ECO 212 Week 5 LTA International Trade Simulation and Report
ECO 212 Week 5 LTA International Trade Simulation and Report
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International Trade Simulation 1 International Trade Simulation and Report Team B: Names ECO/212 University of Phoenix International Trade Simulation 2 International Trade Simulation and Report The topic on international trade can be absolutely complicated, and thus this paper is dedicated to all the aspects and issues involved in international trade. All the results and insights are from the seven members of a team. As an overview, this paper will include all the factors that have an impact on the foreign exchange rates as well as the absolute and comparative advantage of international trading. Moreover, the team also discussed the recent simulation conducted regarding the international trade, the results and the evaluation of the team members. Finally, the paper will elaborate on the role and the influences of the policy making body of the government and the World Trade Organization (WTO) on international trade. The team opted to focus first on the various issues about international trade, and tried to look at all sides of the issues. At some point, the team members had to debate about it. One of the prevalent issues would be the high rate of child labor in the USA, which was consequently linked to international trade. In a struggling economy, the gap between the wealthy and the poor becomes more apparent, and the next issue identified by the team is relevant to this situation. Because of international trade, some exporters become too greedy and release too many of their products to different countries, which can apparently cause a lot of troubles in stability of the trading sector. The main result of this greediness is shortage of supply in certain countries, which eventually result in price increase (Child Labor Public Education Project, 2010). International Trade Simulation 3 To illustrate the impact of the selfish attitude of some exporters, the team used the case of sixgrain companies. These companies are major exporters of wheat in the United States, and because of their strong desire to earn more, they export almost everything, leaving so little to consume for their own locality. In fact, in 1972, a quarter of the wheat produce from the US was exported to the Soviet Union, which resulted in a significant rise in the prices of wheat in US apparently because of the supply shortage (bangkoklogistics.com, 2007). The sadder part is that this trend did not only happen in 1970s. It has been going on, and currently the affected product is corn. There are no specific data as of the publication of this paper that can prove this, however, the team members have personally experienced such shortage in real time. When Russia experienced drought, it was United States readily exported huge part of their corn supply, which made the rest of the Americans deal with high prices of corn. Next issue that the team found to be worthy of attention is the issue on child labor. Ideally, the child labor is not allowed in United States and thus should not be practiced. But in reality, this is still somehow being practices by the biggest companies in America, and they were even able to get rid of the law since they are technically not doing it within the country. These companies have managed to practice child labor even as they outsourced their tasks in offshore destinations where child labor is socially and legally acceptable. This has been an interesting issue because there is still a doubt whether these companies have really committed legal offense given that their child workers are not Americans and are not working in America. This was specifically a great issue and 1990s which led the government in making some amendments to their policies. International Trade Simulation 4 In the context of International trading, this issue on child labor still remains to be relevant knowing that it is being practiced in some parts of the world (Child Labor Public Education Project, 2010). Fortunately, a simple remedy was created by the US congress as they passed a law that states that all imports that were made out of child labor will be banned from the country. This happened in 1990. This was not a smooth sailing process because the producing countries would apparently oppose to such policy, and can claim that it can be an unjust barrier to fair trade. At the same time, prohibiting certain countries from trading is also contradicting to the rules of the WTO. With this a compromise is the best solution, which will consider the benefits, and limitations that can be gained out of the issue (wto.org, 2010). The first benefit that can be gained from international trading is the opportunity of specialization. This means that a country can focus on producing the goods that they are best at, and can also sell it in a cheaper price. Afterwards, the host country can then trade this product to another which can hopefully offer a more expensive product. This kind of transaction involves comparative advantage. The main goal in international trading is basically produce a unique product that can be exchanged with a better and more expensive product from another country. The product to be exchanged should be something that is more costly for a country to produce on their own, thus trading is still the more practical move. If almost all countries specialize on a certain product, then the entire world will never run out of high quality goods that will be revolving from country to country. International Trade Simulation 5 The terms comparative advantage and absolute advantage is easily associated when dealing with economic activities such as international trading. Comparative advantage was partly introduced in the previous paragraph. Basically, it refers to the ability of a country to produce a certain good in a competitive cost, which means it is cheaper than that of their competitors. A country can have a comparative advantage even without having an absolute advantage (Hubbard & O’Brien, 2010). To further elaborate on absolute advantage, its technical definition is the capability of a certain country to produce more goods or products than what their competitors can, without needing more resources. Absolute advantage basically relies on the productivity level of the work force of the country. Absolute advantage can also exist without comparative advantage (Hubbard & O’Brien, 2010). Generally, comparative advantage and absolute advantage have their positive contributions to international trade. But everything has its downside, too. The main concerns seen with international trade are the limitless opportunities to abuse the nation’s resources. It is really very likely for companies to abuse their right to produce and leave nothing for their own country to consume. This has also been very destructive to mother nature because of too much greed. Some proofs would be pollution, erratic climactic conditions, and global warming in general. The government should come up with the best policies to regulate naturedestructive activities. International trade apparently involves foreign exchange rate, because this is what makes everything happen between two countries. Foreign exchange rate influence the flow of money in a country. Naturally, a country would need money to trade a certain International Trade Simulation 6 good, and this would involve ‘trading’ their national currency with the currency of the other country. The exchange rate would be the value of the money derived from the trading activity. This is why some currency is high; it is because the demand for the money and