1. Why do nations trade?

The first is about gains from national trade:

* Lower prices:
- The main goal of trade is the ability to buy goods and services at a lower price than the
domestic one.
- Consumers are able to buy less expensive products and the producers are able to
purchase less expensive raw materials and semi-manufactured goods.
*Greater choice:
- International trade enables a greater choice of products.
*Differences in resources:
- There are some resources that a country may need, but do not have
- They may need them in order to produce other products and so have no option but to
import commodities they lack.
- Solution: they will need to export goods and services, in order to earn foreign –
currency so they can buy the required resources.
*Economics of scale:
- When producing for an international market, as well as for a domestic one, the size of
the market, and thus demand, will increase.
- This means that the level of production and the size of production units will also
increase.
*Increase competition:
- International trade may lead to increase competition, as domestic firms compete with
foreign firms,
*More efficient allocation of resources;
- When international trade takes place freely, without government interference, then the
countries that are best at producing certain goods and services will produce them, they
will be able to produce goods and services at the lowest cost and take advantage of their
efficiency.
*Source of foreign exchange:
- International trade enables countries to obtain foreign exchange (currency).
1. What are some of the major arguments for and against free trade?
* For free trade (Against Protectionism): the arguments against protectionism are really
related to the reasons why the countries trade – or free trade. To against protectionism
include the following:
- Protectionism may raise prices to consumers and producers of the inboards that they
bought
- Protectionism would lead to fewer choices for consumers.
- Protectionism would diminish competition if foreign firms are kept out of a country,
and so domestic firms may become inefficient without the incentive to minimize costs.
Innovation may also be reduced for the same reason.
- Protectionism distorts comparative advantage, leading to the inefficient use of the
world's resources. Specialization is reduced and this would reduce the potential level of
the world's output.
- Protectionism may hinder economic growth.
*Against free trade (For protectionism): rest on two main points:
- Why is it that countries do not trade freely and it is good for all countries?
- Why is it that countries often protect their economies from imports?
Against free trade:
- Protecting domestic employment
+ At any given time in an economy there will be some industries that are in
decline because they cannot compete with foreign competition – sunset industries
+ Judgment (evaluation) of argument
- Protecting the economy from low – cost labor
+ It is argued that the main reason for declining domestic industries is the low cost
of labor in exporting countries and that the economy should be protected from imports
that are produced in countries where the cost of labors is very low.
+ Judgment (evaluation) of argument
- Protecting an infant (sunrise) industry
+Many governments argue that an industry that is just developing may not have
the economics of scale advantages that larger industries in other countries may enjoy
+ Judgment (evaluation) of argument
- To avoid the risk of over – specialization:
+ Government may want to limit overspecialization if it means that the country
could become over dependent on the export sales of one or two products
+ Any charge in the world market for these products might have serious
consequences for the country’s economy.
- Strategic reasons:
+ It is sometimes argued that certain industries need to be protected in case they
are needed at times of war, for example, agriculture, steel, or electricity
+ Judgment (evaluation) of argument
- To prevent dumping:
+ For example: the European Union may have a surplus of butter and sell thus ar a
very low cost to a small developing country
+ Judgment (evaluation) of argument
- To protect product standards:
+ A country might wish to impose safe, heath, or environmental standards on
goods being imported into its domestic market in order to ensure that the imports match
the standards of domestic products.
+ Judgment (evaluation) of argument
- To raise government revenue:
+ In many developing countries, it is difficult to collect taxes and so government
imposed import taxes or tariffs on products in order to raise revenue
+ Judgment (evaluation) of argument
- To correct a balance of payments deficit:
+ Government sometimes impose protectionist measures to attempt to reduce
import expenditure and thus improve a current account deficit whereby the country is
spending more on its imports of goods and services then it exports of goods and services.
+ Judgment (evaluation) of argument
1. What are the consequences of free trade?
*Advantage of free trade
- Specialization: Lower opportunity cost and a comparative advantage
- Efficiency: Competition creates incentives to cut cost and efficient utilization of scarce
resources.
- Price: Increased competition results in lower prices. Online competition ovens lower the
price further as information is more perfect.
- Consumption: People in each country have access to consumer goods that would
normally reside beyond their product possibility frontier.
- Trade promotes peace among nations: When you are trading with someone you have
less incentive to start war as both sides would lose.
- Levels the playing field: Breaks up Monopolistic and oligopolistic power as more
buyers and sellers come into the market.
- Innovation, Ideas and technology: The exchange of ideas makes the impossible
possible. When ideas are exchanged and people cooperate we can change the world.
- Economies of scale: Companies can take advantage of economies of scale on an
international level to increase efficiency and lower prices.
- Entrepreneurship: Trade creates opportunities for more people to work as entrepreneurs.
- Growth: The summation of the other benefits is it puts economies on a positive
trajectory for long–term real economic growth.
*Disadvantage of free trade:
- Excessive dependence: As a country depends too much on foreign countries, an
outbreak of war upset its economy.
- Obstacles to the development of home industries: If foreign goods are imported freely,
the domestic industries of the developing countries would not be able to develop rapidly
due to the superior strength of foreign industries.
- Empire – builder: Under free trade, foreign traders, particularly the dominant ones, may
try to become an empire–builders in the future. In the past, free trade gave rise to
colonialism and imperialism.
- Import of expensive harmful goods: A country may also import expensive and harmful
foreign goods.
- Rivalry and friction: Finally, free trade sometimes creates friction among the trading
nations. In other words, commercial rivalries resulting from trade often lead to war. This
is an important point.
- International trade is not mutually beneficial.
