumers). Economic arguments for intervention are typically concerned with boosting the overall wealth of a nation (to the benefit of all, both producers and consumers). Political Arguments for Intervention B) Political arguments for government intervention cover a range of issues including protecting jobs, protecting industries deemed important for national security, retaliating against unfair foreign competition, protecting consumers from “dangerous” products, furthering the goals of foreign policy, and protecting the human rights of individuals in exporting countries.

The most common political reason for trade restrictions is “protecting jobs and industries. ” Usually this results from political pressures by unions or industries that are threatened by more efficient foreign producers, and have more political clout than the consumers who will eventually pay the costs. Protecting industries because they are important for national security is another argument for trade restrictions. The U. S. overnment protects industries like steel, aerospace, and electronics, on the basis of this argument, and has made special arrangements to protect the semiconductor industry. Lecture Note: In the United States, the Bureau of Export Administration enhances the nation’s security and its economic prosperity by controlling exports for national security, foreign security, foreign policy, and short supply reasons.

Government intervention in trade can be used as part of a “get tough” policy to open foreign markets. By taking, or threatening to take, specific actions, other countries may remove trade barriers. But when threatened governments do not back down, tensions can escalate and new trade barriers may be enacted.  Consumer protection can also be an argument for restricting imports. The Country Focus below suggests that the European Union’s concern over beef was, in part, due to an interest in protecting consumers. Since different countries do have different health and safety standards, what may be acceptable in one country may be unacceptable in others.  On occasion, governments will use trade policy to support their foreign policy objectives.

One aspect of this is to grant preferential trade terms to countries that a government wants to build strong relations with. Trade policy has also been used several times as an instrument for pressuring punishing “rogue states” that do not abide by international laws or norms. In recent years the United States has imposed trade restrictions against Libya, Iran, Iraq, North Korea, Cuba, and other countries where governments were pursuing policies that were not viewed favorably by the U. S. government.

A serious problem with using trade as an instrument of foreign policy is that other countries can undermine any unilateral trade sanctions. The U. S. Congress has passed two acts, the Helms-Burton Act and the D’Amato Act, in an effort to protect American companies from such actions. Protecting Human Rights H) Concern over human rights in other countries plays an important role in foreign policy. Governments sometimes use trade policy to improve the human rights policies of trading partners. Governments also use trade policies to put pressure on governments to make other changes.

Unless a large number of countries choose to take such action, however, it is unlikely to prove successful. Some critics have argued that the best way to change the internal human rights of a country is to engage it in international trade. The decision to grant China most favored nation status was based on this philosophy. Country Focus: Trade in Hormone-Treated Beef Summary This feature describes the trade battle between the United States and the European Union over beef from cattle that have been given growth hormones.

It outlines the basic issues that led to the dispute, and shows how the World Trade Organization has treated the case. Suggested Discussion Questions 1. Why is the European Union so concerned about beef from cattle that have been given growth hormones? Discussion Points: Some students may argue that the European Union’s ban on growth hormones in cattle was little more than a thinly veiled form of protectionism. Australia, New Zealand, and Canada, which also use the hormones in their cattle industry, were also affected by the ban.

The European Union claimed that it was merely protecting the health of its citizens, however studies showed that the hormones posed no health issues for people. Why did the WTO rule against the European Union? Discussion Points: The World Trade Organization ruled against the European Union stating that the European Union’s ban on imported hormone treated beef had no scientific justification. Even so, the European Union refused to lift the ban, which had strong public support, and in the end, the European Union was assessed punitive tariffs.

The European Union held on to its principles though, and as of 2008, continued to maintain its restrictions on hormone treated beef despite the resulting punitive tariffs.  The WTO maintains a site for students.  Economic arguments for intervention include the infant industry argument and strategic trade policy. The Infant Industry Argument

The infant industry argument suggests that an industry should be protected until it can develop and be viable and competitive internationally. Unless an industry is allowed to develop and achieve minimal economies of scale, foreign competitors may undercut prices and prevent a domestic industry from developing. The infant industry argument has been accepted as a justification for temporary trade restrictions under the WTO. A problem with the infant industry argument is determining when an industry “grows up. ” Some industries that are just plain inefficient and uncompetitive have argued they are still infants after 50 years.

The other problem is that given the existence of global capital markets, if the country has the potential to develop a viable competitive position its firms should be capable of raising the necessary funds without additional support from the government.  Strategic trade policy suggests that in cases where there may be important first mover advantages, governments can help firms from their countries attain these advantages. Strategic trade policy also suggests that governments can help firms overcome barriers to entry into industries where foreign firms have an initial advantage.

Throughout the world, countries engage in international trade every day. The result of international trade is that it produces mutual benefits among the countries that are involved. However, when a country engages in trade protection, it hurts both the domestic consumers and foreign export industries. Three arguments that are used to promote trade barriers are the national security argument, the infant industry argument, and the dumping argument. Although these three arguments have their pros, such as protecting domestic industries from foreign competitors, they also have their flaws.

