3 Discussion Replies
tiptoe1
Week4Replies.docxReplies (300 words total - 100 words minimum, per reply) Additionally, you will reply to a minimum of 3 other classmates’ threads. Thus, you will have submitted substantive written responses to a minimum of 3 other classmates’ threads. What is Substantive Interaction? The School of Business is committed to the collaborative learning model. In this course, collaborative learning requires each student to read and spend time reflecting on other's postings, and then respond in a substantive manner to the postings of others. In composing substantive responses, you can do several things, such as: o compare/contrast the findings of others with your research; o compare how the findings of others relate and add to the concepts learned in the required readings; and/or o share additional empirical knowledge regarding global business -- or international experiences you may have had -- relative to the postings of others. The collaborative learning model requires substantive interaction between students on a weekly basis. Consider the Discussion as equivalent to being in a class, thus maintain professional communication standards at all times (no “IM” shorthand or informal jargon, please). Any sources(1) used must be cited in current APA format
Timothy Austin
Apr 4, 2024Apr 4 at 11:56am
The term I have decided to write about this week is “currency control”. What I found most interesting about this term and why I wanted to dive deeper into its meaning and ways of exercising its ability, is that in the text it states that nations that cannot properly execute currency control can lead a nation to experience “hyper-inflation or depression”. We have heard about hyperinflation in history, such as the inflation crises of the Weimar Republic, or the more recent inflation of Venezuela in 2020, and how it can lead to absolute poverty of the nation's people. But why do nations do this? We see it happening today in the United States but would it ever get that bad? Since inflation and economic depression are both things we have heard on the news recently I thought this would be a great term to look into.
Currency control, as explained in Satterlee's text, is a “system whereby a nation attempts to regulate the value of its own money within its borders.” This can be done by performing “policy changes” such as “interest rates, bonds, laws, money printing, and many more” Satterlee, B. C. (2023) This is done often by the government limiting the purchase and sales of currencies. By limiting the flow both in and out of currency, a country can better stabilize its economy. (Kenton, W. 2021, February 22) Now that we drilled down on the term of currency control, how does currency and the lack of control cause inflation? Before we get too deep, I would like to point out two quotes made by the economist Milton Friedman who said “Inflation is caused by too much money chasing after too few goods.” And “Inflation is always and everywhere a monetary phenomenon.” Friedman, M. (n.d.) Inflation occurs when consumer spending on products is higher than the production of those products, Prices then rise because of those supply constraints. Governments try to limit inflation to a certain range by promoting economic growth while at the same time, not reducing the purchasing power of the currency. They do this by “contractionary monetary policy, reducing the money supply within an economy. contractionary monetary policy through higher interest rates and open market operations, or Governments can use wage and price controls to fight inflation.” (Kramer, L. 2023)
Development: From Theory to Empirical Evidence” “the nominal rate of GDP growth should not be less than the rate of inflation. If the effect of monetary easing on inflation is stronger than its effect on growth, it will lead to a higher level of poverty.” (Mehar, M. A. 2023). Monetary policy is used in a nation's economic planning to provide two things. To provide an atmosphere of economic development and create an adequate sense of welfare for the public. Yet, often monetary policy can be regressive in its approach to solving the inflation issue. If we look at businesses that rely on credit for their economic activity, the increase in interest rates leads to an overall increase in the production of a good or service. That increase in cost ultimately ends up being passed to the consumer. Depending on the product in question, whether it be textiles, food, etc., this could negatively affect the most vulnerable populations. Another Policy that is used by nations, is the Fiscal policy. This policy can sometimes be used to enhance economic activities as it relates to business. However, fiscal support from the government to the private sector often leads to overall deficits. This means that the public debt becomes larger. In some instances, governments rely on commercial banks to finance this debt. This is seen as a safe option for many banks, however, it reduces the ability to accommodate this credit to the private sector. Which may be needed for other businesses to survive and thrive.
Digging deeper into Currency controls, I found out that governments in certain circumstances walk a tightrope in regard to their monetary and fiscal policies. When trying to maintain a feeling of prosperity for two factions (economic growth and general welfare) a government can lean too far to one side and generate an economic catastrophe. In the case of Yugoslavia in 1992, it was external factors. Wars within its territory led to a stoppage of inter-republic trade and cash flows. This led to a crashing economy and later, hyperinflation. With peak inflation reaching a monthly rate of 313 million percent. (Bogetić, 2022) What I found most interesting was the economic deterioration of Zimbabwe. Though they experienced instability in 1997, the situation worsened dramatically after the government started to seize farms in the early 2000’s which led to a precipitous decrease in tax revenues. This led the government to go to the central bank for monetary financing. This led to an increase in the money supply and therefore inflation. In 2008, the inflation rate in Zimbabwe was “80 million percent a month in 2008”. (McIndoe-Calder, T. (2017)
References:
Bogetić, Ž., Dragutinović, D., & Petrović, P. (2022). Hyperinflation and Stabilization in FR Yugoslavia: 1992-1994. Panoeconomicus, 69(2), 173-204. https://doi.org/10.2298/PAN2202173B Links to an external site.