2. What are the Mercantilists' views on trade?
- Mercantilists argued for the accumulation of gold and silver
- They argued to accumulate as much wealth as possible
- They believed that the world’s wealth is static
- They argued for maximum exports and minimum imports
- They aimed to create a strong nation-state.
2. What are the new contributions of Mercantilists’ view on trade?
To propose 3 problems and deal with them:
- Establishment and benefit of international trade
- International trade model
- Trade theory and policy.
2. What is the weak point of Mercantilism?
- Gold and silver are the only realm of wealth and consider trade as a zero-sum game
(one in which a gain by one country results in a loss by another). That makes the case:
countries protect too much gold and silver in current conditions and it is easy to lead to
inflation. In reality, international trade benefits all relaxation and the wealth of countries
including developing resources.
3. How was Adams Smith's (absolute advantage theory)’s view on trade?
- Adams 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.
- Countries should specialize in the production of goods for which they have an absolute
and then trade these goods for goods produced by other countries.
- Argued that import restrictions would reduce the gains from specialization and make a
nation poorer. He used the absolute advantage to explain the benefit of trade.
- Specialization and trade among regions and countries are based upon the same
principles as among individuals.
- The wealth of nations: the world’s wealth is not a fixed quantity; Increase world output
(wealth).
- Promotion agent in the free market is not the government, it is the “invisible hand” but
it needs helpness to make them strong.
3. How were gains from trade generated?
- Gains from trade generated by each country specializing in production and export
products that they have the absolute advantage and import products that another country
has the absolute advantage. So, all of them get the advantage.
3. What policies did Adam Smith advocate in International Trade?
Adam Smith advocates international trade policies:
- Affirm individual function and economy private owned system.
- Government does not intervene in economic and free competition
- Do not intervene in trade activities: Open market and free trade
- Export is an advantage factor for economic development
- Import subsidization is a kind of inhabitant tax and it should be abrogated.
3. What did he think was the proper function of government in the economic life of
the Nation?
- Smith rejects government interference in market activities (Visible Hand) and instead
states governments should serve just 3 functions: national defense, administration of
justice (law and order), and the provision of certain public goods (transportation
infrastructure and basic and applied education) (Invisible Hand).
4. 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?)
* The same:
- To give prominence to individual function, company function, and support to free trade
- Countries achieved advantage from trade
- Identify specialization in product preeminent.
* The difference:
- Absolute advantage: use production fee in the production process to compare
advantages between countries in joining the international trade process. Each country
focuses on specialization production and exchange products that have lower production
fees than others.
- Comparative advantage: use opportunity fee in the production process to compare
advantages between countries in joining the international trade process.
4. Why is this theory more relevant to the modern trade situation?
- Because absolute advantage can explain only a very small part of world trade today,
such as some of the trade between developed and developing countries. Most of the
world trade, especially trade among developed countries, could not be explained by
absolute advantage. It remained for David Ricardo, with the law of comparative
advantage, to truly explain the basis for and the gains from trade. Indeed, the absolute
advantage will be seen to be only a special case of the more general theory of
comparative advantage. A comparative advantage is a powerful tool for understanding
how we choose jobs in which to specialize, as well as which goods a whole country
produces for export. Comparative advantage fleshes out what is meant by “best", it is
one of the key principles of economics. So this theory is more relevant to the modern
trade situation
4. How do gains from trade arise with Comparative Advantage?
- Based on Ricardo’s law of comparative advantage, gains from trade arise in terms of
increased world output for any commodities that any two countries import and export
from each other. No one country wastes extra time and money producing the same
product less efficiently which another country can produce more efficiently. Let us
assume that Country “A” produces a commodity more efficiently and therefore has a
relative/comparative advantage over Country “B” for that commodity which might be
able to produce that same commodity but less efficiently. Suppose Country “A” exports
its commodity to Country “B” in exchange for importing something which it cannot
produce as efficiently. Both Countries “A” and “B” utilized comparative advantage to get
what they wanted. Both countries gained from each other's area of expertise. This
assumption outlines the outcome of Ricardo’s law of comparative advantage.
5. What are the sources of comparative advantage?
Comparative advantage is determined by a country’s resources, that is land, labor, capital
and enterprise.
- Land:
+Endowment of natural resources (khai thác tài nguyên thiên nhiên)
+ Climate (khí hậu)
- Labour: (nhân công)
+ Quality of labor force – skilled and qualified workforce to
ensure labour productivity (chất lượng lực lượng lao động – lực lượng lao động có kỹ
năng và trình độ để đảm bảo năng suất lao động).
+ Quantity of labour – size of the labour force (số lượng lao động – quy mô lực
lượng lao động)
+ Wage costs of labour (chi phí tiền lương của lao động)
- Capital: (Nguồn vốn)
+ The quality of capital – is the production of goods and services using the latest
technology (chất lượng của nguồn vốn – là việc sản xuất hàng hóa và dịch vụ sử dụng
công nghệ mới nhất).
+ Quantity of capital – capital to labor ratio.(số lượng vốn – tỷ lệ vốn trên lao
động).
- Enterprise: (Doanh nghiệp)
+Managerial processes to ensure the efficiency of labour and capital (Quy trình
quản lý nhằm đảm bảo hiệu quả của lao động và vốn)
+ Utilising technological change (Tận dụng sự thay đổi công nghệ)
+ Leading research and development (Nghiên cứu và phát triển hàng đầu)
- Other factors: (Nhân tố khác)
+ Exchange rate (tỷ giá hối đoái)
+ Level of protectionism (mức độ của chính sách bảo hộ)
6. What is meant by labor-intensive commodities?
- Labor-intensive commodities are those which require a significant amount of labor to
produce in labor-intensive industries. A labor-intensive industry is determined by the
amount of capital needed to produce these goods and normally refers to industries like
food service, mining, and agriculture.
