International Trade and Protectionism

International Trade and Protectionism Questions

Both Proton and Government Fuel Subsidy Programs started in 1983.

“We cannot give up every protection we have for our industries. At the same time also, we need to find markets for our products. To ask us to compete with fully developed countries, that is a task that is almost impossible.” “All we are looking for, whether we have free-trade agreements or not, is (to be able) to protect our own market and our industries for a little longer,” added Dr Mahathir, who ruled Malaysia for 23 years from 1981 to 2003.

See more at: http://www.themalaymailonline.com/money/article/dr-m-malaysia-not-ready-for-big-boys-still-needs-trade-barriers#sthash.2rksf7Aq.dpuf

According to Prime Minister Datuk Seri Najib Razak, “There is no other country in the world which allocates RM45 billion for development expenditure and provides subsidies at the same time. Malaysia cannot afford to keep on giving subsidies to the public, hence we are reducing the country’s burden in stages,” –

See more at: http://www.themalaysianinsider.com/malaysia/article/amidst-rising-prices-najib-defends-subsidy-cuts#sthash.Wo0sjhVB.dpuf

You are required to analyze the above statements and write a report (minimum 1,000 words and not more than 1,500 words) on

1. Free Trade, is it good for Malaysia (i.e. automotive industry)?
2. Fuel subsidy, should it be terminated once and for all?

International Trade and Protectionism Answers:

Question 1: Is free trade good for Malaysia’s Automotive industry?

Free trade definition

Free trade can be define as unhindered buy and auction of properties and facilities between nations without the imposition of restrictions such as rates, obligations and quotas. Free trade is a win-win suggestion because it allows countries to concentrate on their key competitive advantages on financial productivity and nurturing revenue development for their people.

Advantages / Benefits of Free Trade

1. Increase world output

World output rises through specialism and business. This was clarified in the earlier section on relative benefit and how a person nation’s productivity rises.

2. Varieties of goods and services

There are diversities of properties and facilities accessible for ingesting by customers of a nation. Customers can delight in some of the properties which cannot be manufactured in their nation due to topographical. For example, Malaysia cannot create apples and grapes.

3. Relationship between trading partners

The association between interchange colleagues can be enhanced, for example, through business carnivals, financial collaboration (ASEAN, EU) and ethnic interchanges.

4. Higher income and economic growth

Global business can produce more revenue and this can also rise the normal of livelihood of a nation. If more properties are traded, the revenue produced from trades can lead to the financial development of that specific nation.

5. Sharing of knowledge

Through global business, there will also be a distribution of wisdom, info and machinery by nations. For example, if Malaysia bringing in new machinery based technology from Japan, then both nations can distribute the machinery.

Drawbacks of Free Trade on overall economy and environment

1. Depletion of country’s reserves

A nation will major in the manufacture of properties over which it has a relative benefit.

However, nonstop exports of uncooked supplies can exhaust the funds in the lengthy run. For example, car exports from Malaysia will exhaust funds of there are too many exports.

2. Economics and political dependence

International trade may bring economics and party-political dependency between nations. This will be calamitous especially when the party-political affiliation between the interchange cohorts deteriorates.

3. Transportation costs

The supposition global business brings a superior upsurge in world productivity, most nations have business limitations to defend domestic merchandises from overseas rivalry. The following are some of the quarrels for isolationism or dealer limitations.

Protectionism definition

Regime movements and strategies that constrain global business, often done with the intention of defending domestic industries and occupations from overseas rivalry. Usual methods of trade barriers are bringing in rates, quotas, subventions or levy slices to domestic industries and direct state interference.

Arguments definition

Arguments is define as an exchange of diverging or opposite views of protectionism .There is 5 arguments that can be describe in the following:

5 reasons for protectionism arguments:

1. National security argument

This quarrel is based on the supposition that a nation should be autonomous in definite businesses such as manufacture of car. Manufacture of carmaker should be created by the nation itself and they should not be reliant on other nations for such properties

2. Infant industry argument

This quarrel is based on the supposition that toddler or new businesses should be sheltered from proven overseas rivals until such time they have industrialized enough effectiveness and thrifts of gauge for them to vie on an equivalent foundation. For example, Malaysia needs to develop the local car business, Proton, and in order to defend Proton, Malaysia has to inflict high fares or importation quotas on overseas made cars.

