International Economics

Question 1: The Principles behind WTO Rules

GATT and its successor, the WTO, have over the years established rules to guide international trade. In essence, the rules are the basis behind the smooth multilateral trading system. In fact, the guidelines adopted are based on specific principles with direct implications on how member states engaged in the cross-border trading. The first rule is that countries should involve in trade without discrimination. Therefore, the principle behind the rule is that when a trading partner lowers or increases the customs charged, the same should be the case with all the WTO’s affiliated nations (World Trade Organization 1). Besides, the rule calls for the equal treatment of both the local and foreign goods and services. However, the rules are applied in an exception in some aspects particularly for trade assistance and concessions for developing economies. Definitely, fair competition is the main focus upon which the rules are grounded.

Question 2: Subsidized and Dumped Products

The subsidized or dumped products are offered in the market of another country at relatively lower prices. In the video, EU-China trade dispute escalates, claim emerges that Chinese subsidized products are offered at a lower price. Thus, the products are much competitive in the EU markets and beyond. Notably, the likely welfare gain is that the purchasing power of the consumers. In spite of the benefit, if not addressed, the incidence is likely to lead to the closure of EU based manufacturers of the items in question. Obviously, employment and livelihood of the people would be affected. Through Section 301 of US trade law guideline the American economy is protected against the subsidized and dumped goods (Schaffer, Filiberto, and Lucien 282). The act allows the President to limit or ban the importation of goods threatening the US firms, in the local market. Without reservation, the local industries are protected, hence assisting in maintain a favorable environment for the local manufacturing sector.

Question 3: Strategic Trade Policy

Strategic trade policy is the use of tariffs and subsidies to alter the outcomes of the international competition in favor the country. It guides the large, multinational firms on how to interact with others to bring in profits from foreign markets to the countries of origin. The governments subsidize the local companies in research and development to acquire a more competitive advantage.  For example, the Chinese government offers subsidies to the local manufacturers to empower them amid global competition. Hence, the argument in support of the concept is that it enhances the competitiveness of the domestic firms. Of course, with the subsidized research and development, the firms are in a position to acquire new and innovative ways in production and trade (Patrizio and Sandrine 134). Nevertheless, critics are of the opinion that the participation of the government distorts the market subjecting it to political whims.  Obviously, the subsidies signal that the government policy and politics play a critical role with the intention to achieve certain outcomes.

Question 4: Economic Integration

Economic integration refers to the unification of trade policies as well as elimination or reduction of both the tariff and nontariff barriers. In fact, integration is aimed at enhancing the flow of goods and services between bordering countries within a region. The aforementioned aspect takes place after the members have undergone a number of stages. The first stage is the preferential trading areas where countries agree to lower the tariffs charged on certain goods and services traded between them. The second stage is the free trade area where import quotas and tariffs, are reduced, and the people allowed to move freely across the economies concerned. The Customs Union is the third stage and involves the free trade area in addition to common tariff charged to nonmembers. Next, economic union arises when member states adopt common policies on product regulations, free movement of goods and services, and other factors of production.  Lastly, the parties unify regarding economic policies through the partial or full abolition of trade restrictions.

Question 5: NAFTA

NAFTA refers to North American Free Trade Agreement whose members include the United States, Mexico, and Canada. Indeed, the trade deficit between US and Mexico leads to queries healthy is the trade (Hufbauer, Cimino, and Tyler 3). The argument in support of NAF TA and the trade between the two countries is based on the fact that the exports from USA support employment whereas; imports substitute what cannot be produced locally. Additional, as every member country aims at maximizing foreign gains, it is not a possible scenario for every economy to report a surplus. Yet, the opponents of the existence of NAFTA claim that the deficit reported from the US side implies that some job/employment opportunities are substituted by imports (Hufbauer, Cimino, and Tyler 4). The argument implies that Americans losses more than they gain regarding income and employment. In my opinion, I support the existence of NAFTA and the trade between the two countries because it assists in creating employment, while export level could be improved through a strategic approach.

