Timeline Illustrating the Government's Involvement in the Drug Trade

Drug trafficking can be traced back to the 19^th century. A range of illegitimately smuggled substances have been sold and dispersed in various place in the USA, usually with adverse consequences. In the 1800s, Chinese settlers arrived in California and taught Americans how to smoke opium. Transaction, retailing and delivery of opium then spread to other American regions. Opium burrows were designated zones for buying and selling of the drugs. From that point onward, drug trafficking has been on a constant rise.

Timeline

 Harrison Act, 1914 outlawed opium and cocaine utilization for non-medicinal reasons. However, the circulation of prohibited drugs never came to a halt. In 1925, opium black markets cropped up in various places in the USA, leading to more than 200,000 addicts. In the 1930s, cannabis usage and other substances came under intense scrutiny from the government security agencies such as FBI. The government effort to get rid of recreational drugs was motivated by the fact that drug abuse increased violent crimes (Jones et al., 2019). In 1937, the Marijuana Tax Act was put in place to fight the misuse of marijuana for recreational reasons.  The Act combined strict legal requirements with taxation stamps to help combat the spread and use of marijuana hence criminalizing anyone who was no licensed to use marijuana.

Between 1938 and 1939 Mexican government attempted to control narcotics production. The USA’s reacted by restricting medical products from Mexico. Due to this reaction, the Mexican government permitted the narcotics industry to exist aided by the army and other governmental departments.  Between 1939 and 1945, World War II prevented Turkish and Europeans from importing opium, heroin and other reactional drugs, hence stopping the morphine production. Also, Mexican increased its generation of poppy and hemp (Rozenshtein, 2018). In 1959, the USA government out Stepan company in charge of the importation of cocaine. Stepan Company imported a total of 100 trillion worth of coca plants from Peru each year. The cocaine was extracted from the coca plant and later sold to pharmaceutical companies. In the 1960s, recreational drugs increased, forcing the government to form the Bureau of Narcotics in 1968. In 1969 medics conduct a urinalysis of prisoners and finds that 44% of them use heroin. Then the Mayor is convinced to offer methadone as a way of dealing with heroin addiction. To decrease marijuana smuggles through the Mexican border, the customs department insisted that vehicles passing through the Mexican border should be subjected to inspections. The operations would be carried out for two weeks and suspend any economic activities on the border regions. The US Bureau farmers would get an income which was 40 times higher than any other legitimate crop. In the 1970s, ‘The National Organization for Reform of Marijuana Laws’ was established. The group aim was decriminalizing marijuana use. However, in the same year, Congress enacted ‘the Comprehensive Drug Abuse Prevention and Control Act’. This regulation combined initial drug regulations and reduced punishments from marijuana ownership. It also reinforced laws by permitting law enforcers to perform ‘no-knock’ explorations (Milanlouie et al., 2017). In 1971, President Nixon recreational drug as a public enemy and began the war on narcotics. Reports show that the USA government spent more than $ 51billion on fighting drugs. During Nixon’s presidency, finances were allocated for treating drug addicts rather than law enforcement.

Disadvantages and Advantages of These Laws

 These regulations, most of the time only deal with one aspect while ignoring other components. They are only made to restrict or penalize drugs. This way, the people responsible for drug trade find alternatives to bypass the regulations. Issues covered in each law sometimes are not relevant to the actionable steps taken to implement the rules as per the required terms. While evaluating the economic and social impact of illegal drugs, the laws usually provide a solid framework which impedes the problem from affecting most parts of the country (Milanlouie et al., 2017). The government must protect its citizens from any medication that would prevent the standard functionalities of the nation. Hence through the legislations, the government gets the chance to fight off the drug trade. Secondly, most of the government's laws have conceptual clarity that naturally maps out the consequences of the drug trade. As per the perspective offered through these regulations, rules provide a particular framework which ensures that specific requirements are fulfilled hence slowing down on the menace caused by these illegal drugs.

 In summary, the government has put in place regulations to fight off drugs. Apart from enacting rules, the government has set restrictions and taxations that have reduced the distribution of illegal drugs in most parts of the world.  Evidence that illicit drugs pose dangers to the society hence forcing the government to regulate its use among public people. The industry's secretive nature forces the government to come up with more complex ways of preventing the smuggling of these drugs into USA borders and inhibit growth. Internationally, there are accepted drug production amounts. However due to political and economic interest these productions are sometimes surpassed and it is the role of the government to bring into account the extra amounts.

 References

Jones, M. R., Novitch, M. B., Sarrafpour, S., Ehrhardt, K. P., Scott, B. B., Orhurhu, V., ... & Simopoulos, T. T. (2019). Government legislation in response to the opioid epidemic. Current pain and headache reports, 23(6), 1-7.

Milanlouie, O., Mirkhalili, S. M., Darabi, S., & Sheidaeian, M. (2017). Sociological and criminological analysis Decriminalization of minor drug related crimes. Iranian journal of educational sociology, 1(6), 173-180.

Rozenshtein, A. Z. (2018). Surveillance intermediaries. Stan. L. Rev., 70, 99.

 Recommendations on Improving Trade between Canada and Germany by 2030.

Introduction

Canada and Germany are close allies and enjoy continued engagements in terms of trade. They both have made trade agreements that have eased their import and export activities. To improve trade between the two countries, the German government will focus on the agricultural sector due to its increased expansion and ranking. Involvement in trade agreements and relations will improve the trade relationship and trade barriers between the two countries. Labour issues will also be addressed through the agreements and engagements between both countries.  Improving trade between Canada and Germany includes working on policies, regulations, interrelations, and agreements that help to facilitate and maintain it.

Absolute and comparative advantages, Sectors to take advantage of

            The absolute advantages of Canada are agricultural production and mining activities because of the low cost of land and natural resources. Therefore, Canada has a comparative advantage in the production of agricultural products because of the available resources. Germany has an absolute advantage in beer production and therefore has a comparative advantage in brewing. Canada has been one of the largest countries in the world to produce and export agri-food products and their strengths being the vast natural resources, technology, and skilled labour force (Schumacher, 2012, 49). Germany produces a wide variety of quality beers which are uniquely brewed and more innovative brewers continue to produce outstanding non-mainstream beers.

            Our trade strategy should focus on the agricultural sector because according to Bonnet (2017, 1), the Canadian government plans on expanding the food and farm sector and increase agri-food exports. It is a sector that has contributed to their economic growth and has maintained a long term growth and has been ranked top five in being among the largest world’s exporters of agriculture and agri-food products. The agricultural sector is a sector that the Canadians have been involved in for a long time and they, therefore, understand every aspect surrounding it, and therefore emphasizing our strategy there will yield positive outcomes. Food production exists in both countries whereby each country produces different types of food products. This is a sector that our strategy would take advantage of because the two countries could work towards trade exchange on the food products.

Trade blocs or agreements

            Canada- Germany relations that could help in building trade between the two countries include having a bilateral relationship where they both enjoy a friendly partnership. This is displayed in their active collaboration internationally and the healthy economic and investment associations. Both countries are global partners that have a shared commitment to strengthening multilateralism. They are both members of the organization for economic cooperation and development and the world trade organization. They share common values and interests in fields such as human rights, democracy and the rule of law universal peace and security, international trade, and the environs and contending with climate change (Government of Canada, 2020, 1). The two countries have a trade relationship and Germany which has the leading economy in Europe and is among the biggest internationally is a main economic partner for Canada. Canada and Germany have a strong and diverse commercial relation that covers trade, investment, science, and technology. Germany is the largest export market for Canada in the EU and they both engage in export and import kinds of trade. Both countries have been involved in joint research projects bringing together stakeholders, governments, and research organizations among others. All these relationships between the two countries will aid Germany in building trade with Canada. “The Canada-European Union Comprehensive Economic and Trade Agreement” will make it easier for doing business. This is because the agreement has helped in the reduction of tariffs and has eased non-tariff barriers as well. Canada also has a trade facilitation and logistics Agreement that will be helpful because it will help in the movement of products between manufacturers and consumers which then make the supply chains more effective hence reducing prices and hurdles that are encountered by the traders

Tariff and non-tariff barriers

            There exist customs tariffs for German exporters and importers, and border barriers that make it difficult for German exporters to access the Canadian market. Non-tariff barriers that create major obstacles include technical and non-technical measures. These include barriers such as labeling and packaging requirements, pre-shipment inspection, and antidumping measures. Engaging in trade Agreements with Canada will help to reduce these barriers and improve the trade relationship which will also increase job opportunities (Yalcin, Kinzius & Felbermayr 2017, 5). An example is the “The Canada-European Union Comprehensive Economic and Trade Agreement” which will help to eliminate a large percent of tariff lines for manufactured products, agriculture, and agri-food products. It will also help to reduce technical barriers and regulatory requirements that are discriminatory.

