International Economy

JC2 T3 Intensive Revision Prog Q14

(AJC Prelim, 2011, Q6)

Prelim Revision

Addressing question requirements

Content Development

Contextualisation

Argument development

International Trade

Prelim Revision

In economics, globalisation broadens the free market to include many nations to which it had not previously reached. However, protectionism has recently been rearing its head in the form of tariff hikes by some countries in response to the global economic crisis.

a) Using demand and supply analysis, explain the pattern of trade between countries. (10)

b) Discuss whether you agree that protectionism is the best approach to deal with the challenges posed by globalisation. (15)

International Trade AJC Prelim, 2011, Q6

Prelim Revision


Part (a) requires you to:

‘Explain’- Detailed description with relevant Economic Analysis.- Identify and Describe how demand and supply determinants influences trade patterns.

Do so in context – link explanation to examples of countries in reality.


Prelim Revision


Did the answer address the direction and key words?

Identify demand and supply determinants of trade

patterns.

Describe how the determinants affects trade

patterns.

Are the explanations in the context of examples of real

countries?



Prelim Revision

Introduction Definition of key Terms Overview Body How supply side determinants influence pattern of trade Paragraph 1-Differences in Comparative Advantage (Opportunity Costs) Paragraph 2-Government Policies How demand side determinants influence pattern of trade Paragraph 3- Rising affluence (income) Paragraph 4- Changing Taste and Preferences Paragraph 5- Population Size and/or Demographics Conclusion Summarise how demand and supply determinants influence patterns of trade.

Essay Structure


Content Development

Contextualisation


Prelim Revision Introduction Definition of key terms A country’s pattern of trade refers to the volume and composition of trade in a country. This can be influenced by demand and supply side determinants. Supply factors include the differences in Comparative Advantage (Factor endowment), and government policies. Demand factors include tastes and preferences, rising affluence and changes in population sizes and demographics Overview In this essay, we will be explain how these factors contribute towards influencing a country’s pattern of trade.


Content Development

Contextualisation


Prelim Revision Body Paragraph 1- Comparative Advantage P: A country’s comparative advantage based on their different factor endowments and hence opportunity costs can help to determine a country’s pattern of trade. E: The theory of comparative advantage states that countries should specialise in the production of those goods they are more efficient in (lower opportunity cost of production) and import goods that they do not have a comparative advantage in as opportunity costs of producing these goods within country are higher.

The different strengths in allocation of resources which result in lower opportunity cost of the using these factors. helps play a part in determining their comparative advantage and hence relative productivity of an economy in the production of certain goods.


Content Development

Contextualisation

International Trade

AJC Prelim, 2011, Q6

Each Paragraph should be written using the PEEL method.

Content Development

Prelim Revision Body Paragraph 1- Comparative Advantage E: As Australia has an abundance of land endowments relative to Singapore, this allows to produce dairy products at a lower opportunity cost in relative to Singapore and thus have a greater comparative advantage than Singapore in producing dairy products. Thus Spore imports Australian butter. Spore has relatively more abundant amounts of highly skilled labour compared to many other countries. Hence, she is able to produce these products as a lower opportunity cost relative to these countries. Hence, Spore’s exports capital/knowledge intensive goods such as wafer chips, pharmaceutical products. L: (Link to next paragraph) Hence, due to differences in cost which affect the supply side, this influences the pattern of trade in the world.


Content Development

Contextualisation

International Trade


Prelim Revision Body

Paragraph 2- Government policies P: The government policies of each country can help to influence a country’s pattern of trade. E: Government policies of each country is able to help strengthen or to shift focus onto specific areas (e.g. tourism, pharmaceutical, bio-medical, petrochemical industries) through its policies. Government policies can also help to promote trade between certain countries through the signing of free trade agreements that aid in lowering costs.


Content Development

Contextualisation

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Paragraph 2- Government policies E: The Singapore Government provides grants to help pharmaceutical companies to carry out research in order to strengthen the industry. Thus, composition of Singapore’s exports has also shifted with higher contributions from these industries as comparative advantage strengthens with government support. Also, since 1993, the Singapore government has also signed free trade agreements with 20 regional and bilateral FTAs with 31 trading partners. This is instrumental in helping Singapore-based businesses increase cross-border trade by reducing costs through eliminating or reducing import tariff rates, easing investment rules and opening government procurement opportunities etc. All this helps to helps to increase the volume of trade between trade partners. L: Besides supply side determinants, demand side determinants play a part in influencing trade patterns as well.