Question 6: Trans-Pacific Partnership

Trans-Pacific Partnership (TPP) is a trade agreement involving the United States and 11 other countries.  Just to mention, the counties include Australia, Brunei Canada, Chile, Japan, Mexico, Singapore, and Vietnam among others (Schott, Barbara, and Muir 1). In fact, the trade agreement is considered controversial because of the points of contention leading to the delay in its implementation. Therefore, the member states and the potential ones will have to resolve the disputes to realize the objectives including economic development, the creation of employment, and reduction of poverty. Indeed, the primary area of contention concerns the previously signed agreement in separate trade arrangements. For example, the United States and Japan had agreed on restrictive tariffs on agriculture from the American market and automobiles from Japan (Schott, Barbara, and Muir 20). Particularly, the question is how the two countries will retain the agreements to protect their crucial sectors within the expectation of TPP at a minimal conflict of interest.

Question 7: Foreign Direct Investment

Foreign direct investment is a concept in which enterprises invest in other countries by spending capital to establish operations in interest sectors. Without a doubt, the enterprises are compelled by a number of motives. First, some of the investors seek to exploit the markets from the countries of interest. For example, the American multinational have invested in China to have a better standing to exploit the Chinese and other Asian countries’ markets (Chen 251). The second motive is to reduce the cost of production. Enterprises invest in economies where the cost of labor, power, and raw materials are cheap and affordable. For instance, the cost of labor and energy in China is cheaper than in the USA. Lastly, the enterprises are induced to invest through FDI to diversify their operations (Chen 211). The country that is receiving FDIs benefit through the creation of employment, the introduction of better technology, as well as the extraction of untapped economic resources.

Question 8: Multinational and Resource Conflict

Multinationals are companies whose operations and presence are felt globally. Such entities operate in large scale and are considered as key players in job creation in both the developed and developing countries. As a matter of facts, the enterprises are accused of the negative implications of their operations. Without a doubt, the companies are faced with disputes on matters to do with resources leading to conflicts in the host countries. To operate in large-scale, Multinationals utilize a huge amount of natural resources reducing their supply to the locals. Additionally, operations in certain areas lead to pollution of air, water, and land-based resources reducing their utility to the people. For instance, Coca-Cola, one of the most popular Multinational has been implicated to conflicts on the matter to do with clear water resources in various host countries (WordPress.com 2016). In fact, the company has been forced to suspend its operation due to protests from the local communities in India.

Question 9: Developed Countries Conditioning Imports From Developing Countries

The developed countries have the tendency of putting in place conditions before allowing in the imports from developing countries. The undertaking has both the pros and cons. The first con is that they assist in protecting the local industries from unfair competition, hence strive in maintaining employment at favorable levels (McEachern 475). Besides, the undertaking helps in protecting the consumers against the substandard products from the developing countries. Undeniably, there is inefficiency in the developing countries, and hence, the quality of output is relatively lower. In other words, the restriction assists in avoiding dumping.  Therefore, it is advisable for the United States to stop importing goods from sweatshops. The sweatshops subject the employees to harsh conditions against the international labor laws and standards. The workers are underpaid; work long hours, whereas some of them are illegal immigrants.

Question 10: Labor Migration

Labor migration refers to the movement of people from one country to the other to provide labor services. Labor is a critical economic factor, hence the movement has the effect on the host/immigration and emigrant countries. The destination country is likely to experience two possible outcomes. First, the migrants are likely to bring in new technology and innovative practices in various sectors. Take the case of when experts move from the US to the developing countries, they bring in their skills and impact it to the people they work with (Snorrason 6). Secondly, the migrants join the labor force in the destination countries leading to the reduction in the job opportunities. For an instant, the US hosts thousands of migrants from all over the world who take up the positions likely to be occupied by the unemployed in the country. Nevertheless, the emigrant country losses expertise, but experience a reduction in the unemployment rate.