6. What is a Capital-intensive commodity?
- Capital intensive commodity involves a higher proportion of non-human inputs to
production, as capital can replace labor for most forms of manufacturing, most goods will
fall on a spectrum and can be classified as both labor or capital-intensive goods
depending on the prevailing economic conditions. Goods that will always be capital
intensive will basically be anything that humans can’t produce regardless of
circumstances, like electricity generation or aluminum production.
6. What is meant by a capital-abundant nation?
- Capital-abundant nation: a nation is capital abundant if its endowment of capital relative
to other factors is large compared to other countries. Relative capital abundance can be
defined by either the quantity definition or the price definition.
6. Suppose that there: Airplane is Capital-intensive commodity and Rice is labor-
intensive and we have two nations: Korea is a rich and capital-abundant nation:
China is a labor-abundant country. What can we say from the trade pattern
between two countries?
- Airplane is Capital-intensive commodity (K) and Rice is labor-intensive commodity
(L).
- Two nations: Korea is a rich and capital-abundant nation, and China is a labor-abundant
country.
- K/L of Korean > K/L of China (Korea is a capital-abundant nation) → Commodity
of Korea is the K- intensive commodity.
- L/K of China > L/K of Korea (China is a labor abundant country) → Commodity of
China is the L-intensive commodity.
6. What does the Heckscher and Ohlin theory postulate?
- Heckscher-Ohlin theory, in economics, a theory of comparative advantage in
international trade according to which countries in which capital is relatively plentiful
and labor relatively scarce will tend to export capital-intensive products and import labor-
intensive products, while countries in which labor is relatively plentiful and capital
relatively scarce will tend to export labor-intensive products and import capital-intensive
products.
- In the Heckscher-Ohlin theory, it is not the absolute amount of capital that is important;
rather, it is the amount of capital per worker. A small country like Luxembourg has much
less capital in total than India, but Luxembourg has more capital per worker.
Accordingly, the Heckscher-Ohlin theory predicts that Luxembourg will export capital-
intensive products to India and import labor-intensive products in return.
8. What is the primary function of tariffs in industrial nations?
- Tariffs have 3 main functions: to serve as source of revenue, to protect domestic
industries and to remedy trade distortions (punitiven function)
Advantages:
+They help the government earn extra funds
+It reduces dependence on foreign markets
+They protect local businesses
+They can help environmental efforts
+They can be used to encourage consumers to make healthy choices by making
unhealthy products prohibitively expensive.
8. Disadvantages
+It can indirectly cause the price of local goods to increase; for example, if the cost of
fuel is high then this will impact many industries and they will need to pass on the
increased cost of production onto customers.
+It discourages free trade which many economists would claim that this is always a bad
idea
* Effects of a tariff: In order to analyze effects diagrammatically, it is assumed that the
world supply of the given commodity is perfectly elastic so that it is available at the
constant price and the world supply curve is perfectly elastic. The domestic production of
the commodity is possible, it is assumed, at an increasing cost. Therefore, the domestic
supply curve is positively sloping. The domestic demand curve of the commodity, as
usual, slopes negatively.

1) 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. According to Fig. 15.1 at the
free trade price OP, the total consumption was OQ1. It was constituted by OQ as the
consumption of home-produced goods and QQ1 as the consumption of foreign-produced
goods. After the imposition of the tariff, when the price rises to OP1, consumption is
reduced from OQ1 to OQ2.
Out of it, OQ3 is the consumption of home-produced goods and Q2Q3 is the
consumption of foreign-produced goods. Thus there is a reduction in consumption by
OQ1 – OQ2 = Q1Q2. There is a net loss in consumer satisfaction amounting to the area
PHCP1.
2) Production Effect:
In Fig. 15.1, demand and supply are measured along the horizontal scale, and price along
the vertical scale. Originally PW is the world supply curve of the commodity and the pre-
tariff price is OP. At the price OP, the domestic supply is OQ and demand is OQ1. The
gap QQ1 between demand and supply is met through the import of the commodity from
abroad. If PP1 per unit tariff is imposed on imports, the price rises to OP1 and the world
supply curve shifts to P1W1. At this higher price, the demand is reduced from OQ1 to
OQ2 whereas the domestic supply expands from OQ to OQ3. Thus the domestic
production of import substitutes rises to the extent of QQ3. This is the protective,
production or import substitution effect. The increased domestic production reduces the
demand for foreign products from QQ1 to Q2Q3.
3) Revenue effect
The imposition of import duty provides revenues to the government. The revenue receipts
due to tariff signify a revenue effect. In Fig. 15.1 The original price OP does not include
any tariff and no revenue receipts become available to the government. Subsequently,
when PP1 per unit tariff is imposed, the revenue receipts of the government can be
determined by multiplying per unit tariff PP1 (or BF) with the quantity imported Q3Q2 or
(EF). Thus the revenue receipts due to tariffs amount to PP1 × Q3Q2 = BF × EF = BCEF.
This is the revenue effect of the tariff.
4) Redistribution Effect:
The imposition of tariff, on the one hand, causes a reduction in consumer’s satisfaction
and, on the other hand, provides a larger producer’s surplus or economic rent to domestic
producers and revenues to the government. Thus tariff leads to redistributive effects in
the tariff-imposing country. The redistributive effect can be shown with the help of Fig.
15.1.