Environmental or labour issues

            The labour issue that has to be addressed is the lack of laborers since most of the people seem to be seeking jobs outside the agricultural sector. This sector is registering a large percentage of the vacancy rate in the farms which is a challenge that is facing the sector due to the lack of laborers to fill these vacant positions (VanRaes, 2018, 1). This will have a great impact on the labor market and this needs to be addressed. This issue could be addressed by the farmers turning to technology and machines to fill in the vacancies. The farmers might need to turn to agricultural products that do not require manual labor for them to thrive and for trade to take place effectively. Finding out the reason why the sector is short of laborers would be important to be able to know the root cause of the labor issue and address it accordingly. Research shows that seasonality and low wages and the key issues in the labor problem. Seasonal jobs are a challenge and during the seasonal peaks, the laborers have to work for long hours at low wages.

Cultural relationships or immigration policies

For cultural relations, Canada and Germany, both have an advantage as a result of their strong relations and individual contacts. Through travels from one country to the other, they share a cultural relationship. Academic connections are also vivacious whereby students in both countries travel to either of the countries for college, university, or high school. As part of the exchange programs, both Germans and Canadians travel from their respective countries to research and study (Government of Canada, 2020, 1). Both countries cultivate an active cultural exchange whereby a lot of artists from Canada become an integral part of German cultural life and so do the German artist in Canada. A cultural agreement between the two countries was signed in 1975. Canada and Germany have a good cultural relationship and this clearly shows that they will help in trade between the two countries.

Conclusion

            The top priorities for the German government include getting involved in trade agreements with Canada. This is important because the agreements can help to develop larger markets. They eliminate most of the tariffs that exist and provide better access to the goods and services markets. With the agreements, Germany will be able to safeguard and expand its prosperity in Canada. The German government should improve cooperation and relations among economic actors. Improvement in cooperation could favor trade growth between the two countries among exporters and business actors. Trade facilitation and logistics is another priority for the government because of the difficulties experienced during the movement of goods. For Germany to get involved in trade with Canada, they require continuous supply chains, effective border management, clearance procedures, and logistics infrastructure and services.

References

Bonnet R. (2017) Expanding markets for agricultural products and streamlining regulations will             help Canada meet the potential for growth in this powerful sector. Retrieved from:             https://policyoptions.irpp.org/magazines/april-2017/taking-canadas-agricultural-trade-to-   the-next-level/

Government of Canada (2020) Canada-Germany relations: Canada’s areas of action Retrieved from: https://www.international.gc.ca/country-pays/german           allemagne/relations.aspx?lang=eng

Schumacher, R. (2012). Free trade and absolute and comparative advantage: a critical

comparison of two major theories of international trade (Vol. 16). Universitätsverlag

Potsdam.

World Bank Group (2018) Stronger Open Trade Policies Enable Economic Growth for All.

Retrieved from: https://www.worldbank.org/en/results/2018/04/03/stronger-open-trade-

policies-enables-economic-growth-for-all

VanRaes, S. (2018). Canada faces its own farm labor gap, and it’s going to get much worse.        Retrieved from: https://www.country-guide.ca/guide-business/canada-is-facing-a-farm-         labour-gap-and-its-going-to-get-much-worse/

Yalcin, E., Kinzius, L., & Felbermayr, G. (2017). Hidden Protectionism Non-Tariff Barriers and

Implications for International Trade. Study of the Ifo Institute on behalf of the Bertelsmann Foundation Final Report (GED Study) on November 17, 2017.

Domestic policy

One of the domestic policies that I would change is the death penalty. The reason for this is because the death penalty is a policy that has led to the execution of innocent lives. Research has shown that some of the individuals that were sentenced to a death penalty were innocent and did not commit the delinquencies they were executed for (Williams 2017). Another reason that I would change this policy is because of racial discrimination when the death penalty is being administered. African- Americans have continually been sentenced to death penalties since the past and the most disturbing fact is that those that were executed killed white victims. These differences have led to racial discrimination and studies show that there is an inequality in the sentencing of a death penalty. Lack of consistency in the way the death penalty is imposed is another reason for the change. This policy lacks a particular system on how it should be executed making it biased and discriminative. The racial inequalities in jurisdictions in death penalty sentences suggest that this policy is being used in a way that discriminates according to race.

The legislative process is the procedure where elected officials introduce and pass a bill that eventually becomes the law. When a bill is introduced, it is then taken to a committee with authority over the key subject of the legislation (Leston-Bandeira & Thompson 2017). Sometimes a bill can be referred to several committees or a sub-committee first. The relevant committee has to determine if the bill will have a hearing and if it the proposed bill will be debated upon, or amended. The amendments are then adopted or rejected and thereafter the committee chair moves to vote in favor of the bill. When the bill is voted in favor, it goes to the entire body of the house, and if not the bill dies. The committee report is then written describing the intention of the legislation, its history, and the effect of the existing laws, and what the majority of the committee members think.

The majority leader and speaker of the house agree to whether and when the bill will come before the house and the senate to be discussed on and amended. In the two chambers, a majority vote is necessary for an amendment to be agreed upon and for the bill to be passed. If there is an agreement concerning the bill from the two chambers, a conference report is made showing the recommendations for the changes to be made (Leston-Bandeira & Thompson 2017). A bill expires if either of the house chambers discards the conference report. When the conference report is approved, the bill is directed to the president. If the legislation is supported by the president, he signs it and it turns into a law.

The Presidential executive action is an approved command from the president to the national organizations that normally have much similar power of the law. An executive action allows the president to instruct the administration on the way they should work within the bounds that have already been set by the legislative body and the constitution (Chen (2017). The executive action allows the president to make changes in policies without consulting or going through congress. An executive order has to identify if the order has its basis on the presidential mandate that is given to him by the constitution. When the president gives an executive order, the mandate is documented in the federal catalog and can be applied in similar to how it could be if Congress had enacted it as law. An executive order is also reviewed and can be invalidated or canceled if it is not constitutional.

           The public can influence the death penalty changes by the use of political decision-makers, religious, and other public society leaders, and the media. Regional and international organizations can also help in influencing the changes by shedding light and acknowledging the fact that the death penalty is unfair and promotes inequality (Keim & Armstrong 2015). Human rights organizations advocate for the abolishing of the death penalty policy arguing that a human being has a right to life. The execution of individuals wrongfully and without enough proof that the death penalty serves as a deterrent is another reason that has been raised. The media has been used to air public opinions concerning the death penalty and the reason why it should be changed or abolished. The human rights regional and international organizations have consistently promoted human rights and the norm that prohibits the cruel, inhumane punishment. Abolishment movements towards the abolishing of the death penalty policy have been on the rise in recent years reducing the number of death penalties in several states. Discussions by different organizations on the wrongful convictions of individuals and the failure of the legal system to provide adequate insights on death penalty convictions. According to studies, public opinion is in favor of the death penalty abolishment because it is unfair and discriminative.

References

Chen, M. H. (2017). Administrator-in-Chief: The President and Executive Action in Immigration

Law. Admin. L. Rev., 69, 347.

Keim, S., & Armstrong, B. (2015). Fighting to the death: Thoughts for anti-death penalty

activists to make further progress towards the goal of an end to judicial and extra-judicial executions. Pandora's Box, (2015), 65.

Leston-Bandeira, C., & Thompson, L. (2017). Integrating the view of the public into the formal

legislative process: public reading stage in the UK House of Commons. The Journal of Legislative Studies, 23(4), 508-528.

Williams, K. (2017). Why and How the Supreme Court Should End the Death Penalty. USFL

Rev., 51, 271.

1

I would prefer to acquire a company that is within the European Union. This is due to a simple fact- external surroundings. This means that the company can transact with several other nations within that European Union market segment without encountering any trading barriers. Additionally, the company cannot encounter any employment restrictions, and even setting up extra shops or branches in the European Union market is made simple (Cini, & Borragán, 2016). In terms of supporting business ventures and companies, European Union policies shape the market into a competitive place hence upgrading quality products and fuels the creation of jobs. This then stimulates economic expansion and growth due to the business-friendly surrounding. With globalization and stiffer competition from other regions, the European region's strong economic affluence relies on the foundations of its manufacturing base and not items and services offered alone.