Friedman, M. (n.d.). Milton Friedman in His Own Words. University of Chicago. Retrieved from https://mfidev.uchicago.edu/about/tribute/mfquotes.shtml Links to an external site.
Kenton, W. (2021, February 22). Exchange Controls: Meaning & How Companies Get Around Them. Investopedia. Retrieved from https://www.investopedia.com/terms/e/exchangecontrol.asp Links to an external site.
Kramer, L. (2023, December 19). How Do Governments Fight Inflation? Investopedia. Retrieved from https://www.investopedia.com/ask/answers/111314/what-methods-can-government-use-control-inflation.asp Links to an external site.
Mehar, M. A. (2023). Role of Monetary Policy in Economic Growth and Development: From Theory to Empirical Evidence. Asian Journal of Economics and Banking (AJEB), 7(1), 99-120. https://doi.org/10.1108/AJEB-12-2021-0148 Links to an external site.
McIndoe-Calder, T. (2017). Hyperinflation in Zimbabwe: Money Demand, Seigniorage and Aid Shocks. Journal of Development Studies, 53(4), 561-576. https://doi.org/10.1080/00036846.2017.1371840
Apr 6, 2024Apr 6 at 5:56pm
Michael Howell
BMAL 604
Key Term and Why You Are Interested in It (100 words minimum)
The key term I have chosen from our text is Government Intervention in Trade. Satterlee states, “Consumers are the main beneficiaries of trade which also makes them the primary victim of global intervention methods like embargoes” (Satterlee, 2023, p. 78). I am interested in exploring this because I want to learn more about why governments intervene in global trade and the impacts these tactics may have on the economy. Satterlee eludes, “Governments intervene in a myriad of ways to protect their domestic market” (Satterlee, 2023, p. 78). A developing market may not be ready to fully engage in trading in a global market by themselves or they may require financial assistance from the government. These financial interventions can help to maintain economic growth and prevent trade deficits.
Explanation of the Key Term (100 words minimum)
Government intervention in trade is a contentious issue that has sparked debate among economists and policymakers for decades. Proponents argue that government intervention is necessary to protect domestic industries from unfair competition, ensure national security, and promote economic development. Critics, on the other hand, contend that government intervention distorts market mechanisms, leads to inefficiencies, and ultimately harms consumers.
One of the main reasons for government intervention in trade is to protect domestic industries from foreign competition. By imposing tariffs or quotas on imported goods, governments can shield domestic producers from being undercut by cheaper foreign products. This protectionist approach aims to preserve jobs and maintain a level playing field for domestic businesses.
Additionally, government intervention in trade can also be motivated by national security concerns. Governments may restrict the importation of certain goods or technologies that are deemed critical to national defense or strategic interests.
Lastly, governments may intervene in trade to promote economic development by providing subsidies or incentives to domestic industries. These interventions are aimed at fostering growth and competitiveness in key sectors of the economy.
Major Article Summary (200 words minimum)
Reasons Why Governments Intervene
In today's interconnected world, global trade plays a crucial role in the economic development of countries. However, governments often intervene in this process to protect their domestic industries and ensure fair competition. There are several reasons why governments choose to intervene in global trade, ranging from protecting national security interests to promoting domestic industries.
Krugman states, “One of the main reasons why governments intervene in global trade is to protect their domestic industries from unfair competition” (Krugman, et al., 2015, p105). This can take the form of tariffs, quotas, or subsidies that make imported goods more expensive and less competitive compared to domestically produced goods. By implementing these measures, governments aim to safeguard jobs and promote economic growth within their borders.
Another reason for government intervention in global trade is to address market failures. In some cases, free markets may not allocate resources efficiently or may lead to negative externalities such as pollution or exploitation of workers. Governments can step in by imposing regulations or taxes on certain products or industries to correct these market failures and maximize social welfare.
