Detroit's Big Three And the Comparitive Advantage

The case in chapter 1 tells us a fact that the foreign car companies have grabbed more than half of the American automobile market shares. The author also has a theory that the Big Three have such a big problem because of the large health-care costs and the heavy unfunded pension obligations which most of other countries do not have.

In my opinion, the problem Big Three is facing all started decades ago. In the 1970s, the United States began to be the leader of the Information Technology Revolution. A lot of companies like IBM, Apple, Microsoft and Intel were founded and became more and more powerful. It leads to the fact that lots of the resources in the States were shifted to the High-tech industries since then.

Based on the statement above, I think I could say that the falling of the auto industry in America has something to do with these comparative advantages. The United States has comparative advantages in High-tech products and services, so the market (the invisible hand) decide to support the IT industries rather than traditional car companies because it could make more profits.

Back to the case, I agree that companies in the States have more obligations and costs on health care and pensions. I also agree that it could help a little if the government pays a portion of the healthcare benefits to the auto industry. However, I do not agree that the government should do something like this. The first reason is the falling of the Detroit Big Three is caused by the comparative advantages which the government could do little about it. The second reason is paying portion of the benefits only to car companies is unfair to the other industries in the United States. The third reason is that this kind of action may result in international trade barrier between the U.S. and other countries.

How open to openness are you?

Nowadays the globalization debates could be found all across the States. We can feel its power from our everyday lives. My friend ordered one iPad 2 online in March this year, he was surprised when noticed that the shipping was directly from the warehouse in Shenzhen, China. This kind of thing was quite impossible decades ago, but people are getting used to it now.

As a international student in America, I always believe that I am quite open to globalization. Personally I enjoy the openness because the products in the market will be cheaper and more of diversity. It is absolutely good for the customers. However, not all of us are fans to openness. In china, the duty is still significant for some specific products. Take cars for example, one imported car (less than 4L) will have a fixed Custom Duty of 25%, a Value Added Tax of 17%, a Consumption Tax of 12% and other fees and tax. It is a huge barrier for importing car business. I believe similar situations may happen in the United States too because of the unemployment concerns and trade protectionism.

It is true that the globalization has two sides for every single country, however, I still support the free trade because I believe it is good for the whole world. So how open to openness are you?