 The European commission invested in European industries which in turn led to contemporary, clean, and fair economies. The European Union promoted quality products through various initiatives and aimed at empowering Europeans, revive areas, and put up suitable technologies for future manufacturing industries. Manufacturing is the primary fuel for invention, efficiency, and exportation. It leads to the generation of quality jobs among the European residents (Chalmers, Davies, & Monti, 2019). Nevertheless, the industrial system is under intricate alteration influenced by digitization and other emerging technologies. Therefore, European Union ensures that the entire European industrial sector stays competitive on a global scale by embracing modern technology, incorporation of items and services, creating cost-effective technologies that utilize less energy, cut wastage and avert pollution.

 It is vital to note that the European Union is both a political and economic entity. Since its formation, the European Union grew in magnitude and incorporation. The main objective of the European Union is to support European coordination via the generation of a single market. The amalgamation of the European nations facilitates the free movement of products, services, and Europeans from one region to another (Cini, & Borragán, 2016). Thus, the first benefit is the creation of European unity which in turn makes management easier as one moves from one country to another. European unity was able to heal and streamline the once still relationship among the European nations. Since the formation of the European Union, international cooperation and peace have been fostered and retained among the member states. Peace creates understanding hence enabling businesses to flourish among the member states. Accordingly, the European Union promoted economic and political stability. Secondly, the European Union resuscitated the lawful and human rights aspects of a business. For further illustration, a consistent obligation to human rights prevents unfair judgment and legal procedures are followed to the latter. This attracts many nations to the European Union hence increasing its credulity and acceptance internationally (Richardson, 2015). The conditions created to cause an increase in profits and acceptance all over the world. As stated earlier, membership prospects assisted in modernizing the nations under the European Union as they had to have a standard measure against which they would operate and do business, and this encouraged competition among the member states. Similarly, the European Union strengthened the economic zones of its members. With a more than 500 million population, the Union controls 7.3% of the entire world populace which then translates into 23% GDP worldwide. The ability to create free trade and remove trade barriers assisted in the reduction of expenses and customer prices. As a pendulum affect the trade increment created employment and gave way to higher salaries. An estimated 52% of exportation comes from the European Union member states hence increasing trading activities among the member states.

            On the other side, European Union membership is costly. The UK has to part with $15billion annually. This explains some of the underlying reasons which made the UK drop out of the union. The European Union charges its members heftily hence the balancing the benefits against the expenses or recurrent expenditure becomes an uphill task. Secondly, the European Union has inefficient policies that imply that the policies are not adequate to secure businesses from incurring losses (Bache et al., 2020). For instance, most policies are geared toward agricultural industries by cutting down food costs consequently an upsurge in demand for agricultural products. Besides, other policies require an amendment so that they can boost business growth among the member states.

2

 The main advantage of acquiring companies outside the European Union is having total autonomy over the business's core functions and operations. The European Union cannot set the standards for the company and this means that the company running outside the European Union can set its own pace by adopting better policies as compared to those of the member states. The business environment is still dictated by external commercial forces such as market value, branding, and pricing. An independent company will be able to curve its image by tactfully giving out fair prices, leveling the playing field by carefully observing the weaknesses of the member states. Additionally, setting up a subsidiary office which is subjected to the host country's tax rules and employment practices helps in the management process and decision making. Alternatively, a company can merge with other companies so that it can accurately match up companies under the European Union umbrella. Either way, outside the European Union a company can adopt numerous forms which then enable it to accomplish a lot of things.

 One of the main disadvantages of a company operating outside the European Union is the inability to beat the ever-increasing competition among the member states. A company within the European Union can adopt pricing and expand its business across the member states. However, the alone company is forced to bear the tax burden and still offer services at an affordable rate (Collings, & Dick, 2011). More so, the pressure to conform to stringency forces companies operating outside the European Union to cut costs and introduce extra ways of doing business. These measures sometimes lead to economic inactivity. Also, since a company operating outside the European Union is not immune to challenges created by the European Union it has to participate in the creation of a solid solution for the rest of the market players.

3

 Underlying reasons why MNC can invest in the financial market outside its own host country

 An MNC invests resources within a financial market situated outside its host nation due to appreciation of the currency in the near future. Another reason may be high-interest rates which allow the MNC to earn higher interest rates when they invest in that particular nation. In other words, the state of the financial market influences how an MNC invests its main financial assets. They tend to lean toward an appreciating market so that they can increase their profit margins throughout the financial year (Beck, Demirgüç & Levine, 2010). As time goes by, the company has to stay afloat and meet marketing demands. It is vital to note that a company an MNC has to facilitate its financial assets in more than one nation. This way, it forces the MNC to balance its strategical management its profits and losses. Most of the time, MNCs derive more than half of their profits from the international market located outside their parent nation.  Mostly, this nation can create quality employment offers across the different nations and technologically advance items and services and this is the reason they tend shift invests from the parent host nation to neighboring nations with suitable demands. Moreover, MNC is said to change the investment landscape of the nations they are hosted in because they stabilize the nation and bring in another political aspect of which they might not be liable for in the long run. Meanwhile, MNCs can regulate other commercial needs of the neighboring nation.

 Market seeking is one of the primary reasons an MNC will look to go across other boarders. Catching a new consumer market enables the market to sells its items and services to a wider target market. The top managers realize that quality products and services are a unique mechanism to beat the competition and expand into foreign markets while at the same time looking for other business opportunities all over the global space (Collings, & Dick, 2011). The second motivation is finding which has few market players which then allows the MNC to sell products without any hindrance or penetrating an already saturated market. Another reason for expanding into an international market is seeking efficiency or productivity. The extensive economic changes permit the MNC to alter their external structure while reacting to the various economic changes.

4

Most of the financial institutions claim that they might earn higher profits if they give out credit to overseas financial markets as long as the interest rates are higher and other risk factors are contained. Furthermore, banks may want to accommodate different markets in their client portfolio hence the need to lend other people credit (Bache et al., 2020). A diversified portfolio helps in increasing profit margins and capturing a wider market which hinders them from being exposed to tough financial situations. For a long period of time, financial institutions have helped to come up with definite solutions to the hard financial crisis. After any financial crisis, scholars tend to design financial policies based on loans so that they can offset any pending debts without tipping off the balancing scales. financial stability is important for developing nations and this is one of the main reasons financial institutions lean toward offering credit to international regions no matter the financial situation they might be facing (Collings, & Dick, 2011). Most of the time foreign nations present financial institutions with many benefits compared to local markets. Thus, it always seems prudent to finance business based on the ability to return investments rather than regional differentiation which in the long term is not beneficial to the lender. Banks are keystone elements within the financial frameworks as they help in the allocation of money to borrowers in a sufficient manner. the specialized services end up minimizing expenditure and attain evidence on saving and other financial market trends across the region. Consequently assisting in financing loans and general market growth.

References

Bache, I., Bulmer, S., George, S., Parker, O., & Burns, C. (2020). Politics in the European union. Oxford University Press.

Beck, T., Demirgüç-Kunt, A., & Levine, R. (2010). Financial institutions and markets across countries and over time: The updated financial development and structure database. The World Bank Economic Review, 24(1), 77-92.

Chalmers, D., Davies, G., & Monti, G. (2019). European union law. Cambridge university press.

Čihák, M., Demirgüç-Kunt, A., Feyen, E., & Levine, R. (2012). Benchmarking financial systems around the world. World Bank Policy Research Working Paper, (6175).

Cini, M., & Borragán, N. P. S. (Eds.). (2016). European Union politics. Oxford University Press.

Collings, D. G., & Dick, P. (2011). The relationship between ceremonial adoption of popular management practices and the motivation for practice adoption and diffusion in an American MNC. The International Journal of Human Resource Management, 22(18), 3849-3866.

Richardson, J. (2015). European Union: power and policy-making. Routledge.