Loss in Consumer’s Surplus = RHP – RCP1 = PHCP1
Gain in Producer’s Surplus = TBP1 – TAP = PARP1
Gain in Revenues to the Government = BCEF
Net Loss = PHCP1 – (PABP1 + BCEF)
= ΔBAF + ACEH
Kindelberger calls this net loss as the “deadweight loss” due to tariff. It signifies the cost
of tariff. It is clear that tariff causes a redistribution of income or satisfaction in the given
country. Consumers suffer a loss while producers and government make a gain.
5) Trade effect:

In case the foreign supply of a good is not perfectly elastic, the imposition of tariff can
have varying effects upon the terms of trade of the tariff-imposing country depending
upon the elasticities of demand and supply in the two trading countries. It has been
explained through Fig. 15.2. country A is an importing country and country B is an
exporting country. The domestic demand and supply curves of the exporting country B
are less elastic. Country B imposes a per unit tariff of P0P2 amount for reducing the
import of the commodity. Since the domestic demand is inelastic, the surplus product of
country B can be disposed of in the other country A. Therefore, the exporters lower the
price of the commodity by P1P0. So P0P1 part of the tariff is borne by exporters and the
P1P2 part of it by the importers. If the tariff burden borne by importers in country A is
less than the burden borne by the exporters i.e., P1P2 < P1P0, the rise in the price of the
commodity in country A is less than the fall in the export price of the commodity in
country B. In such a situation, the terms of trade become favorable to the tariff-imposing
country A.
9. What is an important Quota?
- An import quota is a type of trade restriction that sets a physical limit on the quantity of
a good that can be imported into a country in a given period of time. Import quotas can be
used to protect a domestic industry, to protect domestic agriculture, and/ or for balance –
of – payments reasons.
9. How are they similar to and different from the effects of an equivalent import
tariff?
- Similar: are used to provide protection to domestic import-competing industries.
- Difference:
Import quota Import tariff
An increase in demand will result in a An increase in demand will leave the
higher domestic price and greater domestic domestic price and domestic production
production than with an equivalent import unchanged but will result in higher
tariff consumption and imports than with an
equivalent import quota.
The quota involves the distribution of
import licenses
Limits imports to the specified level with The trade effect of an import tariff may be
certainly uncertain
9. How does the revenue effect of an import quota differ from that of a tariff?
- The revenue effect of a tariff is captured by the government, while a quota's revenue
tends to be captured by domestic or foreign firms.
- A tariff has an immediate advantage for governments in that it will automatically
generate tariff revenue (assuming the tariff is not prohibitive)
- Quotas may or may not generate revenue depending on how the quota is administered.
If a quota is administered by selling quota tickets (i.e., import rights), then a quota will
generate government revenue; however, if the quota is administered on a first-come, first-
served basis or if quota tickets are given away, then no revenue is collected
10. What is meant by dumping?
- Dumping is a term used in the context of international trade. It's when a country or
company exports a product at a price that is lower in the foreign importing market than
the price in the exporter's domestic market. Because dumping typically involves
substantial export volumes of a product, it often endangers the financial viability of the
product's manufacturer or producer in the importing nation
10. What are the different types of dumping?
- Types of dumping: sporadic dumping, predatory dumping, persistent dumping, and
reverse dumping
10. Why is dumping undertaken?
- Many semi-destructive cases occur because businesses or producers have unfair intent
to achieve certain benefits such as
+Selling discounts to eliminate competitors in the market thereby occupying
exclusive
+Selling low prices in the imported water market to dominate the market share;
+Selling low prices to collect strong foreign currency…
Sometimes the devaluation is unwanted by the manufacturer, the exporter can not sell the
goods, the bridge, the production is stagnant, long storage products can be damaged...
The goods should be sold for partial withdrawal of funds.
10. What conditions are required to make dumping possible?
Dumping can only occur if two conditions are fulfilled.
- First, the industry must be imperfectly competitive, so that firms have market power.
That is, firms must be able to set prices in the domestic or foreign market rather than take
prices as given in both markets.
- Second, markets must be segmented, so that domestic customers cannot easily purchase
products sold at a lower price in foreign markets. Dumping is considered as an unfair
practice in international trade.
10. Why does dumping usually lead to trade restrictions?
- Because the majority of trade agreements include restrictions on trade dumping.
Violations of such agreements may be difficult to prove and can be cost-prohibitive to
enforce fully. Moreover, there will be retaliation by the trading partner. Countries may
impose trade restrictions and tariffs to counteract dumping. That could lead to a trade
war.
10. Analyze one case study many governments have used: China with steel industry,
solar panel.
11. Why do nations subsidize exports? To what problems do these subsidies give rise
to?
*Do nations subsidize export because:
- National Security: Export subsidies can also encourage domestic production of goods
that are deemed critical to the security of the national economy.
- Unfair Trade: Foreign imports might be sold at lower prices in the domestic economy
because foreign producers engage in unfair trade practices, such as "dumping" imports at
prices below production cost. Export subsidies once again seek to "level the competitive
playing field."
- Infant Industry: If foreign imports compete with a relatively young domestic industry
that is not mature enough nor large enough to benefit from economies of scale, then
export subsidies protect the "infant industry" while it matures and develops.
- Low Foreign Wages: Subsidizing the exports of domestic production "levels the
competitive playing field" compared to imports produced by foreign workers who receive
lower wages
- Domestic Employment: Because foreign imports are produced in other countries by
foreign workers, subsidizing exports and increasing domestic production also increases
domestic employment.
