INTERNATIONAL DIPLOMA IN BUSINESS ADMINISTRATION

HIGHER DIPLOMA IN BUSINESS & INFORMATION TECHNOLOGY

Economics (W1006/BA330) Economics for Business (BEC101) ASSIGNMENT TERM 2 2010

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Name of Student:__________________________________________________ Student ID: ________________________________ Module Code: W1006/BA330/BEC101 Criteria Base Mark Question 1 Reasons why countries engage 25 marks in international trade and with specific examples. Question 2 (a) Reasons why countries 25 marks carry out trade protectionism and with specific examples. 25 marks (b) Ways in which countries carry out trade protectionism and with specific examples. Question 3 Provide a discussion on the 15 marks article enclosed. Presentation 10 marks Total 100 marks Graded Mark Comments

Instructions to Students:
1. The assessment criteria include:
(a) Content of Work. This includes the amount of research done to provide accurate and credible

information necessary for this assignment.

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(b) Creativity, Originality and Style of Work. This refers to the originality of thought, creativity of written

expression, and the correct use of grammar and writing style.

(c) Presentation of the Final Assignment. This refers to the clarity, layout and flow of organization of the

final project. Independent research on the relevant topic area is encouraged. Work that demonstrates an in-depth analysis of the question and that provides a coherent answer will be awarded a higher grade compared to that which simply regurgitates answers from the texts. Students are expected to adopt the Harvard Referencing System. This website (eg. http://libweb.anglia.ac.uk/referencing/files/Harvard Referencing.pdf ) or similar has details about this referencing system. 2. All work must be submitted for plagiarism check. Work with a plagiarism match rate of 20% or more will be penalized. Do not include cover page, question paper when submitting work for plagiarism check. 3. While discussion among students is encouraged, collusion and plagiarism of work will be severely dealt with in accordance to the IA Regulations. 4. The word limit for this assignment is 2,000 words. A minimum of three (3) sources or references are required aside from the textbook of the course.
5.

It is recommended that a minimum of three academic journals/periodicals be included in the referencing list.

6. The document must include page number; use Times New Roman Font (Size 12) with top, bottom margins of 1 and right, left margins of 1.25 and with Justify alignment. 7. The assignment should be organized as follows: (a) Cover Page (found on the first page of this question paper) (b) Table of Contents (c) Main body of the assignment (This should observe the given word count limit) (d) References: e.g. Books: Baron, David P., 2008. Business and the organisation. 6th ed. Chester (CT): Pearson. Journal articles: Boughton, J.M., 2002. The Bretton Woods proposal: an indepth look. Political Science Quarterly, 42(6), pp.564-78. Websites: National electronic Library for Health. 2003. Can walking make you slimmer and healthier? (Hitting the headlines article). [Online] (Updated 16 Jan 2005) Available at: http://www.nhs.uk.hth.walking [Accessed 10 April 2005]. Complete the mark criteria list with your name and student id and submit it together in your assignment. 8. Assignments must be presented in hard copy with CD well secured in the hardcopy. The CD should contain the following documents: Softcopy of the assignment that is submitted and the plagiarism report. Retain a photocopy of your course assignment.

Assignment Questions

Questions 1

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Explain the reasons for countries to engage in international trade. Provide specific example(s) for each reason. Questions 2
(a)

[25 marks]

Explain the reasons why countries carry out trade protectionism. Provide specific examples for your explanation. [ 25 marks]

(b)

Explain the ways in which countries carry out trade protectionism. Provide specific examples for your answers. [25 marks] Questions 3 Provide a discussion on the article enclosed. [ 10 marks will be awarded for neatness, referencing, originality, etc ] [Total 50 marks ] [15 marks]

-END OF PAPER-

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Source : Straits Times, Singapore, March 24, 2009

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Table of Contents
1.0 International trade7 1.1 Introduction ...........7 1.2 Reasons for countries to engage in international trade..7 1.21 Absolute advantages7 1.22Comparative advantages..7 1.23 Resources ..7 1.24 Increasing return to scale.7 1.25 Environments ..8 2.0 Reason why countries carry out trade protectionism ..8 2.1 Employment .......8 2.2 To nurture infant industries.....8 2.3 Domestic tax policies can end up favouring foreign goods..............8 2.4 Anti-dumping...8 2.5 Protection of domestic industries.......9 2.6 To prevent the importation of harmful goods9 3.0 The ways in which countries carry out trade protectionism...9 3.1 Tariffs..9 3.2 Export subsidies..9 3.3 Quota............9 3.4 Control foreigners...........10 3.5 Exchange control.10 4.0 Discussion on the article enclosed.....10 5.0 Referencing11

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1.0 International trade

1.1 Introduction International trade is the exchange of goods and services between countries. The basic motivation of international trade is that of the benefit, or gain, to the participants. And this type of trade gives rise to a world economy.