The national security argument is designed to promote trade barriers by stating that free trade may develop international conflict. The advantage of having trade barriers is that it will promote autarky, or economic independence. As a country, you don’t want to become too dependent on another country for goods. Countries would be self sufficient and that would result in the protection of domestic industries. The protection of the domestic industries might sound nice, but when this happens it restricts competition by limiting availability of foreign goods.

When foreign goods are limited, it forces the domestic products price to go up, therefore causing consumers to buy more expensive products. Free trade creates more competition among producers around the world, which then lowers prices and creates a bigger diversity of goods. The infant industry argument promotes trade barriers by saying that newly industrializing countries should require a temporary period of trade protection in order to mature. It is important for industries to raise their skill level from the exporting of raw materials to becoming industrial producers of finished products.

The protection of trade barriers would benefit these countries, but would eventually become a problem. Usually when infant industries rely on trade barriers to help them develop, they continue to use the protection even after they are mature enough to go without it. When countries set restrictions for such long periods of time like that, the economic growth begins to slow down. After a country restricts goods from other countries, the country who’s domestic products would be protected would also be similarly restricted, making it difficult for countries to export their products.

The dumping argument promotes trade barriers as a form of protectionism that allows industries to lower their prices than the domestic price or cost of production and export their products to another country. Sure, that may be good for the industry doing the “dumping”, but the result would knock out the competing industries around the world. The industries that are dumping would become huge monopolies and cause the other industries profits to go down the drain, forcing them out of the market completely. Not only does this negatively effect the economy, it also produces tensions between the nations.

These tensions could possibly lead to armed conflict. These three arguments used to promote barriers such as tariffs, quotas, and embargos help benefit domestic industries by creating economic independence, supporting infant industries as they grow, and restricting competition of foreign industries. These may be helpful, but they harm the economy as a whole by creating higher domestic prices and limiting the diversity of consumer products. Free trade however, benefits the economy by raising the competition of industries and lowering prices. Also, the diversity of goods are wealthy and it is easier for industries to export or import products.

Exploring the significance of international trade and European dimension for UK businesses

1. Describe and discuss the role of foreign direct investment (FDI) in globalisation. What do you conclude?

FDI has become more of a driving force for economic globalisation; it has not only contributed significantly towards the even distribution of resources globally but catalyzed the industrial and climatic restructuring, sowing the seeds of competitiveness and efficiency. It also helped in promotion of advancement and innovation in economic systems and technology. As Globalisation is composed of four major trends, those making up the “first wave of globalisation” with financial flows as the most important of them, Foreign Direct Investment makes up the most of this pillar.

According to the article Transition Economies: An IMF Perspective on Progress and Prospects (2000), FDI plays a significant role towards the development of economy, it shows different arrangement in regional patterns as compared to the international trade, on one hand there are countries like India who increased her share of global trade with little FDI while her immediate neighbour China rolled out on world stage with the momentum given by massive injection of Foreign Direct Investment. Of the total capital inflows into this region, FDI makes up the largest pie thus accounting to be the single most decisive factor in transformation of Asia as a global economic power to reckon with.

This flow of capital helped its recipients to optimize the investment environment for attracting more FDI; even the countries like China which had remained a forbidden fortress’ opened themselves up by standardizing, rectifying and reforming the market order to create a transparent, stable and predictable environment, as described in the article Transition Economies: An IMF Perspective on Progress and Prospects (2000). This transformation for positive inflows leading towards globalization’ made countries to integrate further into the regional economies by helping them to harmonize.

FDI did not only actuate the transfiguration of nation’s core policies but it also acted as an impetus in radicalizing the domestic investment, as shown by the FDI ‘elasticity of domestic investment’ that has been positive for all these years. As the State counsellor of Fujian China told on CIFIT affair that ‘Drawing more foreign Investment and Going Global goes together hand in hand and these had been the major drivers in steering China to the world stage’.

1. Critically evaluate the contribution of Economic and Monetary Union (EMU) to progress towards full integration

The facets of resource allocation have been the focus of the conjecture and operation of economic integration. According to the article Historical Documentation of EMU and the Euro, the EMU represents an acme of long and laborious process towards greater economic concordance among the league of states making up the greater Euro-zone by using the established institutions like European Council of Ministers of the Economic and Finance (ECOFIN), needed for strengthening coordination and integration backed by liberalization of the capital flow, which in particular focuses on the promotion of exchange rate stability in the member states under the autonomous European System of Central Bank (ESCB).

The Maastricht Treaty and the attached criteria to be fulfilled for the countries opting for membership promoted a standardized procedure and benchmark for various economies to reform and evolve themselves to be ready for absorption, as described in Historical Documentation of EMU and the Euro. Minimal inflation rate, Average nominal interest rate and the allowable band for government deficits pushed the member states in speeding up the process towards getting mature so that they should not become destabilizing factor for the monetary union.

The EMU did not only provide the mechanism for the premature member states in accelerating their reform process but its “Stability and Growth” pact though softer then the previous terms exhibits automatic fines in circumstances where deficits crosses the red lines, which might be triggered due to recession thus resulting in a languid growth. This measure has ensured long term stability by making governments aware and responsible of the possible foreseeable furrows which might occur.

