125 words each response with references
one: There is no simple way to balance the needs of businesses versus consumers when creating trade policy. Adam Smith’s theory of absolute advantage explained why unrestricted trade is good for a country (Hill & Hult, 2019). When a government does not interfere in trade it allows the movement of goods based on what the market desires. Trade policy embodies many variables. There are import duties, some of which may be punitive towards a country that may be engaged in dumping of products or deflation of its own currency in order to make its products cheap and thus more desirable. Quotas are another tool used in trade policies to limit the amount of an item that is imported into a country and are used as a way of protecting an industry from foreign competition. The most notable example of tariffs imposed on imported goods is the implementation of an 8 to 30 percent tariff by the U.S. Government on the importation of cheap steel in 2002 (Hill & Hult, 2019). This action was determined to be a violation of the World Trade Organization treaty and the tariffs were removed by the U.S. in 2003.
The tariffs were used to try to protect the steel industry in the U.S. and its employees, but it placed a burden on the end users of steel. The end users purchased imported steel because of the costs savings to their own businesses thus enabling them to reduce the manufacturing costs of their products. Lower costs enabled the end users to be more competitive with other manufacturers both domestically and internationally. In this instance, the trade policy attempted to protect an industry at the expense of domestic consumers.
Recently implement tariffs against imported steel was initiated by Donald Trump in an attempt to revive the U.S. steel industry. This time tariffs of 25% on steel imports and 10% on aluminum imports were implemented (Gruley & Deaux, 2020). For a period of time the U.S. steel industry enjoyed increased prices for its steel and various companies reactivated closed plants. However, a recession has occurred, and although employment had increased in the industry some steel producers are closing plants which will result in reductions in staff equivalent to 50% of the jobs gained (Gruley & Deaux, 2020).
Another example of the interests of business or of an influential group is the European Union’s support of the Common Agricultural Policy (CAP). Normally the market would determine which businesses would prosper and those that are inefficient would have to either modify or go out of business. Having a powerful farm lobby and the interests of politicians looking for votes were the driving factors of CAP. The CAP benefitted farm operations that were not efficient and as a result the consumers ended up paying more for products (Hill & Hult, 2019).
It is not feasible to say governmental policy will ever show a preference for consumers in its trade policies. Until such time that consumers have lobbying powers equal to or greater than businesses and special interest groups, consumers will not be a priority.
Sylvia Scott
References
Gruley, B., & Deaux, J. (2020, February 17). When Trump Doesn’t Love You Back. Bloomberg Businessweek, pp. 48-53.
Hill, C., & Hult, G. M. (2019). International Business: Competing in the Global Marketplace. McGraw Hill Education.
two: When creating a trade policy, I think the interests need to balanced between consumers and employees. Trade pacts in too much in favor in one direction or the other can have an extremely unfavorable impact on the price of consumer goods, as well as unemployment rates. Growing exports tend to increase and support domestic employment, where growing imports lowers the need for domestic employees and reduces domestic output. Trade in a general sense is good, but only when it is balanced does it create better, higher paying jobs.
When we engage in trade with low-wage companies, it drives the cost of consumer goods down which at first seems great. However, when you consider the fact that the majority of the U.S. labor force is made up of employees without a college degree it doesn’t seem so great. You see, the cost of consumer goods is lower when we trade with these low-wage countries because the labor rates are much lower. The result, lowered wages for our U.S. labor force.
On the flip side of that, when we export it makes up for jobs displaced by importing and it drives U.S. wages up. According to Jeffrey Schott of the New York Times, workers in manufacturing firms that export typically make 12 to 18 percent higher than those that do not. At the end of the day, it is a give and a take, but it is important that it is balanced between the two.
Schott, J. (2016). Are Trade Agreements Good for Americans? Retrieved from https://www.nytimes.com/roomfordebate/2016/03/17/are-trade-agreements-good-for-americans
