Topic:The pros and cons of tariffs.
Subject:Economics
Volume: 5 pages
Type: Essay
Format: APA
Description
Unit VIII Essay Write a five page essay, using a minimum of three academic references from the CSU online library and proper APA formatting on the following topic: pros and cons of tariffs. All sources used, including the textbook, must be referenced; paraphrased and quoted material must have accompanying citations. All references and citations used must be in APA style.
Upon completion of this unit, students should be able to:
8. Analyze the international economy through trade interdependences and financial interactions.
Reading Assignment
Chapter 17:
International Trade
Chapter 18:
International Finance
Unit Lesson
International economics and world economy are some words that perhaps strike fear in our hearts as we wrap
up our study of macroeconomics. However, keep in mind that the same general principles of supply and
demand, as well as price of money hold true. It is not much different than the study of U.S. economics.
The laws of supply and demand still hold true. The equilibrium price for foreign money is based on the supply
and demand for that currency in U.S. dollar terms. The supply and demand for foreign exchange (foreign
money) is influenced by the interest rates, prices, and relative income, just like in the U.S. macroeconomics,
except now on a global basis.
Money in the international economies serves the same purpose, and that is to facilitate market exchanges for
the goods and services demanded and supplied internationally. The major difference in macroeconomics
internationally is how to set the value of the various currencies for the various countries. For example, how
much is a U.S. dollar worth in Euros (the currency of the European Union)?
Foreign currencies have value because they are used to obtain the goods and services from another country.
Keep in mind that due to the principle of comparative advantage, just like in the U.S., countries have
comparative advantage in certain areas. For example, in parts of India and China there is plenty of labor
available to make the clothes that we wear. Whereas, in the U.S., due to automation, there is a comparative
advantage in growing of food and providing of knowledge work. It is to the advantage of these countries to
exchange for the benefit of all. These foreign currencies then are used to exchange goods and services. The
value or price is set for the goods and services by the supply and demand for those goods and services.
The balance of payments summarizes the country’s international trade and is measured in deficits and
surpluses. If the balance of payments gets out of balance, then equilibrium is achieved by changes in the
exchange rate. Keep in mind that producers of goods and services from the U.S. do not want the value of
exports to rise in price, since due to law of supply and demand, at a higher price less goods and services will
be demanded. In addition, travelers and importers do not like it when a currency falls in value because travel
becomes much more expensive to other countries, and the price of imports increases, which means one can
purchase less goods and services at the same price.
Let us now consider one macroeconomic situation, and that is the U.S. as a debtor. As you have likely read in
the newspaper or heard on the news, the U.S. is a debtor nation. What does this mean in terms of
macroeconomics? Since the mid-1980s, the U.S. has consistently run a trade deficit. This means that the
U.S. has much less money or assets abroad, and other nations have more money or assets in the U.S. This
makes the U.S. a debtor nation.
UNIT VIII STUDY GUIDE
International Economy
BBA 2401, Principles of Macroeconomics 2
UNIT x STUDY GUIDE
Title
What might be some ramifications of this situation on international macroeconomics? The U.S. must be very
careful in all of its domestic policies. If foreign entities all of a sudden feel threatened by a policy intervention,
then they could take their assets, leave, and hurt the U.S. economy very bad and cause major disruptions. On
the other hand, the continual investment by other countries into the U.S. does indicate a positive level of
confidence in the stability of the U.S. economy, or the investments in assets would not continue to occur.
Keep in mind, the foreign investors are taking on major risk because if the value of the U.S. dollar falls, then
the value of their assets falls as well, and a strong dollar increases the value of their assets.
Now let us drill down to a specific country, Russia, and take a look at how the Russian economy has changed
in recent times since the collapse of the Soviet Union. One has to consider that this country actually has a
relatively new economy and has had some growing pains.
Russia joined the World Trade Organization (WTO) in 2012, and one can just imagine what the potential
means for the world’s economies as Russia agrees to abide by standards and rules of the WTO. There
should be much greater transparency, a leveling of the playing field, and risk reduction in trade
(Schewe, 2013).
Russia prior to the collapse of the Soviet Union in 1991:
It is probably Russian history in international trade which had led to the overall perception that,
despite being one of the major world powers over the nineteenth and twentieth centuries, the Western
world has never seemed to accept Russia as a major trade power. While, for the earlier times, this
assessment is mostly attributed to the backwardness of the system under the Tsar regimes, for the
later Soviet Union it is described as a result of the inherent deficiencies of the political and economic
structure of the communist system. Given that international trade had played only a minor role in
Russian history, it is not astonishing that the number of trade agreements concluded before 1991 was
very limited. (Schewe, 2013, para. 13)
Russia after 1991:
Despite a banking and economic crisis after 1998, during the last decade Russia has managed to
achieve high gains for the export of commodities mainly in the petro-industry. This development was
favoured by the worldwide dependency on energy. In particular, the energy-intense economy of the
EU contributed to the rapid economic growth of Russia since 2000. Notwithstanding overall growth,
the economic crisis from 2008 led to a strong decrease of the Russian economy, revealing the risks
of its dependency on energy exports. Today, for its position as the world’s top producer of oil and gas
Russia has achieved a high trade surplus. Russia’s most important trading partner is the EU – which
imports 49.4% of Russia’s exports, of which 80% are attributed to oil and gas. The second trading
partner of Russia is China, with 5.3% whereas the US only rates sixth in regard to imports, among
which 90% account to oil and gas. (Schewe, 2013, para. 21)
As one considers international trade, one cannot ignore the WTO that Russia has joined and all of the
potential advantages for world trade. At the same time, with recent world events, one sees that monetary
factors are also subject to punishments and restrictions on trade due to political changes, such as Russian
involvement in the Ukraine. It is a delicate, but interesting, economic study to see how economies are affected
by world events, and world events cannot be separated from economics’ effects.
References
Schewe, C. J. (2013). Russia in the WTO: The bear on a leash? Russia in international trade disputes and the
added value of a WTO membership. Journal of World Trade, 47(6), 1171-1201. Retrieved from
http://search.proquest.com/docview/1467948682?accountid=33337
BBA 2401, Principles of Macroeconomics 3
UNIT x STUDY GUIDE
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Suggested Reading
Click here for the Chapter 17 Presentation in PowerPoint form. Click here to access a PDF version of the
presentation.
Click here for the Chapter 18 Presentation in PowerPoint form. Click here to access a PDF version of the
presentation.
European Commission. (2014). The euro. Retrieved from
http://ec.europa.eu/economy_finance/euro/index_en.htm
Office of U.S. Trade Representative. (2014). Home. Retrieved from http://www.ustr.gov/
Learning Activities (Non-Graded)
Review the links to learn more about country specific economic trade activity in a country other than the U.S.
Adding international economic knowledge can prove to be a valuable knowledge commodity.
Exports
http://legacy.intracen.org/appli1/TradeCom/TP_EP_CI.aspx?RP=643&YR=2009
Imports
http://legacy.intracen.org/appli1/TradeCom/TP_IP_CI.aspx?RP=643&YR=2008
http://legacy.intracen.org/appli1/TradeCom/RS_TP_CI.aspx?RP=643&YR=2009
International Trade Centre
http://www.intracen.org/
TPI
http://legacy.intracen.org/appli1/TradeCom/TPIC.aspx?RP=643&YR=2009