Another major contribution is its translation into decreasing commercial transactional costs which came as a result of the replacement of local currency by a single mother currency; this resulted into intra-continental competition, enhancement and augmentation of productivity and reinforcement of the single European market.

The abolishment of exchange rate risk with in the EU has allowed SMEs with amplified opportunities to extend their operations across Euro Zone. It also extends the EMU with greater absorbing power to bear exchange rate shocks form the outside world, thus making the zone and economies constituting’ virtually invulnerable. Last but not least the floating of single currency “Our Currency” helped in promoting a symbolic effect towards fostering the notion of European integration and union.

Investigating the economic, social and global environment in which organisations operate

Dawn of the age of globalisation brings with it opportunities which till now has been experienced through out the world by bringing efficiency and competitiveness, thus making use of resources in the most efficient way possible. On the other hand this enhanced integration has also brought with it the storms of challenges and shadows of constraints. The more organizations are entrenching themselves into global economy, they are enjoying the breadth of stretched market and depth of opportunities, it blend today’s organizations with the colour of social diversity, thus enabling the efflorescence of new ideas and thoughts, vital for survival and advancement.

Till now this open window has brought fruits of diversification and furtherance but the same open corridor also makes them vulnerable to the shocks of planetary stretch which may have originated at one corner, is bound to jolt all to the very roots’ as is happening in today’s crisis. Thus Globalization, Foreign Direct Investment, Economic Monetary Union, International Financial and Monetary Institutions, though still holding in them scars of fragility are headed towards making this world a common and harmonized place, a place with no economic, social or environmental hedges.

1. Critically evaluate the role of government intervention in a period of declining economic growth

The economic hazard that originated from the US sub prime burst intoxicated the global financial system, making it indisposed and decrepit. Responsibility fell on the US Government to act quickly and decisively to contain the spill form ruining whatever was left after the great storm. They were left with two choices, either to allow the market forces to act on their own and heal the wounds it suffered out of its own callous ways or to go after the inflicted impairments in repairing them. The Fed came up with an impressive $700 Billion bailout package to brace the economy and its institutions form total melt down.

Thus by extending support to the likes of J.P.Morgan in taking over the grand Bear Sterns, by enacting the Housing and Economic Recovery Act ,US  Government halted the free fall of the largest mortgage entities of the continental United States Fannie Mae and Freddie Mac, who alone backs half the $12 Trillion mortgage entities. List is just the beginning, fault line of the great jolt extends to Merrill Lynch, the Lehman Brothers, AIG, Washington Mutual, Wachovia and it goes on, and it doesn’t confine itself to mere financial sector but gobbles the rest of mega industries like the legendary General Motors and Chryslers.

The plan for such action has been to absorb the bad books of banks to cleanse their sheets, while liquidating the chocked financial engine so that revolutions could again be induced. It intends to keep these books up to period where their values would be restored, to be able to be floated into the mainstream again. An attempt by the US government to engender confidence and to impel the desired inertia, for which it has taken a risky step of further indebting itself, an obligation for the future generations’ paid for today’s oilification.

This is a struggle to restore the sliding consumerism which is not only hurting domestic production but producing ripples plaguing the rest of world. Thus the founder of free market and Capitalism in a bid to halt a free fall has been compelled to engineer the market moves by serious but vital intervention.

1. Compare and contrast transitional and emerging economies. Use examples to support your answer

Transition process is envisioned to include the evolution through Liberalization, Macroeconomic stabilization, Restructuring and Privatization, Legal and Institutional reforms. While emerging economies are a group of nations which are observing rapid informationalisation under the environment of completed or fragmentary industrialization, thus this is the league of countries that is experiencing extraordinary economic growth on the basis of telecommunication, IT advancements and newer energies.

Emerging are world’s largest embryonic markets, the breeding ground of global human resource and the place for global brands, trends and innovation. Most of the transitional economies are concentrated in eastern Europe and Baltic region who in a bid to join the lucrative bloc are either lingering or have accomplished the path of post-soviet metamorphosis to knock at the doorstep of EU for embracement, the former being the Commonwealth of Independent States like Armenia, Russia, Georgia, Moldova, while the later being Central & Eastern European Economies like Bulgaria, Croatia, Czech Republic.

The transitional bloc usually consists the archipelago of small countries who are striving to crack the hull of their communist while the emerging economies include the confederacy of today’s rising economic powerhouses like China, India, Brazil. They are more of regions rather than countries who have emerged to become the manufacturing, services and natural resource base of today’s world, not only feeding upon their own pace but giving a new push to the global and regional economies. These emerging centres of power are shifting the traditional balances from the West while establishing the remodelled nucleus in the Greater East.

Thus the major difference lies in approaches fuelling development on both sides of fences, the former being narrow and striving to affiliate with centres of established power and influence while the later sect is endeavouring to become the league of their own.

Bibliography

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