Content Development

Contextualisation

International Trade



Paragraph 3- Rising Affluence P: One of the demand side determinants that influences pattern of trade is rising affluence. This is especially seen in emerging economies. E: A country with rising income levels is able to increase it’s demand for goods and services produced overseas and thus will influence more countries to export to it.

E: China’s strong rates of Economic growth has resulted in the increase in exports of tourism-related services to it by Singapore. L: (Linkage to next paragraph) Other than rising affluence, a country’s changing taste and preferences may also influence its pattern of trade.


Content Development

Contextualisation

International Trade



Paragraph 4-Changing Taste and Preferences P: Global changes in towards a more technology dependent lifestyle E: As technology plays a greater role in our lives, there is also a greater demand for such products due to their importance. As a share of global output, trade is now at almost three times the level in the early 1950s. This expansion in trade is mostly accounted for by growth in non-commodity exports, especially of high-technology products. This also accounts for the changing composition of trade with more intra-industry trade being exchanged over the years. E: As a global trading hub, Singapore sees high-technology exports amounting to 50% of its manufactured exports, due to the greater demand for such products. Out of manufactured goods, we export and import differentiated products (intra-industry) L: Thus, change in global tastes and preferences contributes towards the changes in our trade patterns.


Content Development

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Paragraph 5-Population Size and Demographics Changes in population size as well as population demographics influence global trade demand. A general increased in global population have put pressure on agricultural markets due to the increase in global food demand and thus increased the composition of food in trade.


Content Development

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International Trade



Paragraph 5-Population Size and Demographics Demographics also play a role in affecting trade composition An ageing population results in expenditures on some categories of goods, i.e. trade in consumer durables such as food, furnishing, clothing and accessories, are noticeably reduced upon retirement, while expenditures on other categories remain constant or increase (Hurst, 2008). In particular, trade in services will increase most in areas such as e.g. health, financial services, tourism services that target the senior citizen market. Singapore’s total trade in services as a percentage of GDP has been following an upward trend from the 1990s until now.


Content Development

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Prelim Revision Conclusion In this essay we have seen how demand and supply determinants act together to influence the volume and composition of trade globally.


Content Development

Contextualisation

International Trade


Prelim Revision

L1: 1-3 L2: 4-6 L3: 7-10

Addressing Question

Requirement

• Did the answer

address the

direction and key

words?

Answer is descriptive

and/or regurgitated

statements that are of

little relevance to

question requirement

Answer shows a

superficial knowledge

of the different

reasons for a country’s

pattern of trade.

Thorough knowledge

of the demand and

supply determinants

influencing a country’s

pattern of trade with

the ability to support

using examples.

Content

Development

• Were points

made supported

with economic

theories?

There is merely listing

of definitions and/or

concepts.

Points are made and

may not always be

supported with

demand and supply

analysis.

There is consistent

linkage of reasons to

demand and supply

determinants and how

changes in demand

and supply therefore

influence pattern of

trade.

International Trade


Prelim Revision

L1: 1-3 L2: 4-6 L3: 7-10

Contextualisation

• Did answer make

use of examples?

• Were examples

used relevant,

real world

examples?

No or minimal use of

examples.

Some use of

examples.

Examples may be real

world but are weak in

terms of its use to

support points.

Consistent use of

examples.

Good quality, real

world examples of

countries are used to

support points.

International Trade


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Prelim Revision

Essay Question 6



International Trade


Prelim Revision

Part (b) requires you to:

1) Explain the challenges posed by globalisation.

2) Discuss whether you agree if protectionism is the best measure to address these challenges.-

i. Explain the pros and cons of using protectionism.

ii. Explain 2 other measures (‘best’) that can be better in helping to address these challenges.

3) Take note of the preamble!

i. One of the protectionist measures brought up needs to be tariffs.

ii. This question needs to discussed with the global economic crisis in mind.

International Trade


Prelim Revision


Did the answer address the direction and key words?

Explain the challenges created by globalisation.

Explain the pros and cons of using protectionism to

address these challenges

International Trade


Explain how supply side policy can be better at address these

challenges in LR

Explain how fiscal policy can be better at addressing these challenges in SR

Evaluate: Make a stand and justify.

Note: Protectionism is generally not regarded as an ideal policy is addressing globalisation’s challenges.