United States Withdrawal from TPP

Introduction

The Trans-Pacific Partnership (TPP) is an agreement that had proposed trade between 12 countries namely; Mexico, Australia, Brunei, Canada, Malaysia, Singapore, Chile, Japan, New Zealand, Peru, Vietnam and the United States.  As Republican Party Nominee, Donald Trump was campaigning, in one of his presidential campaign speech he mentioned that one of his acts if he was elected was to withdraw United States from the Trade agreement. He cited reasons such as the trade agreement would hurt the economy of the country and also undermines the independence of the country. On January 23^rd 2017, a few days after taking oath to office, President Donald Trump put his signature on a memorandum, officially withdrawing US from TPP.  As a result of this withdrawal China got the upper hand and an opportunity to write Asia’s trade playbook. United States would have had huge economic gains from being a member of the TPP. The country’s withdrawal from this trade agreement has harmed its own interests though it can rejoin the agreement if it wants. The path to rejoin the trade agreement may seem smooth and there is an urgency that the country takes action as soon as possible since reentering the agreement again in future may seen a little difficult since the country will need approval from all member countries including China which is in control of Trade in Asia if it was to join TPP.

 After the United States left TPP it was seen like that was the end of the trade agreement and other countries would follow suit. However, none of the eleven remaining nations opted to leave the trade agreement, instead they held new negotiations amongst themselves on 8^th March 2018 and they resigned the trade agreement forming the Comprehensive and progressive Trans-Pacific Partnership (CPTPP) that is also referred to as TPP11  formed by eleven nations (Chow, Sheldon & McGuire, 2018).  This new partnership between these nations has been scheduled to be effective in the next two years. After the America withdrew from TPP it announced trade policies that threatened to reverse all trade agreements that were not favorable to the country. An example of these polices is increasing tariffs on Steel and Aluminum which the country did on March 1^st 2018, and South Korea sat down with the country and revised the US – Korea free trade agreement and Korea agreed to sell less steel and aluminum to the US in order to avoid the new tariffs (Chow, Sheldon & McGuire, 2018). The United States is aiming to make all trade deal with other countries a win-win situation by imposing these new tariffs and openly admitting that there is room for negotiations. This new trade agreement cannot be referred to as new since KORUS has been around since 2012. This six year deal allowed both countries to sell more than machinery worth over sixty billion dollars with few restrictions. The 25% US tariff placed on Korean trucks allows America to sell its vehicles to Korea (Chow, Sheldon & McGuire, 2018).  These are cars that automakers in America are not even close to making.

Trumps administration was unhappy with the fact that South Korea was selling more cars and more stuff to America than America was selling to them. America has been in trade with South Korea for long that it was named as the sixth largest trading partner of the country.  In 2016, the United States recorded a deficit worth $27 billion with South Korea and president Trump wanted to close this large gap and by leaving TPP he was free to increase tariffs by renegotiating KORUS and South Korea agreed to limit the steal that it was exporting to the country to 70% of what it was exporting before (Chow, Sheldon & McGuire, 2018). In the short run this deal is a good one for US but in the end South Korea is not willing to buy cars assembled in America. This might imply the economic independence the president the president was seeking from withdrawing from TPP might be short lived.  

The United States administration might have overlooked the consequences of withdrawing from TPP (Stokes, 2018). The first mistake trumps administration did was overlooking the wide economic benefits that would have resulted from it being a member of TPP. Being a member of this trade agreement would have increased trade and economic benefits that the country would have incurred. These benefits will now be rounded off to help the eleven remaining countries (Lee, & Itakura, 2017). Maybe America’s strategy was to withdraw from this trade agreement so that it could negotiate bilateral agreements with each of the countries on a separate basis as single partners but not as partners bond by a trade agreement. However, it has not been determined how long it can take the country to negotiate with the remaining countries in TPP. Even if the United States was to complete these negotiations it is still unclear if the benefits that United States will reap out of these bilateral trade agreements will equal the benefits the country would reaped from being a member of TPP (Fergusson, McMinimy, & Williams, 2015). In addition to missing the benefits that would come from being a member of TPP significant strategies of the country would be compromised by the withdrawal.

Americas withdrawal from the trade agreement was going to allow United States to come up with ways of regulating trade in Asia, Chinas own backyard and United States chief rival in trade.  Creation of TPP also aimed at containing China and it is not unmistakable to state that Chinas was the target for almost all major provisions of the trade agreement.  During TPP negotiations the US left out China from the negotiations so that the country could not get the opportunity to challenge the standards that would be set by TPP (Chow, Sheldon & McGuire, 2018). The initial goal of United States was to make sure that its chief trade rival would not enter TPP and after the agreement was drawn they would confront China and make trade for the country difficult, the country would propose to China to either enter TPP or reject it and loose the trade benefits that came with it and if they rejected TPP China would be subject to tough new standards that would suppress its economy. However, China counteracted this act of America and came up with Regional Comprehensive Economic partnership (RCEP) which would be larger that TPP and to return a favor China demanded that United States to be excluded from the trade agreement (Chow, Sheldon & McGuire, 2018). China is a member of RCEP and United States withdrawal from TPP gave its chief rival in trade an upper hand.

United States withdrawal from TPP gives China’s competitors a golden chance to access the United States market and this improves China’s relative position. Michael Forman in final speech as the acting US Trade Representative stated that the countries withdrawal from TPP was the best gift any American president could give China. He went further and stated that this withdrawal would come with serious broad consequences; economic and strategic consequences. TPP would have been responsible for creating a free trade zone that would link 12 countries and the withdrawal of United States from this trade agreement can be referred to as a step back for the country (Bagley, 2019).

TPP expands beyond the limits set by WTO all in an effort to deal with sensitive to China. TPP would have presented United States with a chance to push China and make it play by the rules it set, China would be forced to stop stealing intellectual property, stop forcing Americans Firms to share their technology with then and finally if America would not have taken the decision of leaving TPP it would have gotten to finally stop China’s act of taking over and funding firm that are state owned (Chow, Sheldon & McGuire, 2018).  Withdrawal of United States from TPP marked the end of Obama’s administration efforts of eight years that might have aimed to great the world’s largest free trade zone despite the fact that his efforts are seen to more geopolitical than economic.  This withdrawal made America lose the only opportunity it had to make decisions involving trade in the East Pacific region. America was at the verge of limiting the ability that China had when it comes to distorting international trade but after its withdrawal from TPP it cannot be able to stop China from distorting International trade and now China under RCEP has the ability to make trade rules for Asia for the rest of 21^st century (Posen, & Ha, 2017).

            The Original TPP that the United States withdrew from would have given the country a chance to equal the playing field by allowing the United States to increase its exports by removing approximately eighteen thousand tariffs that are place on exports made by the United States and in return the United States would have removed 80% of the imports tariffs. This agreement had the potential to boost exports made by United States while at the same time creating more jobs from citizens of the 12 countries.  The US would have been able to increase its exports by about $305 million per year by the time it was 2025 thus benefits most of the country’s industries (Amadeo, 2019). TPP would also have facilitated an increase of two hundred and twenty three billion dollars a year to the income of workers of member country with seventy seven billion dollars of the money going to U.S workers.

 There is evidence that the United States has lost its market shares in Japan following its withdrawal from TPP.  Market research has shown that in recent weeks the United States has registered low sales of wheat, pork and beef in Japanese market have reduced. America is being replaced by TPP member countries such as Canada and Australia (Politi, 2019). There is pressure on President Donald Trump to launch trade talk with Tokyo. These low sales by farmers in the Japanese market are an additional suffering to the high retaliatory tariffs that have been imposed by China on their products. Steve Daines who is a republican senator of Montana openly admitted that  the United States was behind in Japan because their allies such as Canada had signed the agreement and are now enjoying the benefits of reduced tariff which the United States is not enjoying (Politi, 2019).  A decrease of sales in the Japanese market as a result of the country’s withdrawal from TPP has put the nation in a disadvantaged position.

Despite the fact that United States will not be part of the trade agreement, United States owned enterprises in TPP member countries will still enjoy the benefits that will be accorded by TPP to the enterprise that are based in the in those countries (Santos, Thomas, Trubek, & Harvard Law School,2019). These enterprises will enjoy reduced tariffs and access a broader market under the preferential treatment of TPP which will also increase their regulatory alignment which will eventually benefits they headquarters that are based in the United States.  As a result of this United States can partially enjoy the benefits of preferential treatment offered by TPP but in an indirect way only if it has a lot of enterprises that are located in the 11 remaining TPP nation members.