products of that country is also high (Smith, 2010). One currency can possibly have depreciating value once the demand and price of the trading country’s currency increases. To clarify this further, the more the United States accepts and demands for the Chinese currency or Renmindi, the US dollar’s value consequently loses its value. The cycle of importation and exportation also has a direct influence on the currencies. Smith (2010) emphasizes that the cycle of imports and exports are highly influenced by exchange rates. For instance, when the value of the domestic currency is high, then the imported products become cheaper. On the other hand, export products are less preferred because countries have the impression that they are more expensive. Exchange rates also have a direct impact on the stability of a country’s economy. For instance, a country may hesitate to invest in another country for it cannot see any economic boom in that specific country. This will be more illustrated in the simulation included in this paper. In this simulation more concepts involved in International trade will be explored and clarified. Specifically, it will depict how important international trading is for a country in order to gain their competitive advantage in the market. Basically, trading involves a country exporting products of their specialization, and accepting imports of products, which they are not practically able of producing. The concept of comparative advantage suggests that the wealth of the country is can be partly determined by their International Trade Simulation 7 exports and imports. The goods that can be involved may range from natural crops to technological products. Free trade was also something worth pondering in the simulation. There are a lot instances wherein it is more beneficial for countries to trade freely, but at times, restrictions or limitation is necessary for a country to be economically competitive than the rest. One the best thing about free trading is that the countries can readily regulate and monitor their domestic institutions because of the agreements involved. At times too many restrictions on trading can impede the progress of the economy, but it can be one of the best and easiest ways to protect domestic industries. One of the countries that are recently facing the two sides of trading is Rodamia. Another significant part in trading is the taxation process. Every country that participates in trading needs to know the taxation system of each country, and how the various policies can affect the growth of their own economies. With this, the government officials should be really careful with the policies that they make because these can have direct impact on the entire economy. For instance, the decisions of the individuals can be truly affected by penalties and regulations that the government makes. Consequently, individual decisions can determine the performance of the economy. Generally, it is the government’s role to provide people with insurance system, so they would feel more secured in investing their money. If this is achieved, then the savings rate in the country would be improved which can positively. However, it is really inevitable for some government policies to cause economy some troubles. For instance, the sudden financial crisis that the US banks went through was due to the International Trade Simulation 8 lenient policies of the government. Fortunately, it was also the government that worked hard to revive these banks. The Federal Reserve also has a strong influence in the inflation and deflation rate of the country, and it can even control it. For instance if it is necessary to encourage the people to spend more, the central bank may opt to reduce their interest rates, to encourage more people to avail different loans. Being one of the leading countries in terms of economic performance, United States is also known for coming up with various economic policies. This is considered as an advantage for the country because it has learned to be more flexible to various policies that are best for the economy. Some of the policies in the country are the National Cooperative Research Act in 1994 and the policy on Federal Trade Commission and the Department of Justice. The World Trade Organization serves as global standards for all economic players. However, there are some institutions that still do not adhere to the government policies, which usually lead to some troubles in the country’s economic order. WTO deals with all the trading transactions of various countries in the world. This organization was officially formed in 1995 under the initiative of General Agreement on Tariffs and Trade (GATT) that went on from 19841994. Various government officials comprise this organization (wto.org, 2010). All the policies that are derived out of the meetings of the WTO are referred to as WTO. Before an agreement can be passed, majority of the members of WTO needs to approve it first to make it more official. Basically, all these policies are made to make the trading transactions of various countries more organized. International Trade Simulation 9 Based on the WTO website, there is some important information that is truly substantial for this paper: The 10 Benefits of WTO, and 10 Misunderstandings of the organization’s services: 10 Benefits: 1. Any dispute can be proactively and constructively handled. 2. The rules set keeps everything in order 3. Peach can be easily achieved because of the system 4. Trading promotes economic growth 5. Free trade helps make the cost of living more affordable 6. Lobbying can be avoided 7. Efficiency 8. Improvement of the Government 9. Trading provides more income in the country 10. More product variety 10 Misunderstandings: 1. Commercial interests can influence the health and safety of the country 2. Commercial interests can affect the environment 3. Commercial interests can impede development International Trade Simulation 10 4. WTO takes over all the policy decisions 5. WTO leads to more influential lobbyists 6. WTO is not democratic 7. WTO only promotes free trade 8. WTO takes advantage of the weaknesses of other countries 9. Smaller countries have lesser role in WTO 10. WTO does not contribute in eliminating poverty, instead makes it worse In general, every country would need to engage in international trading if they wish to constantly improve their Gross Domestic Product. There will always be issues that will be involved and all these need to be addressed in order for international trading to take place smoothly. WTO is highly necessary to keep the international trade transactions intact and smooth. The government should also be highly aware of their decisions because it can have a significant impact on the economy. International Trade Simulation 11 References bangkoklogistics.com. (2007). How Does International Trade Impact the U.S. Economy. Retrieved August 12, 2010, from http://www.bangkoklogistics.com/international trade/internationaltradeimpacttheUSeconomy.html Child Labor Public Education Project. (2010). International Trade Issues. Retrieved August 12, 2010, from http://www.continuetolearn.uiowa.edu/laborctr/child_labor/about/international_trade.htm Hubbard, R. & O’Brien, A. (2010). Economics (3rd Ed.). Boston, MA: Pearson Hall. Smith, E. (2010). eHow. What Influences Exchange Rates? Retrieved August 12, 2010, from http://ehow.com/ International Trade Simulation 12 University of Phoenix. (2010). Applying International Trade Concepts. Retrieved August 12, 2010, from University of Phoenix, Resource, Simulation. wto.org. (2010). Retrieved August 12, 2010, from http://www.wto.org
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