International Trade and American Wages - Essay Example

International Finance case The Case for Protection Tariff and quota control import of goods in a country from foreign countries. Tariff is a tax imposed on the imported goods whereas quota is the limit on import of a particular good in a country to protect the interest of domestic producers from foreign competition. Both of these macro economic factors might not protect employment but aims to ensure demand for local products. These factors aims to protect some important industries, not to be dependent on other countries like the industries related to the production of weapons for the domestic security purpose. One of the most responsible industries for national security is steel. But the recent trend of weapon production shows that titanium is more used than steel. So, there is not much benefit by focusing on the tariff and quotas on steel. Tariff on steel is always justifiable even if it comes from enemy countries of United States. Companies do not generally concentrate on the domestic security issues in case of their international trading business or sourcing of raw materials in cheap price than the domestic suppliers. Protection of an infant industry by tariff and quotas is beneficial for the country if future return from this industry can cover the initial losses. Otherwise protection is useless for a start up industry. It is very tough to implement theories into practice especially for the international trade. It is not likely possible to squash an American upstart industry by the foreign companies in the similar industry who have the operation in the USA. They can’t reduce the price by making a huge loss to decrease the demand of the American companies. Threat of foreign companies is very conspiratorial and not much effective for a new American company’s initial growth and even existence in terms of international price war among the companies. There are many ways and areas to find out government assistance into business. So, tariff and quota are also relevant and beneficial for many areas of business in a country like USA. For a large country like USA, demand for a particular product is so high that import of very essential products is generally required. So, protection is essential for the import of these products. Generally all businesses desire free market and for this reason globalization has spread out so rapidly across the countries for creation international trade free market. There is a high demand of common consumer durable products like television in a large country like America. So generally higher demand on imported product is there but a tax imposed on import of television in terms of tariff and quotas reduce the actual price of the television because, the producers always try to keep the demand high even in reduction of actual price or the price after production and before taxes. But the demand will go down as the retail price of the product will rise. Consumer will be worse off if the government imposes tax on television as it raises the overall market price of a television though actual price will come down due to the worldwide lower demand of television. Though consumers have to pay more for a television than earlier but the country will be gaining by unit tariff amount of a single import of a television. So, there will be a net gain of America. It seems like a cartel of consumers rather than cartel of sellers where United States withholds demand of television to get lower price. There is no guarantee that tariff will be beneficial for all imported products in a country because there is negligible impact on price of television in foreign countries if demand of a consumer durable product like television goes down even in a large country like USA. This is because the products having higher demand across the world like television for durable products or an apple for fast moving perishable products have a negligible impact on the demand due to downfall of demand of these products in single country. If the Americans stop eating apples, the price of apples will come down on American market only but it will not make any major effect on the worldwide demand of apple. Similarly, America borrow high amount of money for government expenditure but the interest rate remain unchanged because the borrowings is generally negligible than the worldwide borrowings. Similarly, tariff on television does not make any substantial changes on demand of television in America as it is a very essential and demanded product for households. Higher tariff can increase the price of a product higher than the consumers’ purchasing power. So, the government should not increase tariff much higher as it does not affect the worldwide demand of a product. So, in practice, it is tough to assess the benefit of tariff but for theoretical aspect it can be proven beneficial for a country as well for the business and individuals like in case of strategic international trade. Tariff is beneficial for high technology product like the military weapons. But there should be monopoly market so that supplier power remains high in global market. For high speed airline services, tariff will be beneficial for the country where the production occurs as the market will be monopoly and the demands for this service is expected to be higher. But there is also one negative aspect of it as the size of the market of this high-tech premium service is very small and the companies might not able to cover the cost of services per flight. So, again benefits of tariff can’t be assessed in practice. Generally, government does not efficiently estimate the cost of these high tech premium services as these services are only for some high earning individuals. So, there is negligible benefit for the mass citizen of the country. American government helped the semiconductor industry for innovation of higher technology in lower cost but after few years, many countries started the same through public and private research and development on the same industry. Thus the price of the computers came down dramatically compared to earlier days. So, only for monopoly