Donald Trump’s administration might have made the right steps by withdrawing form TPP. TPP was a trade agreement and a preferential agreement in this case. Trade agreements are often negotiated by states and the motives are always political ones. These trades are preferential because the more the powerful the states the more it shapes the negotiations of the agreement. Trump might been right that TPP wasn’t going to bring United States any trade benefit as Obama’s administration had stated. United States was in this agreement for political reasons and not for trade reasons and the former President’s speech confirmed this merely stating that the future of Geopolitics was going to be decided in Asia and the United States should make sure it is in the center on these discussions therefore United States place in TPP had to be secured (Cook, 2017). If the reason the country joined TPP were purely geopolitical then maybe on the bright side the United Stated Trade might not be hurt by its withdrawal from this trade agreement.

Conclusion

TPP was an a trade agreement between 12 countries, United States being among them but after Donald Trump was elected his first act as president was to withdraw US from the trade agreement putting an end to Obama’s administration eight years work. Trump gave reasons such as being in TPP undermined the country’s economy and freedom.  Withdrawal of United States from TPP came with its consequences which the Trump administration might have ignored. This withdrawal gave China the upper hand it needs to control trade in Asia in the 21^st century, it also gave China’s competitors to dominate the United States trade. US also lost the control it had in the Japanese market to Canada and Australia TPP members.  America also lost the one opportunity it had to stop China from disrupting the international trade. Despite the many consequences United States might have derived a few benefits from the trade agreement. The United stated managed to renegotiate KORUS with South Korea and negotiations went according to how wanted although they can only enjoy these benefits in the short run. If China, its chief trade rival joins TPP and then the United States decides to re enter TPP then it will be hard for the country to do so. The disadvantages of  leaving TPP are more that the advantages that the country has enjoyed and if the United States reconsiders to rejoin TPP then it should do so in the near future before it becomes impossible for it to reenter one of the worlds trade free zone.

References

  Amadeo K., ( 2019). Trans-Pacific Partnership Summary, Pros and Cons. Retrieved from;             https://www.thebalance.com/what-is-the-trans-pacific-partnership-3305581

In Santos, A., In Thomas, C., In Trubek, D. M., & Harvard Law School. (2019). World trade and             investment law reimagined: A progressive agenda for an inclusive globalization.

Posen, A., & Ha, J. (2017). US-China cooperation in a changing global economy.

Stokes, D. (2018). Trump, American hegemony and the future of the liberal international order. International Affairs, 94(1), 133-150.

 Politi, J., (2019). US farmers being cut out of Japan after TPP withdrawal. Retrieved from;             https://www.ft.com/content/07d14730-4831-11e9-bbc9-6917dce3dc62

Bagley, C. E. (2019). Managers and the legal environment: Strategies for the 21st century.

Cook, M. (2017). The TPP: Truths about Power Politics.

Chow, D. C., Sheldon, I., & McGuire, W. (2018). How the United States Withdrawal from the     Trans-Pacific Partnership Benefits China. U. Pa. JL & Pub. Aff., 4, 37.

Lee, H., & Itakura, K. (2017). Potential Costs of US Withdrawal from the Trans-Pacific   Partnership.

Fergusson, I. F., McMinimy, M. A., & Williams, B. R. (2015). The Trans-Pacific Partnership       (TPP) negotiations and issues for congress.

 International trade

            The article “Government, Trade, and Comparative Advantage’ by Richard Clardia and Ronald Findlay (1992) focuses on how governments can go about utilizing comparative advantage to do well in international trade. According to the authors, countries are a collection of households that have access to technology which can be utilized, depending on a country’s preference, to produce goods that are later traded on international markets. The government is therefore responsible for ensuring that a country’s infrastructure and state of the economy is ideal for business not only in a local, but also a global scale. The government is thus expected to maintain order and ensure that laws and regulations are followed; creating an ideal infrastructure; enforcing contracts; and creating a good business environment that attract international business partners. According to the authors, a country is best suited to benefit from international trade if it has a comparative advantage and this can be greatly improved if it finds a balance between its comparative and absolute cost.

            Comparative advantage refers to a situation where a country has a good economy that allows it to produce goods and offer services at a much lower cost compared to its competitors. The economy not only allows for lower pricing but also enables the country to enjoy stronger sales margins from the goods and services sold (Seth, 2018). Absolute cost advantage on the other hand refers to a country’s ability to produce more goods and offer more services than its competitors but do so using the same resources used by the competition (Aahana, 2018). When operating on a global scale, a country should deal in products and services that present an absolute cost advantage as this is the best way to achieve a comparative advantage over other countries in the international market.

            In their study, Clardia and Findlay (1992) argue that a country can best benefit from the comparative advantage approach if it specializes in goods and services that it can easily manufacture and produce at lower costs and those that are in high demand from other countries in the international market.   As part of their analysis, the authors utilize the use of the model of endogenous comparative advantage, optimal government policy and international trade to show how a country can use comparative advantage to benefit from wheat production especially in a country with advanced technology (Clardia & Findlay, 1992). If a country has the tools to harvest and produce wheat, exporting the commodity is likely to offer a comparative advantage to other countries in the global market.

            The research conducted by Clardia and Findlay (1992) focused on determining how a country can position itself to benefit from comparative advantage. The research analyzed how a country that deals in the production of wheat and has advanced forms of technology can determine which commodity will be most profitable in the international market. The authors suggest that a country first starts by identifying which of the two commodities will incur the lowest cost to produce and which are in high demand (Clardia & Findlay, 1992). If, for example, other countries in the international market are in need of wheat, then the country that has both wheat and technology is likely to benefit more from exporting wheat. Since it has the raw materials and the technology needed to produce wheat, the comparative advantage is likely to be achieved from the export of wheat.

            The study draws the conclusion that a country that desires a commodity from another country is more likely to import it from there rather than producing it on its own. Even if the exportation of wheat is likely to give one country a comparative advantage, other countries are likely to import the wheat from the said country because importing is cheaper that producing it on their own. The country that exports the wheat must therefore utilize its ability to produce wheat at a lower cost as well as its technology to ensure that its economy, infrastructure and other factors that ensure the steady supply of wheat to other countries. The country must therefore focus on the exportation of wheat as it is likely to benefit from the sale in international market. In relation to absolute cost advantage, the authors argue that the country exporting wheat is likely to do so at a lower cost and produce more wheat for sale in the international market because it has the technology, infrastructure and economy suitable for exporting the wheat.

            In conclusion, Clardia & Findlay (1992) suggested that governments should invest in a country’s economy and infrastructure to ensure that it is in a position to benefit from international trade. The country must first identify products that it can produce with ease and at the lowest cost so as to have an absolute cost advantage. If well produced, the products can be sold in the international market at a comparative cost. Since the products are produced cheaply, they can be manufactured in more quantity and sold at relatively lower prices than those set by the competitors. This will ensure that the country maintains a competitive advantage and still retails its comparative advantage.

References

Aahana S, (2018) “Adam Smith’s theory of absolute cost advantage” retrieved from,             http://www.economicsdiscussion.net/theory-of-absolute-cost/adam-smiths-theory-of-        absolute-cost-advantage-economics/30675

Clarida H and Findlay R, “Government, trade and comperative advantage” The American             Economic Review”

Seth T, (2018) “Theory of comparative costs” retrieved from,             http://www.economicsdiscussion.net/theories/theory-of-comparative-costs-with-six-            criticism/1916

The Dynamic Environment of International Trade. Chapter 2

Q1.

General Agreement on Tariffs and Trade (GATT) - this is an agreement or intergovernmental tariff negotiation that was signed by 23 countries to reduce tariffs, eliminate trade barriers and liberalize trade.

Voluntary export restrains- this is a trade agreement between countries on the quantity of goods that should be imported and exported.

Portfolio investment- this can be referred to as the movement of money and assets or investing abroad for financial gain.

 Protectionism- the act of protecting local business from foreign competition and protecting the infant industry, home markets, support capital accumulation, conserve natural resources and maintain employment (Cateora, 2016).

Q3.

 The balance of payments can be defined as a statistical record that contains a country's international transactions in a particular period. The statistical record follows the rule of Double-Entry and contains all the exports and exports records, and these records should show a balance of total credits and total debits.  Under the Balance of Payments, there is a current account- it records and balances the sales of goods, services, and unilateral transfers. In other words, the current-account concentrates on the movement of visible products, invisible services, and the unilateral transfers. Given that the balance of payment deals with the international financial transactions,  a balance of trade is a component of the balance of payments as it refers to the difference between the value of are produced and imported and goods that are bought from abroad or the imported goods.

 Q8. 

