Student 1
Good morning everyone!
Despite the underlying advantages of the Theory of Comparative Advantage, countries do not appear to specialize in producing only those goods and services that could most efficiently be produced domestically. Provide at least three reasons why governments interfere with comparative advantage and the techniques they may use to enforce their objectives.
“A comparative advantage is when an individual, business, or country can provide a good or service as a lower opportunity costs than another producer”. But Governments interfere in the exchange of goods between national borders for many reasons: which can be either political or economical.
- Political retaliation as part of a foreign policyWhen the a nation develops tension with a foreign country over terrorism support or the handling of an international crisis, one weapon in the government’s arsenal is to set up trade restrictions to potentially hurt the country’s economy.
- To protect new industries from fierce competitionThis is more towards developing countries who might not survive up against larger nations. One problem with this ideology is that protecting infant industries can sometimes create inefficient organizations that are not suited to eventually enter the global business arena.
- Protection of consumersThis prevents countries from exporting products another nation that are not up to its standards. These products can hurt the nation’s consumers.
References
ACDCLeadership. “Comparative Advantage and Trade – Macro Topic 1.3 (Micro Topic 1.4).” YouTube, YouTube, 16 Aug. 2019,www.youtube.com/watch?v=XTEb98PY0XA (Links to an external site.)
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Moffett, M. H., Stonehill, A. I., Eiteman, D. K. (2018). Fundamentals of Multinational Finance. [6th Ed.]. Pearson Education. New York, NY.
Student 2
Despite the underlying advantages of the Theory of Comparative Advantage, countries do not appear to specialize in producing only those goods and services that could most efficiently be produced domestically. Provide at least three reasons why governments interfere with comparative advantage and the techniques they may use to enforce their objectives.
Three reasons why governments interfere with comparative advantage are economic, political, and national defense reasons. The ways that governments interfere is by imposing tariffs, quotas, and other non-tariff restrictions.
Tariffs are not the only way that governments impact global trade and comparative advantages. “Tariffs and currency devaluation affect trade balances not by changing the relative prices of tradable goods but rather by shifting income from households to businesses, thus forcing up the savings rate. Because of this, any policy aimed at making an economy more competitive internationally by suppressing wages is effectively a beggar-thy-neighbor policy.” (Pettis, 2018) Tariffs can be imposed by the government for a number of different political and economic reasons but its purpose is to make products so costly it potentially bars the entry of the good involved as it is too expensive.
Governments also use tariffs or quotas to maintain domestic employment especially during times of recessions. An example of political ways governments can interfere is the embargo on Cuban goods. The sanctions placed on Cuba was, “in response to certain actions taken by the Cuban Government, and directed the Departments of Commerce and the Treasury to implement the embargo.” (United States Department of state, 2021) There are many ways in which governments can affect comparative advantage and impact global trade, I believe some of the more popular examples are political reasons, sanctions, tariffs, and quotas.
References
Pettis, M. (2018, July 10). Tariffs and trade intervention. Retrieved June 11, 2021, from https://carnegieendowment.org/chinafinancialmarkets/76777 (Links to an external site.)
United States Department of state. (2021, January 11). Cuba sanctions – United States Department of state. Retrieved June 11, 2021, from https://www.state.gov/cuba-sanctions/
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