Prelim Revision

Introduction Define globalisation and protectionism Overview Body Thesis- Protectionism is the BEST approach to deal with the challenges posed by globalisation. -Explain the challenge posed by globalisation. -Explain how protectionism addresses this challenge. Anti-thesis 1: Explain why protectionism is not the best approach Anti-thesis 2: Explain how other policies ( FP and SSP) can better addresses these challenges. Conclusion/ Evaluation Summarize your overall stand. Provide Insight.

Essay flow


Content Development

Contextualisation

International Trade 2011 AJC Qn 6

Prelim Revision Introduction Define globalisation: increasing integration of the international economy and is characterised by greater global interdependence through expansion in the volume and variety of cross-border transactions in goods and services, capital, foreign direct investments, exchanges in labour and technology. Define protectionism: refers to any action that the government may take to influence market forces to provide an advantage to domestic industries over foreign producers Overview: In this essay, we will explain the challenges globalisation poses and how protectionism can address these challenge and their possible limitations. We will also look at whether other policies could help to address these challenges and consider which is the best approach.

Addressing question

requirements

Content Development

Contextualisation

International Trade


Prelim Revision Body: Thesis Challenge 1: Globalisation could result in rapid growth which may lead to higher levels of structural unemployment in the sunset industries that have lost CA. How protectionism addresses this challenge: With government’s intervention, temporary protection (Short Run) allows workers in these sunset industries (which may employ significant proportion of the labour force) to adjust to new conditions Example: In order to prevent high structural unemployment, the Obama administration sought to protect the US Auto industry (General Motors and Chrysler) by pumping large government subsidies towards saving the industry.


Content Development

Contextualisation

International Trade


Prelim Revision Body: Thesis Limitations: However, once this protection is in place, it may be hard to remove and if protection is in long term, it may lead to higher COP, misallocation of scarce resources and a fall in world output and trade.


Content Development

Contextualisation

International Trade


Prelim Revision Body: Thesis Challenge 2: Increased vulnerability Greater interdependency and mobility of resources among countries means problems in one country can be easily transmitted to other countries. This is especially so during the global crisis where the national incomes of many countries were affected. How protectionism addresses this challenge: During a worldwide recession, protectionism can be carried out to maintain home employment. Restrict imports in order to ensure that income is spent in domestic country so as to provide some stability in income and employment


Content Development

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Prelim Revision Body: Thesis Example: Clauses such as the ‘Buy American’, ‘ Buy Indonesian’ were instituted to encourage or even mandate the purchase of local products and discourage imports. Limitations: This may encourages inefficiency in home industries produce goods with no CA reduced competitiveness in the future.


Content Development

Contextualisation

International Trade


Prelim Revision Body: Thesis

Challenge 3: deterioration of BOP -Fall in global demand during crisis and assuming imports remain constant excessive import expenditure worsen current account -Increased global competition for FDI engage in outward investment long term capital outflow and less capital inflow -Increase mobility of capital, esp Short term capital increased instability in the foreign exchange markets greater risks of currency crises How protectionism addresses this challenge: Tariffs or quotas may be imposed to reduce import expenditure allow BOP to improve (briefly explain using diagram)


Content Development

Contextualisation

International Trade



Example: The EU introduced tariffs on several agricultural products. And tariffs on steel products were seen in countries like India and Brazil. Limitations: DWL may result (with imposition of tariffs) Retaliation from trading partners possibly increase trade barriers increase in general reduction of world trade


Content Development

Contextualisation

International Trade


Prelim Revision Body: Anti-thesis: Why Protectionism is not Best

1. Begger-thy-neighbour effect - exports, output and income of its trading partners are reduced, which then curbs the exports, output and employment of the country which initiated protectionism 2. Risk of Retaliatory reactions from trade partners - trading partners may retaliate and impose their own import restrictions thus causing the initiating country’s exports, output and employment to suffer subsequently. 3. Increases market dominance of domestic firms - protection raises the market power of domestic firms hence resulting in greater allocative inefficiency. Also, being flushed with monopoly profits, domestic firms tend to end up being productively inefficient


Content Development

Contextualisation

International Trade


Prelim Revision Body: Anti-thesis 2: Other policies Fiscal Policy In the short run, instead in protectionist measures, Expansionary Fiscal Policy can help improve or at least maintain employment (Cyclical) and economic growth rates (Actual growth) during periods of vulnerability by increasing AD. Building of IRs and 2009 Resilience package (includes increase G, Lower corporate taxes and income taxes increase C and I This may help improve AD (and may have positive AS effects) and hence NY and employment, and is better than protectionist measures as protectionism will only harm our trading partners and lower their income and hence ability to buy from us.


