Running head: INTERNATIONAL ECONOMICS 1

International Economics

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INTERNATIONAL ECONOMICS 2

International Economics

Question 1

The United States and Japan heavily protect older labor-intensive industries with the

notion that they have no comparative advantage in production. In the US, textile and apparel

industries are heavily protected in comparison to agriculture. In Japan, the protectionist mode is

concentrated in the agriculture, food, and beverage industries. The protectionist impact greatly

affects developing countries since the same industries have a comparative advantage (Dunning,

2014). The failure of industrialized nations to extend the market to developing countries deprive

them potential to the export market.

Question 2

According to economists (Leamer & Stern, 2017), there is no agreement on that the

tariffs are justified as regulatory measures where some schools argue tariffs to make them less

efficient. If tariffs hurt their economies, making it necessary to follow suit. The other school

argues that the tariffs are justified in a scenario where they cause to offend the nation to open in

the market. Arguably, trade is beneficial to all nations, so if it leads to an increase in the market,

then they are warranted. The other group views them as warranted for fear of unfair advantage

granted to a nation that levy tariffs, especially to countries that deal with high-tech since the

scale of economies are important (Leamer & Stern, 2017). Tariffs reduce competition and give

countries access to the global market, thus enjoying an economic advantage.

Question 3

The protection is necessary when the foreign producer sells the products at a low price

than fair prices. Consequently, dumping occurs when the government of manufacturing country
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offer subsidies and tax benefit to multinational companies to sell their goods cheaply compared

to the US manufactures. American firms seek protection while disposing of their products

through four approaches (Dunning, 2014). First, countervailing duties measures help to protect

the US manufacturing industries from foreign producers. The conditions for determination of

countervailing duties is on the country-specific level, where duty rates counteract the subsidy to

exactly the same level the domestic producers. Secondly, antidumping duties, calculated at the

company-level, the actual amount of duty help to bridge the gap between the prices of foreign

manufactures and fair market value (subjective in the definition). However, it creates tension

between countries (Dunning, 2014). For example, during 2015, the US Steel companies filed the

complaint to the department of commerce alleging China to export the steel to the US at a fairly

low price. Thirdly, the escape clause duties help in the facilitation of fairly orderly to reduce

import competition. It happens when the firm petition the USTIC directly and benefit a relief

from imports surge where the country shows it has been harmed by such import (Dunning,

2014). Lastly, Section 301 retaliation in the US primarily relies on the Trade Act of 1974

following unreasonable and unfair trade practices (Dunning, 2014). The conditions necessitated

president to take necessary actions requesting for negotiation with the country in question.

Question 4

A country can handle non-standards in trade through harmonization standards, mutual

recognition standards, and separate standards (Beghin, Maertens & Swinnen, 2015). Through the

harmonization process, the country in charge will adopt and manage the different standards in a

foreign country. According to this arrangement, countries set their own standards considering

certain areas such as labor and the environment. Second, the trading countries have mutual

recognization respecting standards of each nation. The approach helps to validate foreign
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standards in the domestic sphere and the global market. Lastly, the separate standards, help to

deal with different abroad standards in each nation and also considering its own standards and

refuse to recognize the standards set by other countries.

Economic integration complexity increases as a number of trading countries due to

standards implemented. The standards are set according to regulations, enforcements, and

arbitration mechanism in any given country (Beghin et al., 2015). Therefore, economic

integration is a tough proposition for all countries to achieve.

Question 5

Countries that have the benefits of the same standards massively in various ways. It is

evident that countries having similar standards help to expand their commercial ties (Villareal &

Fergusson, 2017). The nations do not have to waste a lot of time in tweaking with respect to set

standards that would accommodate their needs. Often, there is unification in the market, which

enhances the market among the countries involved and provide an opportunity to work in foreign

markets (Villareal & Fergusson, 2017). Also, they enjoy the comparative advantage where a

nation would be allowed to establish the manufacturing firms in trading countries. The benefits

help to reduce the competition of goods to foreign countries. Lastly, the size of the market

expands exponentially, since there is the possibility of establishing free trade block since the

standards are similar (Villareal & Fergusson, 2017) . The expansion increases efficiency since

firms specialize in taking advantage of economies of scale.

According to Villareal & Fergusson (2017), their countries would face critical challenges.

Smuggling of goods along the boundaries is a common phenomenon among these countries. The

action of creating tax loopholes lead to tax evasion and avoidance. Also, having the same
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standards create the likelihood of foreign dumping, especially where some nation has the

capacity to produce a similar product at a low cost. Searching for a foreign market, the price of

goods would at some point lower compared to goods produced in the domestic market.

Question 6

Labor standards refer to set standards convection concerning workers basic rights,

working conditions, wages/salaries, and matters concerning security (Tsogas, 2015). Arguably, it

is done to comply and improve labor employment at an international scale. They are provided

protection, albeit the minimum terms, and be against unfairness and exploitations. The labor

argument among high-income country and low-income country are dissimilar. Argument is made

on the false assumption on lower wager confer a competitive advantage to a developing country.

In fact, low payment is the leading factor to low productivities.

Question 7

According to anonymous economists, trade barriers detriment and decreases economic

efficiency at some economic cycles. Theoretically, it is impossible for countries to capture the

market which attracts foreign investments simultaneously. Trade surplus signifies country capital

outflows rather than inflows. Again, there is little evidence that shows countries that pay low

wage rate to succeed in the line of production but with the notion of obtaining comparative

advantage (Feenstra, 2015). Also, low labor standards should not be mean to attract foreign

investment. In most cases, it is associated with unskilled labor, illiterate, and lack of

infrastructures such as roads and communications.

Question 8
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Apart from imposing trade barrier measures to labor and environment, alternative trade

measure would be more efficient to the country. Labeling is the first to measure where the

environment information is available to the appropriate consumers (Beghin et al., 2015).

Labeling could be voluntarily or mandatory according to the range of goods attributes from

different countries. The strength of the concept is a reflection of the impact of the life cycle of

the product on the environment. It consists of accurate information that helps consumers to know

how to use goods. However, labeling increases the chances of infringing country sovereignty.

Adoption of home country standards is another alternative which helps the country to create

favorable terms and conditions to regulate the global market (Beghin et al., 2015). The main

advantage of the approach, high-income countries do not dictate country standards. However, it

only addresses firms of high-income countries and outsources from low-income countries. The

last alternative is increasing international negotiation, where a country increase its trade

involvement agreement with foreign countries (Beghin et al., 2015). The approach help ILO to

increase the start of where publicizing for lack of compliance with labor ethics. However, the

World Trade Organization (WTO) is not part of environmental concern; it gives international

environmental agreement to design their own mechanism.

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References

Beghin, J. C., Maertens, M., & Swinnen, J. (2015). Nontariff measures and standards in trade

and global value chains. Annu. Rev. Resour. Econ., 7(1), 425-450.

Dunning, J. H. (2014). Explaining International Production (Routledge Revivals). Routledge.

Feenstra, R. C. (2015). Advanced international trade: theory and evidence. Princeton university

press.

Leamer, E. E., & Stern, R. M. (2017). Quantitative international economics. Routledge.

Tsogas, G. (2015). Labor regulation in a global economy. Routledge.

Villareal, M., & Fergusson, I. F. (2017). The North American Free Trade Agreement (NAFTA).