11. Analyze a few industries that China uses to subsidize.
- In China’s burgeoning steel industry, massive government energy subsidies, not other
factors, keep prices down. These subsidies have broad implications for how companies
compete and collaborate with Chinese businesses
- Energy subsidies to the steel industry were paid to the energy sector and passed on
through lower energy prices, which suggests that the energy supplied to China’s other
manufacturing industries is subsidized as well. The steel industry may benefit
disproportionately from energy subsidies because of its voracious appetite for coal, but
the energy subsidies obviously help other industries too.
- What are the major forms of subsidies that governments grant to domestic
producers?
- Subsidies include domestic production subsidies and export subsidies. The national
government sometimes grants subsidies to their producers to help improve their market
position. By providing domestic firms a cost advantage, a subsidy allows them to market
their products at prices lower than warranted by their actual cost of profit considerations.
Government al subsidies assume a variety of forms, including outright cash
disbursements, tax concessions, insurance arrangements and loan at below – market
interest rates
- A subsidy may provide import – competing producers the same degree of
protection as tariff or quota but at a lower cost in terms of national welfare. It
could have long-term benefits for the economy. Explain.
- To encourage production by its import-competing manufactures, a government might
levy tariffs or quotas on imports. But tariffs and quotas involve larger sacrifices in
national welfare than would occur under an equivalent subsidy. Unlike subsidies, tariffs
and quotas distort choices for domestic consumers (resulting in a decrease in the
domestic demand for imports), in addition to permitting less efficient home production to
occur. The result is the familiar consumption effect of protection, whereby a deadweight
loss of consumer surplus is borne by the home nation. This welfare loss is absent in the
subsidy case. Thus, a subsidy tends to yield the same result for domestic producers as
does an equivalent tariff or quota, but at a lower cost in terms of national welfare.
12. Do you agree or don't agree with Protectionism? What are the benefits and
arguments against Protectionism?
* I agree with Protectionism
* Benefit:
- An advantage of protectionism is that it keeps the domestic economy rolling. Since
there is a decrease in imports, domestic firms have less competition, and so are able to
continue. The domestic economy will also be strengthened because unemployment will
be down due to the domestic firms and they will be able to produce and sell more goods
with less difficulty,
- Protectionism makes domestic firms less competitive in the export market, as import
barriers raise domestic prices through higher costs for mediocre inputs
- Protectionism permits the new and upcoming firms to work and develop at an
acceptable rate because they will not be pressured by foreign, more experienced firms.
- Protectionism can also prevent dumping, this is where foreign and bigger economies
enter an economy and sell their goods at a price lower than the costs of production.
- An exception in which protectionism could improve a nation’s economic well-being is
when a country has monopoly power over a good. Economists have argued that a country
that produces a large percentage of the world’s output of a good can use an ” optimum''
tariff to take advantage of its latent monopoly power, and thus gain more from trade.
*Arguments:
- Protecting domestic employment:
+at any given in an economy there will be some industries that are in decline
because they can't compete with foreign competition-sunset industries
+judgment (evaluation) of argument…
- Protecting the economy from low-cost labor
+It is often argued that the main reason for declining domestic industries in the
low cost of labor in exporting countries and that the economy should be protected from
imports that are produced in countries where the cost of labor is very low
+judgment (evaluation) of argument…
- Protecting an infant (sunrise) industry
+many governments agree that an industry that is just developing may not have
the economies of scale advantages that larger industries in other countries may enjoy.
+judgment (evaluation) of argument…
- To avoid the risks of over-specialization
+governments may want to limit overspecialization if it means that the country could
become over dependent on the export sales of one or two products
+any change in the world market for these products might have serious
consequences for the country's economy
+judgment (evaluation) of argument…
- Strategic reasons
+it is sometimes argued that certain industries need to be protected in case they are
needed at times of war, for example, agriculture, steel or electricity
+judgment (evaluation) of argument…
- To prevent dumping
+definition: dumping is the selling by a country of large quantities of a
commodity, at a lower price than its production costs, in another country
+for example, the EU may have a surplus of butter and sell this at a very low cost
to a small developing country
+judgment (evaluation) of argument
12. Give some examples and trade tools that developed Nations: US, EU, Japan used
to protect their Industry ( bạn có đồng ý hoặc không đồng ý với protectionism?
*Examples:
Yet forms of protectionism are still used by most states today. The European Union
subsidies its own workers and bans imports of cheap industries products from outside the
EU. China’s currency is artificially low, making its exports cheaper – long the source of
friction between it and the US. And Japan helped its industries develop with cheap loans,
as well as imposing heavy tariffs on imports, forbidding international investors from
buying national companies and even launching local campaigns to persuade its
population to buy Japanese products instead of imported goods. To be fair, Japan has now
lifted most of these measures, but it only did so when its products had become highly
competitive anyway.
13. What are the main drivers of Globalization?
The main drivers of Globalization: market, government, cost and competition.
These external drivers affect the main conditions for the potential of globalization across
industries, which are mainly uncontrollable by individual firms. Market drivers include
areas such as common customer needs and transferable marketing, whereby the
emergence of global markets for standardized products has enabled corporations to cater
to demands in new markets with existing products. Government influence is also a major
driver, with policies leading to reductions in trade barriers and a shift towards an open
market economy. With access to new markets and human capital, in the area of cost
advantage drivers, companies can gain new economies of scale by selling at higher
quantities, as well as explore the advantage of low-cost production through outsourcing
and import. In the case of competitive drivers, the growing trade between nations along
with foreign direct investment (FDI) has helped to increase interdependence among
countries and organizations, as well as exposing firms to new competitors.
13. What are the benefits and challenges of Globalization?
*The benefits of Globalization:
- The increased flow of capital:
+Increased trade to larger and more diverse markets results in greater revenues and
increased gross domestic product (GDP).