 The balance of payments records all the economic transactions in a double-entry book-keeping.  The latter has two sides of transactions that is; credits (external purchasing such as sales of services, gifts from foreign governments, repayments of loans and more) and debits ( purchasing services, lending to foreigners, repaying capital and more). The balance of payments balances because one side records the sources of foreign purchasing power whereas the other records the uses of the foreign purchasing power (Mukherjee, 2012).  In other words, there must be a balance between the current account and the offsetting transaction.  On the hand, the balance of trade cannot balance since there is always a difference between the exports and imports or one may exceed the other.

Q18.

 It is true that there is a difference in the import duties and according to this chapter, I understand that the difference are imposed by the government to import desirable goods and discouraging the importation of desirable goods. Note that the U.S pays a varying amount of these products concerning their value, composition, and quantity. Also, customs officials use the valuation system only because the products have different prices from manufacturing, delivery, and sales. This kind of tax is also known as Ad valorem which means ‘according to value’ (Beatty, 2012).   Ad valorem explain the difference in import duties since the tax is imposed to the value of the product.

References

Beatty, J. F. (2012). Essentials of business law. Mason, OH: South-Western Cengage Learning.

Cateora, P. R., Gilly, M. C., Graham, J. L., & Money, R. B. (2016). International marketing. New York, NY:

McGraw-Hill Education.

Mukherjee Sampat. (2002). Economics for C.A. Professional Education Course 1. New Age International

Economics for C.A. Professional Education Course 1

U.S. trade deficit  

The article highlights that trade deficit for United States increased in the month of February to almost a high of 9 ½  over last year  as record for both imports and exports set a new high record.  The gap of 1.6 % was shows the highest rise since Oct 2008 and was a continuation of a six month increase (CBNC News, 2018).  This also surpassed the forecast by economist, which had expected the gap to widen by $ 56.8 billion in the same month instead of $ 57.6 billion.  Part of the increase in this deficit was an indication of a rise in commodity prices (CBNC News, 2018).  Trade deficit has a big role to play in global markets especially in relation to emerging markets and economies that are export-driven.

Persistence in trade deficit presents some risks related to a reduction in purchasing power in the global economies, which also comprises of greater political risks.  The latter can be associated with a narrow trade surplus. The trade balance has an impact on the exchange rates of currencies since it affects demand and supply. The American dollar may become less attractive to buyers in countries that a firm wants to export to and this can greatly influence the export to that country (Argy, 2013). Any appreciation of the dollar would means the country targeted for export may be fewer dollars since the products exported are quite expensive.  The large trade deficit may indicate lack of competitiveness. The deficit figure can be reduced through policies related to supplies which can aim at improving productivity and the competitiveness of a given economy (Argy, 2013). This would the exports to increase as they become more attractive.

Reference

CBNC News, (2018).US trade deficit rises to near 9½-year high. Retrieved from: https://www.cnbc.com/2018/04/05/us-trade-deficit-rises.html

Argy, V. (2013). International macroeconomics: theory and policy. Routledge. 231-34

 Introduction

            Freedom of trade is a policy that is found in some countries and in which countries’ government does not restrict imports and exports to and from other countries. Some countries that has exemplified free market include, Mercousur and European Economic Area. Most nations have turned to be members of the World Trade Organization polygonal trade treaty.  But on the other hand some government still levies some protection strategies that are proposed to give support to local employment such as applying pricelists to import, or subventions to export. The government might also restrict free trade to border transfers of natural resources.

            Some copious politicians have urged that trade disagreement at times, bring harm to the their government as they favor the well-being of business over workers and this is both to America and to underprivileged exchange centers (Dunn& Bill, 45). These arguments are forcing Americans to contest against despairing low income labor everywhere in the world. And this results to too many people losing jobs in America, and at the same time business and factories are closed.

            Increased trade brings higher income and make the productivity growth stronger over time. This also improves access to outside markets, while the superior diversity of choices and lower charge trade, makes the households budget to go further for the benefit of families (Duncan, 98). Although benefits of this treaties are not evenly distributed, some people may be negatively affected , the economists claims that economy wide benefits, coming from improved trade will provide  resources that will make important social goals to progress, and will also help  those who are adversary affected.

            Freedom of trade is important to any reasonable beginning of justice. It increases global and national wealth and also assists the poor. Ethically those who benefit from isolationist law do not deserve to be offered the beneficiaries of wealth relocation. Both evidence and economic theory adequately imply the truth that trade is valuable. Protectionism by countries that have developed is harmful and this is not only to consumer countries, but also to the producers. Given the fact that protectionism seems to be almost the reason as to why radical burden by incompetent producers, have no reason to protect it. Protection by developed countries is equally harmful. Relying on the institution literature, articles demonstrates that protectionism a contributing factor for economic inaction, to those countries (Mishra, Manjushree, 34).

            Trade volumes are many and has increased steeply in recent years and this is to both complete terms and relative to national Income and this is making trade to grow in importance.  The standard textbook settles a simple contrast that governs the debate. The policy of trade is offered as if it involved straight forward choice between frankness and closure (Duncan, 78). Other study showed that even followers recognize that conventional free trade brings much benefit.

            Free trade has made it easier to get resources to developing countries and also utilization for limited resources has become easier and this has made it possible to stimulate financial and social development. Through free trade small countries are able to cooperate with developed countries and they are able to participate on the discussion of the available resources to growth of economy and development  through mobilization of assets and labor  and this is going to improve the country’ budget ( Dunn & Bill,56).

            Also free trade offers chances of accessing resources like capital to small developing countries from those that have already developed (Mishra &Manjushree, 67). This capital enable them to accomplish financial development, exploit what they already have with it. Therefore entree to economic resources by developing countries have made their financial status to grow and also have assisted in consecutive development.

Conclusion

            From the above we can conclude that free trade has been the key factor for developing countries. And for example China is one of the countries that have benefited out of this. It has attracted investors in their country and also it is investing to small countries and this is enhancing its development. Free trade have been accredited by negative impacts on small countries that are still developing, but the optimistic effects exceeds the undesirable ones thus making developments in small countries.

Work cited

Dunn, Bill. Neither Free Trade nor Protection: A Critical Political Economy of Trade Theory and             Cameron

 Duncan. The Free Trade Papers. Toronto: J. Lorimar, 1986. Print Practice. , 2015. Internet          resource.

Mishra, Manjushree. Freedom of Trade and Commerce and Taxation in India. New Delhi: Mittal             Publications, 1999. Print.

Trade barrier

The United States has implemented trade tarrifs using different percentage of duties for goods being imported from other countries.  Tariffs are aimed at restricting trade by increasing the price of goods which makes them more expensive to local consumers, therefore, acting as barriers to trade (Baldwin, 2016).  Vietnam is one of the countries that encounter the highest duties to import goods into United States at an average rate of 7.5 percent as per 2015.  This has made it difficult for Vietnam to export goods such as clothing manufactured local at competitive prices, considering that countries such as Mexico would import the same products without pay such duties (Fahey, 2016).

 While on average, imported goods face 2 percent in form of U.S tariffs, the apparel and textile products are subjected to an 11.1 percent rate.  With its large textile industry , the barriers denies Vietnam an opportunity to expand its textile  and apparel market reach which in turn hinders economic growth and especially in this industry. In comparison, US exports to Vietnam continue to expand which has lead to a wide trade deficit between the two countries which stood at above $31 billion in 2016.  This indicates a lost economic opportunity for Vietnam informed by the tariffs (United States Census, 2017).

 The removal of barriers by developed countries would lead to access of markets by developing countries and this would boost industrial and economic development (Hayakawa & Kimura, 2016). The economic effect would be felt in the economies if the developing countries would enter into preferential trade and make them binding (Baldwin, 2016).  Liberalization of the developed economies would give countries like Vietnam to develop their manufacturing industries, improve trade and hence, economic growth.

References

Hayakawa, K., Ito, T., & Kimura, F. (2016). Trade Creation Effects of Regional Trade Agreements: Tariff Reduction versus Non‐tariff Barrier Removal. Review of Development Economics, 20(1), 317-326.

Baldwin, R. (2016). The World Trade Organization and the future of multilateralism. The Journal of Economic Perspectives, 30(1), 95-115.

