INTERNATIONAL TRADE

International Trade

Question One

The criticism by Peter Martin has been accurate for the last few years. In 1995, the trade value of exports was more that of imports. In Singapore, the trade value of imports in 1995 was at $1,784,022,691 while the exports were at $2,758,781,208. In the 1995 in Thailand, exports were higher than the imports. That is; the imports were at $721,448,286 while the exports were at $1,222,473,297. After the FTA, the imports grew more than the exports though the exports also increased. However, since the FTA the, the imports and exports have also improved. The graphs below represents the imports and exports among Singapore, USA, and Thailand from 1995 to 2015.

Figure 1: Singapore Imports and Exports from 1995 — 2015

International Trade written assignment

According to the graph above, imports have been boosted more than exports in Singapore. Therefore, Peter Martin is accurate of saying that trade agreements boost imports more than the exports in a country. The exports improved, not as much as the imports though, as shown in the graph.

Figure 2: Thailand Imports and Exports from 1995 — 2015

International Trade written assignment 1

Based on the graph above, it is clear that from 1998 the trade value of imports in Thailand has been greater than that of Exports. However, since signing the FTA in 2003, the exports in Australia have increased highly and constantly grow linked to before the FTA, where exports and imports were low.

Figure 3: USA Imports and Exports 1995-2015

International Trade written assignment 2According to the graph above, the imports in the USA have always had a higher trade value than the exports from1995 to 2015. The exports have had a small trade value over the years as perceived in the graphs above. Therefore, there is sufficient evidence to support Peter Martin on criticizing that the trade agreements boost exports since evidence provided by the three countries statistics prove that the trade agreements support the exports.

Trade improved in Australia as demonstrated in the graphs above as it started changing in 2003 when the FTAs were signed. Thus, according to the graphs above one can tell the huge difference between import and export in Australia before and after the FTA. That is; in Singapore prior to the FTA signed, the export in Australia were more than the import. However, after the signing of the trade agreement since 2003, the import in the country started growing rapidly. However, the growth was also perceived in the exports from Australia, which have increased significantly. Consequently, since then the import and exports have remained high and continue to increase showing that the FTA boosts imports more than the exports as stated, but boost both. In Thailand, before the FTA, the imports to Australia differed slightly to the exports. However, after 2003 when the FTA was signed the import started rising while the exports from Australia also grew. However, in the United States before and after the FTA the imports and export have been rising constantly in both countries. The FTAs have increased the ease of trade in the country while improving the predictability of businesses.

Question Two

Trade deals favor import trade values more than the export trade value as evidenced above. Therefore, when Australia and South Korea transact trade on Free Trade area, the imports will lead to higher trade values over the export trade values. When products are imported to Australia, the market will have a surplus of products. Therefore, the consumer surplus will be experienced, as the consumers will pay less for the products imported despite the products having a higher value. Thus, the consumer surplus of the products imported will be experienced. On the other hand, the products that will be exported will lead to the producer surplus.

igure 4: Consumer and Producer Surplus of Australia as an importing countryInternational Trade written assignment 3F

rice AInternational Trade written assignment 5International Trade written assignment 4P

International Trade written assignment 6

International Trade written assignment 7International Trade written assignment 8Pt A

International Trade written assignment 9Pw B C D

International Trade written assignment 10P*t E F G H

International Trade written assignment 11D

Q Quantity

Imports as perceived are imposed to raise the value of exports in a market. That is; they maximize the national welfare of trade in a country while increasing trade agreements (Hummel & Brian, 2015). For large countries such as Australia, the import tariffs on products by other countries improves its welfare on the expense of other countries. FTA agreements between Australia-South Korea will lead to major benefits and costs for both countries. Australia is considered the largest export economy in the world. With the import tariffs, Australia and South Korea will have the capacity of increasing their exports and imports. The GDP of the countries would grow since free trade agreements support the growth of the countries. Consumer surplus would grow while the producer surplus decreases. However, generally, as the export trade values between the countries increased, the expenses of the countries grow, which may lead to an increase in trade deficits.

With the FTA, the supply is elastic while demand is inelastic in both countries. Therefore, there is a higher chance that the consumer surplus will decline while the producer surplus is constant.

Figure 5: Australia Import Tariff Welfare Analysis

Welfare analysis of Australia

Importing country

Exporting country

Consumer surplus

-(A + B + C + D)

Producer surplus

-( E + F + G +H)

Government revenue

0

Australia National welfare

+G – (B + D)

World Welfare

  • (B +D) — (F + H)

With the FTA in Australia and South Korea as presented above, the price of products will fall in both countries leading to consumer surplus increase while the producer surplus falls. The consumer in Australia will suffer in product due to the tariff. The price of the product will domestically increase while substitute of product price also decrease leading to a decrease in consumer surplus. However, Australia producers as importers will experience an increase of welfare leading to producer surplus increase. The increase is based on the result of the import of the tariff. The price increase in the market is responsible for the producer surplus.

However, the total surplus in both countries increases. Thus, the imposed tariffs will steer to an increase in producer surplus in the country while reducing the decline in total gained surplus and consumer surplus.

Question 3

When countries such as Australia and Korea sign an FTA, the two countries consent on reducing trade barriers and increasing trade services within the two countries. The agreement must determine the quantity of inputs and other transformations that add value to the goods. That is; with the agreement the prices of goods will be set in addition to the value added after the signing of the agreement. Prior to fixing the value added with the tariff to the goods price, the nations must remove the duties on products that originate from their countries. Thus, the FTA members use the rules of origin to determine the origin of a product. The origin of a product determines the minimum price of a product that would have been subjected to tariffs (Australian Government, 2015). The rules of origin boost duty-free trade among the FTA members. The rules of origin are important in eliminating several duties and restrictions linked to some of the import sources.