+Globalization also means that businesses can realize greater profits by tapping into
previously untouched markets and taking advantage of lower local costs. By expanding
into new countries, businesses reach markets that are hungry for their novel goods and
eager to pay top dollar for them. They can achieve higher revenues in unsaturated
markets while saving money via the lower cost structure that results from cheaper labor,
rent, and materials.
- Better Products at lower prices: Global competition in the markets leads to both quality
and affordability. As consumers realize they have a variety of options from all corners of
the globe, they will choose to purchase the best and cheapest options, requiring
companies to enhance quality and provide affordable prices if they wish to remain
competitive. The outsourcing of work also contributes to lower prices, as many
companies hire foreign laborers to do the work for lower pay.
- Spread of knowledge and technology: Arguably one of the top advantages of
globalization has been the rapid spread of technology worldwide. Google, Dell, and
Microsoft, for example, all have offices on many continents. Developing countries often
appeal to investors because of the huge growth potential. The resulting advancements
lead to results like the spread of motorized farm machinery in Southeast Asia, for
instance, where there had previously only been manual labor.
- Increased household income: This development also has the effect of increasing real
wages by lowering the cost of living. Additionally, competition on the global market
means the prices of many items have declined, so purchases that were once unaffordable
luxuries, such as laptops, cars, and washing machines, are now affordable for many
people.
*The challenges of Globalization:
- Exploitation: The outsourcing of labor also leaves a dearth of jobs in industrialized
countries, where labor is more expensive. When the United States outsources
manufacturing to cheaper competitors in foreign markets, domestic manufacturing
laborers lose their jobs. Higher unemployment leads to discontent, the strain on the social
safety net, and lower tax revenue from income. Laborers whose skills are less relevant in
a global marketplace will have a hard time adjusting to a world dominated by
globalization
- High investment costs: Globalization presents challenges for multinational corporations
in terms of capital investment and leadership. Setting up a business in a new country,
especially a developing country, requires substantial upfront capital. The needed
infrastructure may not be in place
- Confusing local systems: Multinational corporations also face the challenge of
contending with different laws in different countries. Sometimes they must contend with
different types of legal and banking systems entirely. Difficulty navigating these systems
may lead to impediments in expanding to new countries and severe repercussions for
missteps made
- Weak regulation: Fewer regulatory bodies exist for international business enterprises.
Navigating the international markets can thus sometimes feel like the Wild West.
Interconnected markets also mean that with a lack of regulation, if something goes
wrong, the repercussions will resound globally. The global financial crisis, for example,
hit many nations hard.
- Immigration Challenges: Increasing populations of immigrants and refugees present a
challenge for industrialized nations. Though countries may wish to help, too large an
influx puts a strain on resources and social structures. Countries find themselves limited
in the aid they can provide without detriment to their own citizens
- Localized job loss: Globalization can contribute to a decline in job opportunities as
companies move their production facilities overseas. Forbes reports that the move toward
globalization has led to deindustrialization throughout the United States, which was once
home to many more factories and auto plants. When American companies move their
production to China and other countries with plentiful, cheap labor, American workers
suffer under factory closures, layoffs, and skyrocketing unemployment rates where they
live
14. What is globalization?
- Globalization is a process of interaction and integration among the people, companies,
and governments of different nations, a process driven by international trade and
investment and aided by Information technology. This process has effects on the
environment, culture, political systems, economic development and prosperity, and
human physical well-being in societies around the world.
14. Describe the benefits and challenges of the current wave of globalization for
Vietnam's economy.
- Globalization has both positive and negative sides:
+The positive: globalization helps you to know about new cultures and traditions,
helps you to grasp new modern systems of education, business, and politics which can
help to raise the standard of your country.
+The negative side: globalization creates diversity in the world where we can now
see that there are countries which are dominant in different fields and there are other
countries which are under the power of powerful countries.
*Benefits:
- Increasing export revenues: Vietnamese commodities have been exported widely to 150
countries and territories, with many sectors benefiting from WTO membership including
labor-intensive industries like clothing, footwear, and electronics.
- Rapid increase in foreign direct investment (FDI): As a WTO member, Vietnam has
become an attractive destination for foreign investors. Registered FDI surged to US$71
billion in 2008, compared with only $12 billion in 2006. Although FDI commitments
dropped last year to $21.4 billion as a result of the global financial crisis, the figure was
still at the same level as pre-crisis 2007
- Increase in enterprises’ awareness, adaptation and performance: Vietnamese enterprises
have to compete with many giant players-big foreign corporations with strong financial
power and experience. Moreover, the reduction of tariffs and non-tariff measures, and the
opening of the servicing market have made the domestic market more competitive. All
these factors have forced domestic enterprises (both state-owned and private ones) to
restructure and self-improve.
- More favorable legal system for trading activities: Vietnamese enterprises have a
healthy environment for development in foreign markets. If there are trade disputes, they
can be treated under WTO’s Dispute Settlement Mechanism. “Vietnamese enterprises
will be judged by the WTO international court, which means we have more advantages to
protect our rights.”
*Challenges:
- Low competitiveness of nation, enterprises and products: Vietnamese enterprises are
mainly medium and small-sized. None of Vietnam’s state-owned enterprises was on the
list of 1000 world biggest corporations, nor its commercial trademarks in the list of 1000
most prestigious global trademarks. If we want to gain strong competitiveness in the
international market, we must have many strong enterprises like Sony, Toyota of Japan,
or Hyundai, Samsung in South Korea.