United States Census ,(2017).Trade in Goods with Vietnam. Retrieved from: https://www.census.gov/foreign-trade/balance/c5520.html

International Trade and Investment

The World Trade Organization (WTO), is an international organization which unites different countries, thus making them to easily conduct trade exchanges (Journeyman Pictures, 2007). The organization was formed after the Second World War, in the year 1995, in order to cater for the aftermath of the Second World War. The organization’s main aim was to unite both developed and developing countries, thus making them to be able to easily do trade transactions with each other without any problems whatsoever. After its foundation, the organization became successful, with 32 members joining the organization. During this period, most developed countries were the only one’s which had joined the organization. A few years later, after understanding the way the organization operates, most developing and developed countries joined the organization, making the total number of member countries to be 123.

The organization acts as a neutral party between two trading countries, hence its policies are used when trading. The agreement between the two countries is therefore signed by both countries, and kept by the organization. The organization consequently protects the violation of the contract by either of the two countries which signed the contract. In this case, WTO acts as a party which is ready to deal with any disputes which might arise between the two parties, in case of any misunderstandings by both countries (Journeyman Pictures, 2007). Moreover, the organization has been able to bring together both developed and developing countries, thus making them to trade amongst themselves. In addition, the member countries have been able to trade with each other, based on the commodities which the countries have. This has consequently allowed the organization to balance the exchange of goods and commodities between the member countries.

The organization’s policies, are not set by the organization, but by all member countries. This means that, all member countries should agree through a consensus, before a bill is implemented. All member countries are consequently respected and treated equally by the organization, thus allowing each and every country to have a say on the implementation of each and every bill presented before the organization. All member countries have benefitted equally from the organization, since they have been able to easily trade with each other, thus create economic balance in the world (Journeyman Pictures, 2007). After the Second World War, the US was the richest country in the world. This has however changed, after the formation of WTO which has been able to control the flow of trade between its member countries, thus making other countries to also become rich.

On the other hand, WTO solves disputes between its member countries. Disputes are solved using three types of approaches, these approaches include the following, consultation between both parties, establishment of a panel through the approval of all member countries, and through the appellate body. When a matter is forwarded to the organization by one of the parties involved in a contract, the organization allows both of the conflicting countries to reach an agreement through consultations (World Trade Organization, 2007). If a consultation is not successful, then a panel, through the approval of all member countries will be formed, after which the party will listen to both parties and reach an agreement. If one of the parties is not satisfied, then it can challenge the panel’s decision through the appellate body. The appellate body is the final body, which deals with the disputes, and it consequently listens to both parties before making a final decision.

Reference

Journeyman Pictures. (2007).  World Trade Organization. Retrieved from: https://www.youtube.com/watch?v=1Xp75Egtvi8&list=PL104B89261AEF0C68

World Trade Organization. (2007). A Virtual Tour of the WTO. Retrieved from: https://www.youtube.com/watch?v=-ACWHSQxqMc

                                                TRADE DEFICIT

Introduction

In economics, trade deficit or trade gap refers to an economic measuring of the negative or unfavorable balance of trade in which the imports of a country exceeds its exports (Pettis 29). This then means it typically symbolizes the outflow of a country’s domestic currency to the overseas markets. A deficit basically the amount by which a country’s resources falls short of a mark, mostly used for the purpose of describing the differences between inflow and outflow of cash. Since deficit is the opposite of surplus, it is equal to loss or shortfall (Kelly & Williams 44). Therefore, this is to say that in case a country does not have the capacity of producing all it needs, a trade deficit occurs. It should be noted that as a result of that, the majority of nations end up borrowing from other foreign states so as to pay for the imports (Frumkin 21). Consequently, a country with trade deficit will obviously have current account deficit.

On the other hand, trade deficit also occurs whenever domestic companies decide to carry out its day-to-day manufacturing in foreign countries. For instance, when there is the continuous shipment of shipment of raw materials to foreign factories, this is accounted as exports. And in the process of shipping finished goods back home, they are accounted as imports.  This remains to be the case in even if they were manufactured by domestic companies. These imports will ultimately be deducted from gross domestic product of the country in this context. Regardless of the fact that the earning obtained has the potential of benefiting the stock price of the company, taxes will increase (Frumkin 21).

In connection to that, net exports, or commercial balance, or balance of trade it termed as the difference between the monetary value of the exports and imports of a country over a specified period of time. At times, a clear distinction ought to be made between the balance of trade for services and goods. For example, in case a country ends up exporting greater volumes of its goods as compared to the amount it imports, it becomes a positive balance, trade surplus, or favorable balance of trade and vice versa (Pettis 30). Normally, trade deficit unlike trade surplus is perceived as negative economic indicator. Despite of that, in some exceptional circumstances, trade gap is as a result of government forex policy which is aimed at achieving other microeconomic goals

How the trade deficit is measured and obtained

As stated above, trade balance or balance of trade (BOT) is as a measure of the exports of a country minus its imports. Trade balance remains to be the main component of the balance of payment (BOP) of a country (Wu & Zeng 8). The reason for that is computed for a specified period of time, particularly quarterly or yearly.

On the other hand, imports and exports are the main components which are used to measure trade deficit. In the process of measuring or computing trade deficit, what is taken into consideration is the value of exports and imports that a country encountered during a stipulated period. Therefore, when imports are relatively more as compared to exports, the negative value obtained indicates the existence of trade deficit (Kelly & Williams 43)

                        Trade deficit = exports - imports

Significance of measuring trade deficit

In the modern business world, balance of trade (BOT) is normally used by economists and analysts for the purpose of assessing and understanding the economic strength of a country other foreign trading partners (Wu & Zeng 8). For instance, a country with large value of the trade deficit indicates it is fundamentally borrowing money to cater for the purchasing of goods and services, whereas the one with large trade surplus indicates that it is intensively lending finances to deficit nations (Mankiw 698). Conversely, calculating trade deficits assists in displaying the manner in which trade balance of a particular country correlates with its political stability. The reason for that is because it is a true indicator of the level of investment which is done by potential foreign investors in it.

Despite the fact that countries use different techniques to calculate balance of trade (BOT), the main objective of computing trade deficit is to evaluate the economy of a country is changing (Mankiw 418). Since trade deficit remains to be a reflection of a nation’s balance of trade (BOT) which is also part of the balance of payment, it means that that it assists potential investors in accessing the effectiveness of the financial account, capital account, and the current account of the country (Glantz & Robert 230). The reason for that is because it assists in evaluating the inflow and outflow of cash. Due to the fact that is comprises of those financial statements, it reflects the services, income receipts, and merchandise trade which is transferred for foreign aid.

Measuring trade deficit is essential in evaluating the value of a country’s gross domestic product (GDP). For example, mostly GDP increase whenever the total value of merchandise and services which are domestically produced and sold to foreign markets exceeds the total value of the overseas merchandise and services which is bought by domestic consumers (Wu & Zeng 8). Contrary to that, in case domestic consumers end up spending more on overseas goods and services as compared to what they spend on domestically produced goods and services, there a decrease in GDP. This indicates that;

            Gross domestic product (GDP) = government expenditure + private expenditure +                                                                               investments + (exports-imports)

In connection o that, the fact is that some economic subjects have ended up causing extensive confusion about the effectiveness of balance of trade with respect to the applicability of the trade deficit. The reason for that is the general explanation regarding the net trade of a country in its final goods if not services (Glantz & Robert 230). Despite that, as much as the rates of exchange are perceived as being free-floating, in the long-run trade balances never exist in the real sense. Even though it does, the truth is that there is little evidence which makes economics and analysts to believe that a country will ultimately have a negative impact (Mankiw 698). This means that even if the overall GDP falls by millions of dollars, the implication is that the economy of a country may not that worse i.e. it could have actually benefited from the net exchange. For instance, in case county A sold cars to country B, the gross domestic product (GDP) of country A will be measuring the dollar value of the finished goods or services in its economy. This will be measurable in terms of what was spent by the consumers (Wu & Zeng 8). The implication here is that, measuring the trade deficit of country A will effectively indicate how efficient country A manages its production activities for the sake of meeting the demands of international market. This in return will aid in evaluating whether the standard of living in that country is rising or effectiveness of investing the productive capital.

