The Generalized System of Preference (GSP) is a program for boosting developing countries' economy by fostering exports to developed countries. The United States GSP program includes a preferential duty-free treatment for over 3,400 products from 129 countries.
In theory, this program was created to increase economic growth and development for the countries with low incomes. However, I don't think it is totally true, not for the developing countries actually. I agree the GSP program could help the eligible countries to boost exports for a short-run. But the problem is: what products these countries could export to industrialized nations? According to the comparative advantage theory, a nation should export product with a comparative efficiency. That is why I think the "eligible" countries would export raw materials and agricultural products mostly. So what will happen for a long-term? I believe the developing countries will eventually become the materiel providers for the industrialized nations. They could get some incomes in the beginning, but these countries could most likely suffer because of government corruption, lack of technology, and the gap between the rich and poor. So my suggestion is keeping a improved GSP and try to help the developing countries with other ways like education supporting, government improvement, and health cares.
The current GSP expired on December 31, 2010. Both houses and Congress have approved a GSP renewal until July 31, 2013. However, President Obama is still holding the final signature for authorization. It is probably because the federal government does not have a budget for this huge expense these days. Personally I hope President Obama will sign the bill soon, because it helps the lease-developing countries, although only for a short time.
Monday, October 17, 2011
Saturday, October 1, 2011
No winners in trade "wars"
President Obama announced a 35% tariff on automobile and light-truck tires imported from China in September, 2009. This decision is based on a proposal by United Steelworkers. The union said American producers have suffered a "market disruption" in imports from China. The International Trade Commission agreed with the union and recommended the president to impose the tariffs. As a result, the China's Ministry of Commerce announced anti-dumping tariffs up to 105.4% against U.S chicken feet imports in February,2010.
The tariff problems mentioned above are just two of the large amounts of the U.S-China trade conflicts. Personally, I prefer "trade conflict" rather than "trade war", because I think it is quite normal that there are some issues between the world's largest two economic superpowers. The Comparative Advantage Theory tells us that each country has different comparative advantages. The United States is the leader of the high-technique industries and China is the coming largest industrial product producer. It is unfair to say that the mass trade deflect for America is all caused by the Chinese. Look at the back of your iPhone, it says"Designed by Apple in California, Assembled in China". It gives us a clear view that it is the U.S which is always creative and leading to world. The United States and China are actually working with each other nowadays.
So how could I say about the Chinese tire and American chicken feet issues? The U.S government imposed the tire tariff because of the interests of the tire product unions'. Then the American chicken farmers paid the price for them somehow. It is a common sense that we can not get something for nothing. So I believe that both the American and Chinese government should think twice about the tariff policies. No winners in trade "wars".
The tariff problems mentioned above are just two of the large amounts of the U.S-China trade conflicts. Personally, I prefer "trade conflict" rather than "trade war", because I think it is quite normal that there are some issues between the world's largest two economic superpowers. The Comparative Advantage Theory tells us that each country has different comparative advantages. The United States is the leader of the high-technique industries and China is the coming largest industrial product producer. It is unfair to say that the mass trade deflect for America is all caused by the Chinese. Look at the back of your iPhone, it says"Designed by Apple in California, Assembled in China". It gives us a clear view that it is the U.S which is always creative and leading to world. The United States and China are actually working with each other nowadays.
So how could I say about the Chinese tire and American chicken feet issues? The U.S government imposed the tire tariff because of the interests of the tire product unions'. Then the American chicken farmers paid the price for them somehow. It is a common sense that we can not get something for nothing. So I believe that both the American and Chinese government should think twice about the tariff policies. No winners in trade "wars".
Monetary policy and trade barrier
Monetary policy targets at the supply of money and always affect the policy related to interest rate. For international trading, it is also a significant factor of foreign exchange market changes. So one country's monetary policy always be seen as an unintended trade barrier for other countries.
For the United States, the Fed has been with a loosening monetary policy for a long time now. This monetary policy leads to the fact that the U.S keeps a very low interest rate. It helps the country to increase investment and try to make the weak economy into a good track. The QE1, QE2, and the coming QE3 are all for the same purpose.
However, this loosening monetary has already been seem as a trade barrier for many countries. Take China for example, the Chinese government concerns about this seriously. According to the U.S Treasury, China were holding 1,173.5 billion dollars in July, 2011. The loosening monetary policy in America leads to a fact that the U.S dollars are keeping depreciating. It means that the value of the U.S debts China has, is shrinking every day. So the Chinese are actually losing money from America's monetary policy and it hurt the country's exports so badly. The same thing also happens to America's alliances like EU and Japan too. As a result, many countries in the world would argue America's loosening monetary policy as an unintended trade barrier.
For the United States, the Fed has been with a loosening monetary policy for a long time now. This monetary policy leads to the fact that the U.S keeps a very low interest rate. It helps the country to increase investment and try to make the weak economy into a good track. The QE1, QE2, and the coming QE3 are all for the same purpose.
However, this loosening monetary has already been seem as a trade barrier for many countries. Take China for example, the Chinese government concerns about this seriously. According to the U.S Treasury, China were holding 1,173.5 billion dollars in July, 2011. The loosening monetary policy in America leads to a fact that the U.S dollars are keeping depreciating. It means that the value of the U.S debts China has, is shrinking every day. So the Chinese are actually losing money from America's monetary policy and it hurt the country's exports so badly. The same thing also happens to America's alliances like EU and Japan too. As a result, many countries in the world would argue America's loosening monetary policy as an unintended trade barrier.
Sunday, September 18, 2011
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.
Tuesday, September 13, 2011
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?
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?
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