The rules of origin are implemented to measure the commercial policies of measuring anti-dumping duties while ensuring it safeguards measures in the countries they trade. The FTA members use it to determine whether the imported products will receive preferential treatments or are perceived as MFNs. The rules of origin are also important regarding the trade statistics, and marking and labeling of requirements and for government procurement. The main aim of the rules of origin is to harmonize non-preferential rules to guarantee the trade barriers in the countries are reduced (dfat, 2015).

Peter Martin presents that the Free Trade Deals said to improve exports, in reality, improve imports. Thus, the agreements complexity as Peter Martin shows lies in what is been publically spoken that the trade deals will boost exports while they truly boost imports. The complexity also lies in questioning, why continue with the trade agreements when they do not favor the economy of the country? The more trade agreements it makes with other countries, the exports from Australia either decline or rises very slowly (Martin, 2016). On the other hand, the imports rise very significantly. The campaigners also strongly suggest that the trade agreements will boost exports. They stipulate that the benefit-cost analysis of the trade agreements are valid since they show positive improvements on the agreements.

The stipulation that the trade agreements will favor the Australian Economy is a lie as proved in question one. Statistics stipulate that the agreements do not favor most of the Australian industries and exports as well. The trade positions of the country deteriorate as new trade agreements are made. Since 2003 the imports trade values continue to grow, which is a negative performance for the economy of Australia. The imports in almost all sectors improve while exports decline, showing the possible deterioration of the Australian economy. Thus, according to Peter Martin, it is important to focus on the reality that the trade agreements present rather than the lies used to foster the agreements that do not benefit the country. The trade agreements should be free and improve trade, but instead, they lower the exports from Australia and increase imports. The trade agreements benefit other countries but not Australia since other FTA members have outperformed the country in other industries (Feenstra, 2015).

Question Four

Prior to importing electronics from Singapore, we assume that Australia imported electronics from South Korea. Thus, through negotiations, they attained the products at a certain rate that was cheap for the consumers. Thus, the price of the products is low, since supply is high at an affordable price. Consequently, due to high supply low prices, the demand for the products is high.

Figure 6: Demand and supply curve of electronics in the Australian-Singapore FTA

International Trade written assignment 12

International Trade written assignment 13Price/ Supply

International Trade written assignment 14Supply

International Trade written assignment 15International Trade written assignment 16International Trade written assignment 17Ps F e

International Trade written assignment 18International Trade written assignment 19International Trade written assignment 20Ps b

International Trade written assignment 21Pk g h demand

International Trade written assignment 22i Q1 Q2 Quantity/ Demand

BEFORE signing the FTA with Singapore, Australia imported electronics from South Korea.

Ps = price with Singapore

Pk = price with Korea

Thus, the welfare of Australia before signing the FTA was:

Consumer surplus = a + b

Producer surplus = c + g + i

Gross revenue = e + h

AFTER it had signed the FTA with Singapore, the electronics it imported from Korea, it now imported from Singapore

Thus, consumer surplus = a + b + c + d + e +f (thus, the gain of c, d, e, and f)

Producer surplus = g + I (thus, the loss of c)

Gross revenue = 0

Thus, after the FTA with Singapore was signed, the welfare of Australia was greater. That is; (d + f) >h

As shown above, the d + h of Australia are higher than h stipulating a positive welfare analysis of the country. According to the demand/supply curve above, once the FTA with Singapore was signed, the prices of electronics imported to Australia will go down due to the imposed tariff that must be included in a rate in the products sold to Australia. A decline in price will lead to increasing of consumer purchases of the electronics in the country.

If Australia decides to leave Singapore, the welfare analysis of the country will be as presented below.

International Trade written assignment 23International Trade written assignment 24International Trade written assignment 25Price/ Supply

International Trade written assignment 26International Trade written assignment 27Ps a b

International Trade written assignment 28International Trade written assignment 29International Trade written assignment 30Ps

International Trade written assignment 31e f demand

International Trade written assignment 32pk g

As the graph above presents, by leaving Singapore, the consumer surplus changes to

(a + b + c + d). The producer surplus also becomes (e + g) while the gross revenue remains zero. Therefore, if Australia leaves Singapore, the welfare of Australia will decrease a perceived with the function of f in the chart above. The welfare of the country decreases, stipulating the consumers have a surplus. With the decrease of price from 1 to 2, the consumer surplus is perceived. The welfare of the country decreases as well.

References

Australian Government. (2015). Korea-Australia Free Trade Agreement. Guide to Using KAFTA to Export and Import Goods, 1-20.

dfat. (2015). Rues of Origin and Implementation Proedures. Chapter 3: Section A: Rules of Origin, 15-31. Retrieved from https://dfat.gov.au/trade/agreements/chafta/official-documents/Documents/chafta-chapter-3-rules-of-origin-and-implementation-procedures.pdf

Feenstra, R. C. (2015). Advanced international trade: theory and evidence. New York: Princeton university press.

Hummel, P., & Brian, K. (2015). Sequential or simultaneous elections? A welfare analysis. International Economic Review, 851-887.

Martin, P. (2016). The Election Campaign’s other Big Lie: The Coalition hasn’t Delivered Export Agreements. Aftinet Bulletin, 1 —2.