!! International Real Life Examples

Question 1

Tariffs

Answer 1

US Tinplate steel tariffs

• Canada 5.29%, China 122.5%, Germany 7.02%

Pros

• Gov revenue: 2018 tariffs amounted to $9B
• Improved balance of payments: Reduced steel imports by 24%➜ Chinese steel imports fell by 7.9% from 2022 to 2023

Cons

• Consumers suffer from higher food cans prices, increase of 19-30%
• Worsens income inequality: increased food can prices affected 42M Americans in low-income households
• Misallocation of resources: 2016 US demand was 2.1M tons, US supply 1.2M tons, only 57% of domestic demand met by domestic producers
• Firms suffers from increased raw material costs: 30% COP increase for food can industry, creating competitive disadvantage ➜ structural unemployment for 40,000 workers in domestic factories
• Retaliation: China retaliated with import duties on 128 US items worth $3B USD ➜ US-China trade war, costing the US 300,000 jobs and 0.7% of real GDP by 2019
• Gov revenue argument rarely applicable to developed countries: US tariff rev accounted 56% in 1880, 41% in 1900, and 1% in 2000

Question 2

Production Subsidies

Answer 2

Chinese EV Subsidies

• Details: Since 2009, highest being $391M granted. To CATL within six months
• Increased domestic revenues: Chinese EVs sold annually increased from 1.3M to 6.8M in 2022
• Lower COP thus lower prices: 20% cheaper than EU-manufactured EVs, estimated to control 33% of the global market by 2030
• Net exports rise: Exported 2.34M EVs in the first half of 2023, 0.32M more than Japan, will overtake Japan as the globe’s largest automobile exporter
• Worsens gov budget: More than $28B USD spent on EV subsidies between 2009 and 2022

Question 3

Quota

Answer 3

US limiting Japan’s auto vehicles exports

• 1980s: Negotiated a “voluntary export restraint” with Japan, Japan agreed to limit its auto vehicles exports to the US to 1.7M

Pros

• Reduced competition: Profits jumped to $2B per year
• Domestic employment: More investment in US car firms, 300+ new production facilities and 100,000 new jobs created

Cons

• Domestic consumers: Car prices increased by 8%, consumers spent $5B more on cars
• Foreign producers: Sales of Japanese cars reduced by 20%

Question 4

FDI

Answer 4

What attracts FDI?

• Favourable tax rules: In the Startup India program, startups registered from 2016 to 2022 were eligible for 100% tax exemption on their profit for 3 years in a block of 7 years
• Large market potential: India has the largest youth population in the world, 66% of population below 35 years old

Pros (India)

• Economic growth: FDI inflow of $84B from 21-22 increased GDP by 9.1%
• Technological spillovers: MNCs transferred existing technologies, eg pharmaceuticals, telecommunication, real-estate sectors
• Increased market competition: Suzuki entered Indian market in 1981, forcing inefficient domestic firms to reform + maximize their potential
• Increased employment: MNC outsourcing in 2004 grew by 25%; private sector employment increased from 7% to 10% in 1990 to 2009

Cons (Shell as an MNC in Nigeria)

• Pollution: Since 2011, Shell reported over 1010 oil spills, declared by UN needing 30 years to clean up
• Worker exploitation: Salaries ranged from $137 to $257 per month, working 12 hours a day, six days a week - not enough to sustain a living + bad working conditions

Question 5

Foreign aid

Answer 5

Development Aid

• US to Africa: 21.3M aid in 1966, allowed Teachers College to recruit and train 443 more Secondary School teachers + construction of new middle school classrooms and facilities in Somalia, Ghana, Bolivia

Pros

• Increase enrolment: Children enrolled in primary and secondary increased by 20% from 2000 to 2013
• Literacy rate: Increased from 56.6% in 1998 to 67.3% in 2024
• Reduce unemployment: Labour force expanded by 91M in the past ten years
• More high-earning jobs: 20% decrease in agricultural jobs in Rwanda, Tanzania, Zambia, from 2006 to 2013
• Salary: Average real wages increased by over 20% from 2006 to 2017

Cons

• Fungible: Uganda received over $1B aid from US, but reallocates to military spending - healthcare spending cut by 57 cents for each additional aid dollar received + rise in military spending from 200M in 2000 to 1000M in 2023
• Political purposes: Lebanon receives aid from US and EU, but redistributes aid money to the voting base of political groups in the power-sharing system ➜ nominal GDP continues to fall, from 52B in 2019 to 21.3B in 2022 + high unemployment where half of households live below the poverty level
• Corruption: Afghanistan receives aid from US, but diverted to corrupt official ➜ “Ghost Schools” where 1/10 of US-funded schools do not exist, are not operating, or were never built (Claimed to have built 690 schools by 2010 but only had 563 schools) ➜ Lower enrolment, number of girls in formal schooling overstated by 40%
• Overreliance: Afghanistan has an avg annual financing gap of 74% relied on aid to meet; 20% annual growth since 2002 but driven by foreign aid, not self-sustaining