1.2 Reasons for countries to engage in international trade

1.21 Absolute advantage Absolute advantage refers to the ability of a party to produce more of a good or service than competitors using the same amount of resources. Assume that each country can produce one or more commodities at a lower real cost than its trading partners, it then follows that each country will benefit from specialization in those commodities in which it has an absolute advantage, exporting them and importing other commodities that it produces at a higher real cost than does another country. For instance, two companies have same number of employees and with same wages; company A can produce 3 widgets per hour, while company B can produce 6 widgets per hour. So company B has an absolute advantage over company A as the employees of company B are more efficient. 1.22 Comparative advantage Through comparative advantage, trade will benefit both nations provided only that their relative costs, that is, the ratio of their real costs in terms of labor inputs, are different for two or more commodities. For example, South America has a comparative advantage in winter roses and the United States has a comparative advantage in computers. The standard of living can be increased in both places if South America produces roses for the United States market, while the United States produces computers for the South American market. 1.23 Resources Resources that the countries needed are not available everywhere. They do not need to be material goods, but can be labor related as well. For example, Canada exports forest products to the United States not because its lumberjacks are more productive relative to their U.S. counterparts but because sparsely populated Canada has more forested land per capita than the United States. Therefore, they are able to produce their products at a lower cost, and the profitability will increase. This helps both companies doing the labor as it provides a place of employment for them. 1.24 Increasing returns to scale Increasing returns to scale are said to exist when a proportionate increase in the use of factors of production results in a greater than proportionate increase in output. Some industries, such as shipbuilding, are only efficient at very large scales. For instance, by doubling the size of an automobile factory and the number of autoworkers, automobile output more than doubles, then automobile production is said to experience increasing returns to scale. The notion of increasing returns can be applied either for a firm or for an industry as a whole.

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1.25 Environment Environment is very important for countries to engage in the international trade, because some countries have four seasons and some countries do not have. For example, Singapore compare with China, China has four seasons which allow many fruits and vegetables to grow. On the other hand, Singapore has just one season-Summer, and this only allows a small no. of fruits and vegetable to grow. Therefore, Singapore has to engage in the international trade to enable the citizens to have all kinds of fruits and vegetables all the times.

2.0 Reasons why countries carry out trade protectionism

2.1 Employment Trade protectionism protects workers in industries that would be hurt by trade. For instance, nations in the Far East have a comparative advantage in producing textiles. If the United States reduced existing tariffs for the textile industry, domestic manufacturers could not compete. They would have to close their factories and lay off workers. In an ideal world, the laid-off workers would take new jobs in other sectors of the economy. However, in practice, this is difficult as many workers do not have the skills to work in other sectors, and obtaining these skills takes time. 2.2 To nurture infant industries Tariff and other protectionist policies are often defended on the grounds that they protect new industries, or infant industries, that are in the early stages of learning by doing. A tariff shields a young industry from the competition of its more mature rival. For example, during the 1950s and 1960s, many Latin American countries use tariffs and other policies to protect their young manufacturing industries from foreign competition. And after the infant industry grows up, the tariff can be eliminated because the industry is able to compete. 2.3 Domestic tax policies can end up favoring foreign goods Protectionists think that allowing foreign goods to enter domestic markets without being subjected to tariffs or other forms of taxation, it will lead to a situation where domestic goods are at a disadvantage. Without tariffs from foreign products, governments have to depend solely on domestic taxation to provide its revenue, which falls disproportionately on domestic manufacturing. For example, China has many brands which produce the smart phones, however, there are more people buying the foreign goods like SONY due to the brand. As a result, this will cause the local industries to close down. To prevent this situation from occurring, the government needs to have taxation on the foreign goods to protect Domestic industries. 2.4 Anti-dumping Dumping is in international trade, the pricing of a product below its cost of production. Firstly, they may have produced lots of goods but they have no demand in the market. As a result, it leads to a situation whereas the people can buy the product at a much lower price in the importing country and lead to material injury to a domestic industry as the domestic products sold decrease. For example, European shoemakers have alleged that the shoe producers from China and Vietnam are illegally dumping leather, sports and safety shoes on the European market and an investigation is now underway.