Nevertheless, it should be noted that trade deficit is not basically a sign of economic weakness as it is sometimes reported. This is to say that it is not a sign of economic retardation of a county. The significance of the increase in the trade deficit as well as imports is a clear indication of the retardation of a country’s GDP. This is depended on the manner in which that GDP was computed but not necessarily an economic drag or economic growth. Likewise, although economists and analyst may fail to acknowledge that, the truth is that trade deficit assists in reporting the financial investment surpluses or inflows which might have slipped-side of the report given regarding foreign exchange rates (Free 429).  This then means that the failure of recognizing some of the crucial or positive economic returns of a country’s economic benefits from the overseas capital inflows result to a poor enumeration of the value of imports and exports hence the need of measuring trade deficit (Mankiw 698).

In theory, trade deficits assist in indicating that the rising gap (deficit gap) between exports and imports has the potential of hindering economic growth, job creation, manufacturing output, and stock market appreciation. Contrary to that, the truth is that the existing evidence ends up pointing in the opposite direction. This then means that misguided efforts which entail supporting such ideas of restricting imports in order to cure the trade gap might cause extra harm rather than the good to the country’s economy (Kelly & Williams 44). Is should be acknowledged that ForEx rate or foreign exchange rate has been perceived as being the ultimate means of determining the relative level of a country’s economic health. The reason for that is because various researches have shown that foreign exchange rate offers the opportunity of enhancing economic stability of a country (Wankel 102). That is the reason as to why trade deficit also needs to be watched and analyzed if realistic result ought to be obtained. Other than depending on the foreign exchange rates, first there is the need of keeping track of the inflows and outflows of cash in the process of embarking in foreign trade. Since foreign exchange keeps on fluctuating as a result of the changing foreign market forces of demand and supply of currencies amongst countries, it is equally essential to have a clear picture of what mainly determines or result to trade deficit hence the need of computing trade deficit (Wankel 102).

Factors influence the value of the variables

As stated above, the main variables which are used for measuring trade deficit of a county or countries are exports and imports. Therefore, the main factors which influence the value of these variables include;

 Trade barriers _ the extent to which the government erects or removes trade barriers has a remarkable impact on both importation and exportation (James et al 8). For instance, the decision made the US to make its markets to be open to any foreign country after World War II greatly enabled Japan to extensively build up its economic base of exporting large volumes of its finished goods to the United States.

 Elasticity of demand and supply _ normally, the elasticity of demand for both imports or exports of any country have the capacity of influencing its terms of trade. For example, in case the demand for the exports of a country is less elastic unlike its imports, the end result is that its terms of trade will have the likelihood of becoming favorable (Mukherjee 883). This is due to the fact that such imports will end up commanding higher prices in the foreign markets, unlike imports. Conversely, in case the demand for its imports becomes less elastic unlike exports, the country will have unfavorable terms of trade (Prati 46)

On the other hand, the nature of the elasticity of supply considerably impacts the terms of trade of a country. For instance, in case the general supply of the exports of a country is perceived as being more elastic as compared to imports, the country will be having favorable terms of trade and vice versa.

Nature of the goods and the economic development of a country _ in case a country embark on the production and exportation of only primary goods, and in return imports finished goods, it will obviously have unfavorable terms of trade (Kennedy 59). Likewise, the economic growth of a country has two effects i.e. the demand effects and supply effects. The demand impact refers to the general increase in the demand for its imports due to the increase in consumers’ incomes as a result of economic development (Javier et al 127). Equally, supply effects illustrate the increase in the supply of import substitutes. In return, it means that the overall effect of the economic growth relies on the extent of these effects (Arestis et al 4).

 Exchange rates and tariff policy _ the terms of trade of a country is greatly affected by the country’s exchange rates. For example, in case the currency of a certain country appreciates, it’s obvious that there will be an improvement of its terms of trade (Jesper & David 19). This is due to the fact that a rise its currency value will have the ability of increasing the prices of its exports as well as decreasing that of the imports. Similarly, quotas and tariffs influences its terms of trade. It should be noted that if these measures are not retaliated by other trading partners, it will end up restricting imports from them (Mankiw 304)

The size of a country _ in case a country is overpopulated; it will be experiencing an increase in demand for imports. The effect of this is that it will make its terms of trade to be unfavorable as compared to optimally populated countries. Equally, a relatively populated country will have the opportunity of reaping the gains of the economies of scale which are enjoyed by bigger ones in the foreign trade (Goldstein 2). This is also in line with the idea that in case such a country enjoys monopoly power when it comes to exportation as well as the existence of several alternative sources of supplying its imports, it will continue to have favorable terms of trade (Branch 5).     

Terms of trade _ it should be noted that the terms of trade refers to the ration of export prices to that of import prices. The terms of trade of a country has the potential of improving in case the prices of its exports rise at a greater rate as compared to the prices of its imports (Branch 5). In return, the country will be reaping higher revenues which in will extensively cause a rise in demand for its currency as well as an increase in the value of its currency. The end result is the appreciation of the exchange rate (Kennedy 59).

 Balance of payments (BOP) _ the current accounts of a country are essential in that they assist in reflecting the balance of trade as well as earnings on international investment. This usually comprises of the total number of the transaction carried out including imports, exports, debts, and so on. An increase in deficit as a result of excessive expenditure on importations as compared to revenues gained through exportation causes depreciation (Kelly & Williams 4).  In return, this means that BOP will enhance the fluctuation of the exchange rate of the country’s domestic currency (Wankel 102).

 Inflation and interest rates ­_ the changes in the global market inflation results to the change in the currency exchange rates. Therefore, a country with lower rates of inflation as compared to others will definitely experience a rise in the value of its currency. In return, the prices of the goods and services of such a country will be increasing at a relatively slower rate. On the other hand, this is to imply that such a country with constantly lower inflation rates will typically make its currency to be traded at a higher value.

Equally, interest rates have the potential of affecting the currency value as well as the dollar exchange rate of a country. Thus, inflation, interest rates, and Forex rates are all correlated. As a result of that, a continuous increase in a country’s interest rates causes the appreciation of it currency because it offers relativelly higher rates to lenders. This, therefore, attracts more and more foreign capital hence increasing the exchange rates in return (Reinert et al 713)

Political performance and stability _ the political state and the economic performance of a country may impact the strength of its currency. For instance, a country which experiences less risks of political turmoil is perceived as being more attractive to foreign potential investors. This gives it the opportunity of drawing foreign investments from those countries which experiences more economic and political instability (Jahan & Mohammad 97). In turn, an increase in overseas capital results to the appreciation of the domestic currency.

 In other words, a country which has sound trade and financial policy does not allow uncertainties in the value of its domestic currency as compared to the one which is susceptible to political and economic confusion (Gerard 266). This illustrates that the one which experiences more political and economic instability will experience depreciation in its exchange rates hence inducing trade deficit it in its current accounts regarding imports and exports (Free 429).

Recession and speculation _ interest rates of a country sometimes have the likelihood of falling whenever it experiences recession and other forms of economic speculations. This has the effect of deteriorating its chances of acquiring foreign capital for investments (Howard 139). In return, this has the effect of weakening its currency as compared to that of the trading partners hence decreasing the rates of exchange (Tragakes 405). Moreover, in case the value of a country’s currency is expected to rise, potential investors will obviously demand more of such a currency so as to make more gains in future. This will result to an increase in its exchange rates as well (Reinert et al 713)

Government debt _ national debt is the debt which is owned by the central government (James et al 8). This then means that a country which has higher government debt has a lower opportunity of acquiring foreign capital for investing in various sectors of the economy hence leading to inflation. This will induce a decline in the value of the exchange rates (Yenko 8)

With respect to the above factors, in case the overall value of the exports is positive, the gross domestic product of a country increases. On the other, in case it is negative it makes the gross domestic product to decrease. Therefore any of the above factors which make a country to incur more importation costs than what it gains from its exports result makes such a country to have trade deficit. Moreover, all the international transactions carried out by a country are recorded in form of debits and credits in the BOT (Wu & Zeng 8).  Credits are international transactions which increases the inflow of money into a country while debits are those one which causes the outflow of money from the country.

Naturally, every individual nation desires its gross domestic product to rise hence the need of trying to ensure that the value of their net export is always positive. Contrary to that, the truth is that it is not easy for all countries to maintain a positive net of exports. The reason for that is because one or more countries should have the capacity of importing more as compared to what they export in case the others manage to export more than what they import (Wankel 102). Thus, the balance of foreign international payments, generally termed as the balance of payment (BOT) indicates the net accounting of a country’s foreign economic activities (Kelly & Williams 44) In order to arrive at the trade deficit, BOT must be prepared so as to assist in summarizing all the transactions that a country did between another one and the rest of the world, particularly quarterly or yearly.

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