Content Development

Contextualisation

International Trade


Prelim Revision Body: Anti-thesis 2: Other policies Supply Side Policy Protectionism may protect the industry in the short run during a financial crisis, but it does not solve the root of the problem of unN structural change in country needed and relevant skills required. For example Spore needs to move up the value chain towards more knowledge based and service industries. It does not protect its domestic industries nature of our exports has to change as we compete with emerging economies such as China. Retraining the workers productivity increases as workers are equipped with appropriate and higher level of skills and unemployment levels fall e.g. productivity and innovation credit scheme (PIC)


Content Development

Contextualisation

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Prelim Revision Body: Anti-thesis Policies can be also be put in place to: -improve labour discipline, improve infrastructure, rules and regulation attract FDI increase long term capital inflow -improve non-price competitiveness improve quality & increase global demand for exports improve BOP -Strengthen domestic financial sectors before opening up to global capital flows This will improve our fundamentals and may be more useful than short-term protectionist measures.


Content Development

Contextualisation

International Trade


Prelim Revision Conclusion Stand Globalisation poses problems to the economic objectives of the government. Therefore, governments should understand the nature of their economies well and if necessary, may adopt temporary, short term protectionist measures to safeguard the interests of their economy. However, at the end of the day, protectionism may not be the best approach as it does not solve the root of the problem and may harm our trading partners and thus indirectly harm ourselves.


Content Development

Contextualisation

International Trade


Prelim Revision Conclusion Insight Instead, more open and well-governed markets should be the developed through the use of policies that seek to improve our fundamentals such as supply side policy. Fiscal policy which can be more easily adjusted and which may have supply side effects can be used in the short run. These combined will allow us to better weather any storm and will be better than the use of protectionism to address the challenges posed by globalisation.


Content Development

Contextualisation

International Trade


Prelim Revision

L1: 1-5 L2: 6-9 L3: 10-13

Addressing Question

Requirement

Did the answer

address the

direction and

key words?

Answer is largely

irrelevant. Some points

on globalisation or

protectionism may be

made but these tend

to be incidentally made

rather than

purposefully made.

Answer is able explain

the challenges that

globalisation brings

about and how

protectionism can

address these

challenges and

mentions its limitations.

It touches on other

policies, but does not

address the idea of best

approach.

Answer is able to

provide a good

explanation of the

challenges that

globalisation brings

about and how

protectionism can

address these

challenges and its

limitations.

It explains how other

policies may also solve

these challenges and

addresses the idea of

best approach.

International Trade


Prelim Revision

L1: 1-5 L2: 6-9 L3: 10-13

Content Development

Were points made

supported with

diagrams and

tables?

Were points made

supported with

economic

theories?

Points made are

not deliberately

supported with

diagrams and

economic theories:

Mere stating of the

challenges of

globalisation and

types of

protectionism.

Points are made and

sometimes

supported with

diagram and

economic theories:

Incomplete economic

analysis of 3

challenges of

globalisation and the

ways protectionism

can address it. Very

brief

recommendation of

other policies.

Points are made and well

supported with diagrams

and economic theories.

A thorough economic

analysis of 3 challenges

of globalisation and the

ways protectionism may

or may not address it.

Well elaborated

explanation of how other

policies can be better

than protectionism are

also seen.

International Trade


Prelim Revision

L1: 1-3 L2: 4-6 L3: 7-10

Contextualisation

• Did answer make

use of examples?

• Were examples

used relevant,

real world

examples?

No or minimal use of

examples.

Some use of

examples.

Examples may be real

world but are weak in

terms of its use to

support points.

Consistent use of

examples.

Good quality, real

world examples of

countries are used to

support points.

International Trade


Prelim Revision

International Trade


L1: 1-3 L2: 4-6 L3: 7-10

Argument

Development

Did answer

provide balanced

discussion that

considers

different

perspectives?

Was the flow of

argument

coherent?

There is no breadth of

discussion or coherent

flow of argument.

Essay is mostly one-

sided or too narrow in

terms of number of

points.

There is some breadth

of discussion, but

certain key angles/

perspectives may not

be brought up.

Flow of argument is

mostly coherent.

There is good breadth

of discussion which

covers multiple

perspectives and

angles.

Argument is coherent.

Documents

International Economy