Additionally, according to Krugman, “Governments may intervene in global trade for strategic reasons related to national security” (Krugman, et al., 2015, p 108). Certain industries such as defense or energy production are considered vital for a country's security and stability. Governments may provide subsidies or other forms of support to ensure that these industries remain strong and self-sufficient in times of crisis.
Lastly, governments may intervene in global trade to promote certain social objectives such as environmental sustainability or labor rights. For example, they may impose restrictions on imports that do not meet certain environmental standards or require companies to adhere to minimum wage laws and workplace safety regulations. By doing so, governments can ensure that international trade benefits the economy and society.
Impacts on the Economy
Government intervention in trade can have a significant impact on the economy. Baldwin explains, “On one hand, government policies such as tariffs and quotas can protect domestic industries from foreign competition, allowing them to grow and create jobs” (Baldwin, et al., 2015, p. 75). This can lead to increased production and economic growth in the short term. However, these protectionist measures can also lead to higher prices for consumers and reduced competition, ultimately stifling innovation and efficiency in the long run.
Baldwin continues, “On the other hand, free trade agreements and open market policies promote competition and lower prices for consumers” (Baldwin, et al., 2015, p. 75). This can lead to increased efficiency, innovation, and economic growth in the long term. However, it may also result in job losses in industries that cannot compete with cheaper imports. Overall, government intervention in trade must strike a balance between protecting domestic industries and promoting competition to ensure a healthy economy.
Discussion. (100 words minimum)
The cited work relates to the explanation above by acknowledging that there are certainly positives and negatives when governments intervene in trade. The consumer and the economy are the primary recipients of the blessings or ramifications of government actions on trade.
The cited work relates to the other two works I researched by adding the thought by Lee that, “some feel that less government intervention in trade is linked to higher productivity growth” (Lee, 1996, p.1). Sometimes governments implement so-called solutions that may not be best for the consumer or economy but may support an ulterior agenda.
Furthermore, my second article aligns by offering an additional thought by Kim, “When the government decides its trade policy after an exporting firm decides its strategy, both the high-quality firm (H) and the low-quality firm (L) use their first mover advantage to raise the price in addition to H's upward price distortion for signaling purposes, and the government offers export subsidies to compensate for the price increase” (Kim, 1999, p. 391).
It is shown that in the presence of a distortionary cost of raising government revenue, social welfare is highest when the government is a first mover, followed by non-intervention; social welfare is lowest when the government is a second mover.
References
Baldwin, R., & Evenett S.J. (2015). Beyond Trade Wars: The Multilateral Trading System in
Transition.
Kim, Y. H. (1999). The Welfare Analysis of Trade Policies: The Optimal Government
Intervention Timing under Incomplete Information. International Economic
Journal, 13(4), 53–70. https://doi.org/10.1080/10168739900000044
Krugman P., Obstfeld M., & Melitz M. (2015). International Economics: Theory and Policy.
Lee, J.-W. (1996). Government Interventions and Productivity Growth. Journal of Economic
Growth, 1(3), 391–414. http://www.jstor.org/stable/40215923
Saterlee, B. (2023). International Business with Biblical Worldview (2nd ed.).
McGraw-Hill Publication LLC.
Stewart, D. “Chip,” & Sanders, A. K. (2019). Secrecy Inc. The Journal of Civic
Information., 1(1), 1–29. https://doi.org/10.32473/joci.v1i1.115657 Links to an external site. .
Renee Ramirez
Apr 7, 2024Apr 7 at 9:37pm
1. Government Restrictions in Trade: Tariffs
I would like to further explore the concept of government restrictions in trade, specifically tariffs. The course text explains that a tariff is a tax placed on an import in order to encourage domestic business (Satterlee, 2023). Excise tariffs also exist to discourage the consumption of certain goods whether they are imported or domestic such as alcohol or cigarettes. Recently, Senator Whitehouse (D-RI) gave a presentation to Congress on his Clean Carbon Act that would impose tariffs on energy imports and incentivise decarbonized domestic energy production (Whitehouse Senate, 2023). In Whitehouse’s presentation, he also further explains the need to incentivize the domestic production of clean or decarbonized energy, otherwise the US will be subject to high tariffs on the US imported energy into Europe.