- Issues relating to macro policies and administrative procedure: Vietnam is down five
positions to 75th, the considerable worsening of its macroeconomic situation dropping
from 70th to 112th place-weighs heavily on its economy and competitiveness, a widening
trade deficit. Moreover, the current administrative system is a serious obstacle to
development. Vietnamese public administration has been laden with the following
problems: red tape, ineffectiveness, inefficiency, cumbersomeness, corruption, and an
unskilled and under-qualified public service.
- Difficulties in the agricultural sector: Agriculture is the main sector in the economy,
accounting for 20 percent of GDP and 66 percent of the national population. However, it
is confronting vigorous competition in the global market. This is due to a combination of
many weaknesses. Farmers lack knowledge and professional skills. Production
technology is small and backward, which increases the production costs compared to
those of other countries and makes the quality of the products low. Agricultural
enterprises are often of small size and dispersed. As a result, they have a weak financial
capacity to improve production technology and labor productivity.
15. What are the benefits and challenges of the ASEAN Economics Community?
- Benefits of AEC:
+The benefits of an AEC can only be properly assessed when there is a blueprint.
In fact, the blueprint itself will be the result of a process of negotiations that will have to
incorporate the interests and concerns of the members along the way.
+ASEAN may need to develop its own process. What ASEAN can and needs to
do is to come up with a clear definition of the end goal – or the ultimate form – of
economic integration. It should also agree on the appropriate path to achieving it as well
as on the institutional arrangements to implement the agreement.
- Challenges of ASEAN Economics Community:
+ Significant milestone reached in terms of economic integration is the substantial
progress in tariff reduction in the region. However, this has been impaired by the increase
in non-tariff barriers. Non-tariff barriers are probably the most formidable impediment in
achieving a single market and production base.
15. Describe the opportunities and economic benefits of Vietnam in the AEC.
*The opportunities and economic benefits of Vietnam in the AEC:
- Opportunities:
+ The AEC would create greater opportunities for Vietnam to export goods and
services to the ASEAN market.
+ FDI inflows in ASEAN, including Vietnam, will be facilitated due to the
region’s propitious investment environment.
+ AEC 2015 will help Vietnamese workers have more job opportunities,
especially skilled workers
- Economic benefits:
ASEAN is the third largest market and also the third largest supplier of goods for
Vietnamese businesses with 60% of the total imported essential goods and input raw
materials for production. ASEAN is also an important source of FDI in Vietnam with a
total registered capital of about US $ 64 billion and is the bridge for many investments
from multinational companies located in ASEAN.
15. Why does Vietnam actively participate in many FTAS?
- Participating in many FTAs, having better trade relations with some other partners in
other regions contributed to helping Vietnam balance its trade deficit.
- Joining FTAs has contributed to raising Vietnam exports. FTAs offer many other
benefits, notably ensuring equal accessibility.
- FTAs also help Vietnam improve its infrastructure, attract more investment capital,
accelerate administrative reform; abolish barriers for market access.
15. What are the benefits and costs of Vietnam when we sign FTAs and join WTO?
- Benefits:
+ It provides consumers with more options and the benefit of lower prices.
+It benefits trading countries through competitive advantage
+It is a key to economic growth
- Costs:
+ More competitive companies enter local market
+Reduction in tariff revenue
+More HR challenges for high skilled, low skilled
+More vulnerable to crisis shocks.
15. What are the challenges for Vietnam in this period: trade tension between US –
China?
- When the US imposes taxes, China can find a way to "borrow Vietnamese
sugar" to circumvent the law from which to export to the US market. For example,
Chinese steel may impersonate Vietnamese steel for export to the US, which is likely
to cause tensions between the US and Vietnam. However, the taxed items are mostly
machinery and industrial goods. Relative technology is not Vietnam's
forte. Therefore, it is not easy to "break the law". China will find a way to invest in
Asian countries including Vietnam and from there export goods to the US. Therefore, in
the future Vietnam may be subject to the US list of taxation. As China boosts exports to
Vietnam, Vietnam increasingly relies on China and increases the competition in its
domestic market for Chinese goods. Vietnam's export is also more difficult in the world
when it has to compete with Chinese products.
- In terms of import and export, in the context of escalating trade war and continued
weakening growth of China, Vietnam's exports to China may decrease in 2019.
General Department of Customs data shows that in the first five months of 2019,
Vietnam's exports to China reached the US $ 13.6 billion, down 1.5% from the same
period last year. Export turnover to China decreased, resulting in a slow growth in
the country's export turnover this year. Chinese goods, due to failure to enter the US
market, may shift to Asia. Imports from China to Vietnam in the first five months of
this year were nearly US $ 30 billion, up 20.3% over the same period. A major risk that
Vietnam faces is Chinese goods transshipment via Vietnam to export to the United
States to avoid punitive taxes. Many strong export items from Vietnam to the United
States are also those imported from China into Vietnam.
16. Present the different levels of Economic Integration?
- Economic integration can be classified into five additive levels, each present in
the global landscape:
- Free trade: tariffs (a tax imposed on imported goods) between member countries are
significantly reduced, some abolished altogether. Each member country keeps its own
tariffs in regard to third countries. The general goal of free trade agreements is to develop
economies of scale and comparative advantages, which promotes economic efficiency
- Custom union: Sets common external tariffs among member countries, implying that
the same tariffs are applied to third countries; a common trade regime is achieved.
Custom unions are particularly useful to level the competitive playing field and address
the problem of re-exports (using preferential tariffs in one country to enter another
country).