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2.5 Protection of domestic industries Protection of domestic industries is another reason to carry out protectionism. If there is no tariff on the foreign products, the domestic industries will face strong competition in the domestic market against industries overseas. For instance, some countries can produce the same products at a lower price than domestic industries due to abundant resources, this will lead to a situation that more people will buy the foreign products. Therefore, some industries would have to close their factories and lay off workers. One way to protect the domestic industries is to have tariffs which can help to prevent the domestic industries from facing strong competition and closing down. 2.6 To prevent the importation of harmful goods A country may want to ban or severely curtail the importation of things such as drugs, pornographic literature and live animals. For example, In Singapore drugs is banned and it is punishable under the law

3.0 The ways in which countries carry out trade protectionism

3.1 Tariffs A tariff is in effect, a tax levied on imported goods, usually with the intention of raising the price of imports and thereby discouraging their purchase. Certain protected items have much higher tariffs. For example, the tariff rate on concentrated orange juice is a flat $0.35 per gallon. On rubber footwear, the tariff ranges from 20 percent to 48 percent. A tariff which is sufficiently high to exclude all the imports is called a prohibitive tariff. 3.2 Export subsidies Government payments made to domestic firms to encourage exports. The subsidy is meant to keep domestic prices high, but it flooded the world market with cheap subsidized grain. Farm subsidies remain a part of the international trade landscape today. For example, many countries continue to appease their farmers by heavily subsidizing exports of agricultural products. The political power of the farm lobby in many countries has had a great effect on recent international trade negotiations aimed at reducing trade barriers. 3.3 Quota A quota is a limit on the quantity of imports. Quotas can be mandatory or voluntary, and they may be legislated or negotiated with foreign governments. Because of the oil crisis, more Americans had been buying the more fuel efficient Japanese cars which decreased the domestic industries profits and increase unemployment. Then, Japan agreed to reduce its automobile exports to the United States. And during that period, 100,000 jobs were created, but not only did the price of foreign cars increase, but domestic prices also rise. 3.4 Control foreigners Control foreigners is another way for countries to carry out trade protectionism, because this can help the locals to find a job and when they are employed, they can spend money which will result in the economy to increase. For example, in Singapore, the government controls the number of foreign workers for a company from 30% in 2008 and now reduces to only 10% in 2010. This is

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due to the fact that the Singapore government does not want the foreigners to earn its money and spend on another country.

3.5 Exchange control A system of exchange control will limit the amount of foreign currency people could acquire. Since importers require foreign currency to pay of imports, the volume of imports could be controlled by controlling the issue of foreign currency. For example, in India there are authorized dealers and money changer, entitled to conduct foreign exchange business. With exchange control, it can help to strengthen the government. For instance, control over the foreign exchange transactions and resources make the increase of resource for certain strategic needs like defense more easily. It can also help to maintain exchange rate stability and protect domestic industries.

4.0 Discussion on the article enclosed

From this article, it talks about the protectionism practiced by various countries in order to protect their own economic market especially after 2008 economic crisis. Although repeated pledges taken by the world leaders as well as the group of 20 nations(G20) to avoid having trade barriers, protectionism is still carried out by many countries. And after 2008 economic crisis, as the recession takes hold, this situation has worsened and 17 members of G20 have adopted 47 measures to restrict trade. For example, Russia has raised tariffs on used cars; Mr. Obama signed a $60.4 billion project enabling the Mexicans trucks to haul cargo over long distances on U.S. roads. On the other hand, Mexico reacted by imposing duties on American goods. These acts show that every country is trying to protect its own economic market by increasing trade barriers. By doing this, it can protect the domestic industries from closing down and face strong competition from industries overseas. It can also help to make revenue for the country. Plus, it can help to protect the workers from being hurt by trade. And the US wants the China to reduce their factories, the real reason is the US does not want the China to produce many goods for the world, US wants to control China output to prevent strong competition faced by American factories. Obama signed a spending bill worth 40 billion USD which scraped a program allowing Mexican trucks to pull cargo over long distance on US roads. Mexico strikes back by imposing duties on US 2.4 Billion worth of goods. Without protectionism, the global recession has resulted in the largest decline in World trade in 80 years, creating a history, according to World Bank, and the year 2009 is very dangerous. US also invite the Europe to join the free trade, because this can increase the economic cycle. And many expert will agree the Mr. Obama programmed.

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5.0 Referencing
1. http://www.conciseguidetoeconomics.com/book/protectionism/ (Viewed on 11 July) 2. http://en.wikipedia.org/wiki/International_trade (Viewed on 11 July) 3. James D, Richard L. Russell S. 2006, printed in the USA, Economics Private and Public Choice. (Viewed on 12 July) 4. Steven H, Michael M. 1997, publish by UK, International Economic 5th edition (Viewed on 13 July)

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