2. Explanation of Government Restrictions in Trade: Tariffs
An increase in international trade has been the direction the world has developed toward by establishing the General Agreement on Tariffs and Trade (GATT) after World War II (Satterlee, 2023). . This has continuously led to a decrease in tariffs and other international trade barriers since. Recently, the global trade landscape has changed to address the goals that climate change has called for to produce results by 2030. The International Monetary Fund released a report indicating that tariffs have slightly increased on products as opposed to goods and that the US and China have seemed to engage in an economic war by increasingly imposing tariffs on each other's imports since 2018. (International Monetary Fund, 2023). Also, the IMF cites that current economic and international trade policy is hostile to the environment, imposing higher tariffs on clean energy. Whitehouse’s Clean Carbon Act would possibly reverse that hostility. Overall, tariffs seem to be an economic leveraging tool implemented by governments for various reasons.
3. Major Article Summary
Currently, China is under a heavy tariff burden imposed upon them from the US and Europe on all their exports, especially their energy - intensive industries (Sheng & Wang, 2022). This greatly shapes the landscape of the export trade infrastructure of China and their economic policies since they are a major exporter, and the US and Europe are big customers. Japan has also imposed import tariffs on Chinese goods, which also have an impact, just a lesser one than US and Europe. That is a lot of economic pressure. Sheng and Yang argue that this pressure will incentivize China to improve their export trade structure and encourage development in their agricultural and clean energy industries and discourage further development of their energy - intensive and carbon heavy energy industries. Further, it is suggested that China would benefit from levying carbon tax income into the development of clean energy and participate in the international development of environmental economic policy. Analysis of these deductions and discussion, tariffs play a major role in shaping a country’s economic policy as well their industrial innovation and development direction. Tariffs can be the vehicle for change and a tool for transformation of major institutions to align better with current and progressing initiatives.
4. Discussion
a. From research, reading, and professional experience, Europe seems to lead in the climate initiatives set by the UN to decarbonize production enough globally by 2023 to limit global temperature increase to 1.5 degrees Celsius (The United Nations, n.d.). The US is starting to develop policy and present it to catch up. Japan is also participating by adding pressure. China is the target of the pressure; the tool is the trade tariff on their exports. These tariff efforts are imposed in lieu of China willingly participating in global agreements and initiatives to reduce carbon emissions and produce cleaner energy that has less of a negative environmental impact (Sheng & Wang, 2022). This is a clear example of governmental regulation of international trade as the tariffs will impose the will of the government upon China’s economic development in the context of climate action.
b. Electricity, natural gas, and water are essential energy commodities that have suffered from inefficient trade tariff policies (Hancevic et al., 2022). Hancevic et al. also support the argument that there is a need for tariff policy reform that will better align with the movement towards clean energy. The article by Azimi et al., 2021 also supports the point made that tariffs support or inhibit the direction of economic growth for various commodities and industries. The Middle East enjoys low tariffs on exports of their commonly produced products from fossil fuel refinement (Azimi et al., 2021). This has allowed for their economy to support further growth of that industry as well as dissuade interest in developing cleaner energy. All sources cited support that the global trade landscape surrounding energy and the environment is changing, that government regulation and policy such as tariffs are evolving to adapt to new initiatives, and this shift has impacts on the global economy and trade.
5. References
Azimi Fereidani, N., Rodrigues, E., & Gaspar, A. R. (2021). A review of the energy implications
of passive building design and active measures under climate change in the middle east.
Journal of Cleaner Production, 305, 127152. https://doi.org/10.1016/j.jclepro.2021.127152 Links to an external site.
Hancevic, P. I., Nunez, H. M., & Rosellon, J. (2022). Electricity tariff rebalancing in emerging
countries: The efficiency-equity tradeoff and its impact on photovoltaic distributed
generation. The Energy Journal (Cambridge, Mass.), 43(4), 69-93.
https://doi.org/10.5547/01956574.43.4.phan Links to an external site.
International Monetary Fund. (2023). Review of the Role of Trade in the Work of the Fund.
https://shorturl.at/pvGJ1 Links to an external site.
McCabe, M. (2023). Whitehouse and Delbene reintroduce carbon border adjustment bill to boost
domestic manufacturers and tackle climate change. Sheldon Whitehouse.
https://shorturl.at/juyz5 Links to an external site.
Satterlee, B. (2023). International business with a biblical worldview. McGraw Hill.
Sheng, Y., & Wang, Q. (2022). Influence of carbon tariffs on China’s export trade.
Environmental Science and Pollution Research International, 29(17), 24651-24659.
https://doi.org/10.1007/s11356-021-17757-z Links to an external site.
The United Nations. (n.d.) The Paris Agreement.
https://unfccc.int/process-and-meetings/the-paris-agreement Links to an external site.
Whitehouse, S. (n.d.). Time to Wake Up 291: Pathways to 1.5 Degrees. Retrieved 4/4/2024 from
URL