- Common market: services and capital are free to move within member countries,
expanding scale economies and comparative advantages. However, each national market
has its own regulations such as product standards
- Economic union (single market): All tariffs are removed for trade between member
countries, creating a uniform (single) market. There are also free movements of labor,
enabling workers in a member country to be able to move and work in another member
country. Monetary and fiscal policies between member countries are harmonized, which
implies a level of political integration. A further step concerns a monetary union where a
common currency is used, such as with the European Union (Euro).
- Political union: represents the potentially most advanced form of integration with a
common government and where the sovereignty of a member country is significantly
reduced. Only found within nation-states, such as federations where there is a central
government and regions (provinces, states, etc.) having a level of autonomy.
As the level of economic integration increases, so does the complexity. This involves a
set of numerous regulations, enforcement, and arbitration mechanisms. The complexity
comes at a cost that may undermine the competitiveness of the areas under economic
integration since it allows for less flexibility for national policies. The devolution of
economic integration could occur if the complexity and restrictions it creates, including
the loss of sovereignty, are no longer judged to be acceptable by its members.
16. What is the advantage and benefits of FTA, Custom Union for one country?
*FTA:
- The benefits of FTA for one country:
+ Free trade agreements contribute to greater economic activity and job creation
for one country and deliver opportunities for big and small businesses to benefit from
greater trade and investment
+ Free trade agreements don't just reduce and eliminate tariffs, they also help
address behind-the-border barriers that would otherwise impede the flow of goods and
services; encourage investment; and improve the rules affecting such issues as
intellectual property, e-commerce, and government procurement.
+ Free trade agreements give businesses and consumers improved access to a
wider range of competitively priced goods and services, new technologies, and
innovative practices
+ Free trade agreements help one country obtain more benefits from foreign
investment.
+ Free trade agreements promote regional economic integration and build shared
approaches to trade and investment
+ Free trade agreements support stronger people-to-people and business-to-
business links that enhance bilateral relationships with FTA partners.
- The advantages of FTA for one country:
+ Increased efficiency ( Tăng hiệu quả): The good thing about a free trade area is
that it encourages competition, which consequently increases a country’s efficiency, in
order to be on par with its competitors. Products and services then become of better
quality without being too expensive.
+ Specialization of countries (Chuyên ngành của các nước): When there is tough
competition, countries will tend to produce more products or goods that they are most
efficient at. This is because they take less time to complete and their output is higher.
+ No monopoly(Không độc quyền): When there is free trade, and tariffs and
quotas are eliminated, monopolies are also eliminated because more players can come in
and join the market.
+ Lowered prices(giảm giá) :When there is competition, especially on a global
level, prices will surely go down, allowing consumers to enjoy a higher purchasing
power.
+ Increased variety(tăng sự đa dạng ) :With imports becoming easier and cheaper,
consumers will gain access to a variety of products that are inexpensive.
*Custom Unions:
Advantage:
- Increase in trade flows and economic integration
+ The main effect of a free-trade agreement is that it increases trade between
member countries. It helps improve the allocation of scarce resources that satisfy the
wants and needs of consumers and boosts foreign direct investment (FDI). Customs
unions lead to better economic integration and political cooperation between nations and
the creation of a common market, monetary union, and fiscal union.
- Trade creation and trade diversion
- The effectiveness of a customs union is measured in terms of trade creation and trade
diversion. Trade creation occurs when the more efficient members of the union sell to
less efficient members, leading to a better allocation of resources. Trade diversion occurs
when efficient non-member countries sell fewer goods to member countries because of
external tariffs. It gives less efficient countries in the union the opportunity to capitalize
on their position and sell more goods within the union.
Reduces trade deflection
One of the main reasons a customs union is favored over a free trade agreement is
because the former solves the problem of trade deflection. This occurs when a non-
member country sells its goods to a low-tariff FTA (free trade agreement) country, which
then resells to a high-tariff FTA country, leading to trade distortions. The presence of a
common external tariff in customs unions helps avoid problems that arise from tariff
differentials.
- Benefits of Custom Unions:
+To Producers:
Producers get a larger and wider market and can thus produce more goods.
It offers equal protection to all manufacturers against third country imports and
minimizes the possibility of transshipment or trade deflection. It levels the economic
environment and promotes fair competition by reducing disparities in production costs
for manufacturers in the various countries with regard to taxes on imported raw materials
and intermediate goods from third countries.
+ To the Importers:
Because the CU removes border controls and trade barriers, importing
goods becomes faster since traders do not have to go through so many customs
procedures in different countries. This reduces transaction costs and results in timely
deliveries.
+To Consumers:
Consumers get a wider choice of goods and they also benefit from the
advantages of increased productivity which leads to lower prices.

16. What are the principles of WTO and how does it differ from a FTA?
*Principles of WTO:
- Non-Discrimination – Non – Discrimination has two aspects: Most favored nation
(MFN) and National Treatment. Under the MFN, all WTO member countries should be
treated equally, without discrimination. For example- India decides to lower the basic
customs duty for imports of iron ore from China. This favor will have to be extended to
all other countries. National treatment– Foreign goods and local goods must be treated
equally.
- Freer trade – All trade barriers should be lowered gradually through negotiations.
- Predictability – There should be stability and predictability in the trade rules of a nation.
- Promoting fair competition
- Encourage the development and economic reforms.
*WTO differs from FTAs:
- WTO includes a lot of Agreements in different areas of trade (goods, services,
intellectual property, investment ...). These Agreements aim to unify rules for global
trade and reduce trade barriers. However, the WTO has only been successful in reducing
it but has not yet reached the level of removing barriers to balance most of the trade as in
FTAs. Therefore, there is no agreement in the WTO that is an FTA.