market, government intervention is beneficial. But it is hard to find out a firm having a monopoly market in the technology industry. So, the government’s intervention on protestation of foreign competition of the domestic producers in terms of tariff has not significant benefit in practice but the domestic producers always ask for intervention of government on international trade of their businesses. Is Trade Good for America? It seems like Japanese are ahead of America i8n terms of production consumer electronic goods as they produce more television than America. But in reality it is not the true fact as Japanese yen much lower valued than US dollar. If Japanese’s average income in yen is converted into US dollar then the comparison will show that average standard of living of Americans is better than the Japanese in terms of income level and purchasing power in US dollar. After globalization, international trade between these two countries started and both of the countries were getting benefited by the implementation multiple skills and expertise. It is seen that standard of leaving of all Americans are improved much better than that of 1960 when inter country trade was not started. The people did not get the global exposure of technology advancement. Government keep a record of the wage rate of nonsupervisory workers of the nation to assess the growth of wage rate which directly influence the consumption power as well as the standard of living of those workers. They are people of lower income level in the nation and thus government can track the standard of living of low earning people. Inflation is also another factor which reduces the benefit of increase of wage rate because living expense also increases at the same time but the change of living expense is lower than the change in wage rate or the income level. Inflation in America rises very steadily and any substantial changes can’t be assessed each year by the slight increase of inflation. On the other, income level of workers has substantial positive change each year. America has grown well in terms of employment also. Few years back, some companies closed down due to economic downfall but America lost only certain types of jobs in the industry of perishable product like in the food industry. Employment is a cyclical process as it is maintained by reduction of employees in one industry to employment in another potential industry where wage rate is higher. It is overall benefit of the country though employment remains same but the income level of workers raises and welfare of the nation occurs. For example, jobs in the television industry are gone but people gets substitute jobs at the same time in another new and growing industry with a comparatively higher wage rate (Lawrence, pp.177-179). Though the farming job disappeared in America but the new generation of people especially the younger are shifting to different kind of job rather farming because farming is not at all a booming industry in America. American government is continuously squeezing the food industry and they focus on import of food products in cheaper price than expensive production of food. The people as well as the government can use the natural resources for the production of profitable products of high technology rather than use of many resources for the production of food. The workers of food sectors can work on another high paid industry and purchase food in lower price. So, the savings increases and this is the aim of government to increases the income level of the people. After starting international trade with Japan, the Japanese television companies started exporting television into US market and the price of television gone down because they export television in lower price compared to the domestic average price of television. So, many domestic producers sold off their plants to Japanese television companies and many Americans lost their jobs. But the workers managed to earn either joining other jobs or starting business and the country got sufficient labors for growing industries like pharmacy and other. There are two different ways of international trade. Free trade is one of these. America allows Bangladesh to free trade for clothes as Bangladesh is the major supplier of cotton garments to America. Domestic production of cotton is very low in America and the country does not focus on the production of cotton as it think that it will be more expensive than import from other country. So, trade is very beneficial for America for import of agricultural product like cotton. By importing high demanded perishable products like cotton and other food product, the country can focus on other innovative industry like military weapons production industry. The country can use it limited resources like mainly the labor and other natural resources for the production new product of high value in terms of innovation and technology. These high tech products have a higher demand as there very less countries in the world except Japan that produce highly valued product in terms of innovation, technology and also usage benefits. The country can also enjoy monopoly market for the production and international trade of hi tech military weapons that are very essenti8al for any other countries. So, international trade is good for America in many ways. International trade of high demanded durables as well as perishable food products is beneficial for America as the nation can focus on the aspiring and the new growing industries that have higher potential .Wage rate of the employees’ increases frequently in theses industry and overall income level of the working people also increases. The country can use the same resources in terms of labor, capital and other natural resources for some new industry and these also can get monopoly market in the world. For example, America enjoyed long term monopoly market in the semiconductor industry till few years back. So, international trade is good for America as it enhances overall welfare of the nation. Work cited Lawrence, Z. R., et.al. International Trade and American Wages in the 1980s. 1993. Web. 26 June 2012. . Read More