Tag Archives: Free Trade

Barriers to trade not the answer during the pandemic

The WTO has warned that the reduction in global trade could be bigger than that following the GFC in 2008 – see graph below. For countries to start reducing the volume of imports because export volumes have been decreasing is not seen as the right way forward. With countries dependent on the global supply chain for PPE and pharmaceuticals, it would be wrong to focus on being self-sufficient in these essential products.

Source: WTO

As Martin Wolf of the FT pointed out the issue is not with trade but a lack of supply. Export restrictions merely relocate the shortages, by shifting them to countries with the least capacity. The natural response might be to become more self-sufficient in every product but free trade and globalisation does have its advantages:

Trump and Trade

In his US Presidential campaign one area that Donald Trump was clear about was trade. During the oil crisis years of 1973 (oil prices quadrupled) and 1979 (oil prices doubled) the traditional US car / truck became very expensive to run and Americans started to buy significant numbers of Japanese cars which were much more reliable and cheaper to run. Trump alluded to this and stated that Japan was robbing America blind. He also criticised inept and corrupt elites for moving jobs abroad – ‘China is killing us’ he said.

In order to even the playing field he has vowed to:

  • impose a 45% tariff on imports from China to compensate for their manipulation of its currency.
  • impose a 35% tariff on goods from Mexico in order to protect American jobs.
  • renegotiate existing agreements like the North American Free Trade Agreement with Canada and Mexico
  • pull out of the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership.
  • Trump has threatened to withdraw from the World Trade Organisation (164 members)

America has free-trade agreements with 20 other states and the percentages below tell you how important trade is. See also the graphic from The Economist.

  • 33% of America’s imports come from countries they have free trade agreements
  • 50% of Americas’ exports come from countries they have free trade agreements

us-trade-by-destination

If Trump does go ahead with a trade-war it is estimated employment in private companies employment would decline by 4.8m jobs by 2019. It is ironic that the very group that supported Donald Trump will be the most disadvantaged. Furthermore, with anti-free trade policies comes higher prices which will harm living standards and worsen Americas fiscal position. Although it might preserve some jobs it will worsen prospects and lower well-being for others – OECD.

With America pulling out of the TPP China maybe keen to take the place of the US in this agreement with 11 other Pacific nations.

TPP [would be] a good thing in the long run because it sets high standards for international trade and investment,” says Prof. Larry Qiu, of Hong Kong University’s School of Economics and Finance. He adds that what the world needs is not “more trade and investment … but higher quality and better ordered trade and investment

New Zealand – China trade update

Below are some statistics showing the changes in trade between New Zealand and China.

On 7th April 2008 New Zealand became the first OECD country to sign a free trade deal with China. However this is not the only first with regard to the relationship between the two countries. New Zealand was the first to negotiate a WTO accession agreement with China as well as the first to recognize China as a “market economy”. With this in mind, the Chinese government have acknowledged the support of New Zealand by granting them the first bi-lateral agreement with a western nation. The table below shows how the value of trade has increased as well as the ranking of particular goods and services.

Main goods exports to China:

  •   milk powder, butter, and cheese ($2,419 million)
  •   logs, wood, and wood articles ($1,551million)
  •   meat and edible offal ($1,211 million)

Main services exports to China:

  • personal travel ($1,528 million)
  • education travel ($673 million)
  •  transportation services ($161 million)

 

NZ Trade with China 2010 2015

Source: Statistics New Zealand

Some big questions for Europe’s trade position.

EU US TradeWith Europe keen on a transatlantic deal with the US, there have also been calls for a separate EU-China trade pact. Although they have shown a lot of enthusiasm to the US deal, the pact with China has been met with scepticism.

Here are the facts:

* China has overtaken the US as the biggest single trader
* China will overtake the EU as the biggest single trader in 2020
* China will surpass the EU in global GDP by 2020
* By 2020 the biggest destination for German exports will be China
* By 2020 the second biggest destination for French exports will be China
* Italy and Germany will export more to developing markets their euro-zone partners.

Therefore if Euro countries start to trade more with countries outside Europe the commitment to a single currency may weaken. With countries less or more reliant on exports and imports the exchange rate will not satisfy all members. If it is going to work Euro members economy’s will have to become more affiliated and better equipped to withstand unbalanced shocks from external partners.

Trade sees demise of American Middle Class

Here is a recent clip from Paul Solman of PBS which looks at free trade being the cause of the demise of America’s middle class. A new book entitled “The Betrayal of the American Dream,” by investigative reporters Donald Barlett and James Steele suggest that as manufacturing jobs went to developing countries overseas the middle class in America has seen their standard of living drop. As Donald Bartlett states –

The real bottom-line question is, what kind of a society do we want? Do we want a society built on the principle that the only thing that matters is the lowest possible price or a society built on the principle that everyone should have a living wage?

And those are going to be two very different societies. And this goes back again so what we’re talking about. The people up here, they don’t want everyone to have a living wage.

In order to protect Americans jobs the government needs to get tougher on free trade and impose some barriers to trade like quotas and tariffs.

Global Trade: Free Trade and Protectionsim

Here is a clip on Free Trade and Protectionism. Although quite long it is very good as an introduction to the Trade topic – Unit 4 of the Cambridge International AS course.

Societies have traded for thousands of years. However, the last 35 years have seen an explosion in world trade. How has this global integration affected the world’s economy and individual markets and how are the overall gains of world trade distributed?

Why do car firms in Argentina sell wine?

The rise of China as a producer of just about anything has had a detrimental impact on the industry of many developed nations. Brazil and Argentina are particularly concerned about cheap imports from China impacting on their main export market – North and South America.

Brazil and Argentina are worried about deindustrialisation and have resorted to protectionism – trade barriers/import restrictions. This protectionist policy means that the consumers are the ones that suffer from the higher prices. Argentine officials now require importers to match the value of their orders with exports which had led some car importers to sell wine. This is a particular worry for South American countries as history tells us that for large countries to become developed there needs to be a strong industrial sector. For Brazil the problems are:

– the high domestic interest rates – 9.75% – which make the currency uncompetitive for exports
– a high tax level
– poor infrastructure

Brazil and Argentina had the chance to turn the NATFA (North America Free Trade Agreement) into a 34 country Free-Trade Area of the Americas but they turned it down. If they are to succeed they will need to embrace the global economy and maybe revisit potential trade agreements.