3. Anti-dumping argument

Dumping is the auction of properties overseas at an inferior price or under the value indicted in the indigenous marketplace. Therefore, discarding is a biased business rehearsal since it detriments local manufacturers of the substitute properties. For example, if Thailand vends its car at a inferior value than Malaysia, this will be referred to as discarding car in Malaysia. This will deteriorate the condition for car manufacturers in Malaysia

4. Domestic employment argument

If domestic manufacturers cannot vie with overseas rivals, then many local manufacturers will sabbatical the business. This will lead to joblessness. To evade high joblessness, the nation wants to rehearsal protectionism and defend local occupation by falling importations but growing exportations.

5. Low foreign wage argument

Nations need to inflict business limits because pays in one nation can be upper than those in another nation. This overwhelms the peril of inexpensive work. For example, the pays in Malaysia are upper than those in Indonesia, resultant in many Indonesians individually transferring to Malaysia, This can lead to joblessness for Malaysians if the entrance is not controlled.

Advantages or benefits of Protectionism to the overall economy, people, and producers

The advantages or benefits of protectionism to the overall economy are:

• Higher government revenue – unlike quotas, which benefit the importer or exporting country, revenues from tariffs are collected by the government of the importing country.

The advantages or benefits of protectionism to the people are:

• Reduced foreign exchange outlays- that is tariffs reduce demand of imports as the price differential make imported automobiles unaffordable for many people;

The advantages or benefits of protectionism to the producers are:

• Protection of the domestic automotive industry in such a way that local producers on national cars earn higher profits due to their higher prices and increase in production;

Drawbacks of such protectionism policies:

From my analysis, the disadvantages of protectionism policies are:

1. Higher Prices, Less Selection

Trade barriers limits rivalry by limiting the obtainability of overseas properties, coercing customers to purchase more costly local merchandises. The prices of rates and other isolationist blockades are handed on to customers in the form of upper prices for overseas properties. Unrestricted business, in dissimilarity, militaries more rivalry among manufacturers around the world, which lesser values and rises the variety of properties.

2. Slower Economic Growth

Economists contend that trade barriers bounds financial development by limiting the marketplaces in which properties are obtainable. Their carefulness that a nation that limits properties from other nations may discover its merchandises likewise limited, which decelerates development by creating it tougher for businesses to trade their merchandises.

3. Global Tensions

When the regime of one country limits another nations’ bringing in through taxes, bringing in quotas, or other isolationist strategies, the second country may hit back with alike movements contrary to properties from the first nation. Movements to limit business with other countries can grow into a “business combat,” as countries constantly act contrary to each other’s properties. In extreme cases, these strains can increase into equipped battle.

Conclusion for protectionism

In conclusion, lots of nations are against trade barriers because it also affecting economy of a global nation. For evading trade barriers, nations are now going towards unrestricted business contracts.

Question 2: Fuel subsidy, should it be terminated once and for all?

Why government should provide such subsidy?

Reasons

Subvention restructuring in Malaysia was originated in July 2010 by Najib Tun Razak through a discount in subventions for petroleum. The reasons for government should provide fuel subsidy to reinforce regime moneys and enhance financial effectiveness.

Problems

The Malaysian regime consumed RM24.5 billion on subventions in 2009, donating to a big shortfall amounting to 7% of GDP. The regime ventures that will use RM7.82 billion on fuel and sugar subventions the similar year.

Abuses

Malaysia’s wide scheme of subventions connected to abuses of wares. According to Ismail Sabri Yaakob Malaysian fisherman frequently illicitly discard fishing to vend petroleum envisioned for their boats. Other insalubrious rehearses such as unprincipled and sneak in due to too much of petroleum ingesting and wastage.

Financial data

Why government should discontinue such subsidy

Reasons

The reasons for government should discontinue such subsidy which conflicted by Datuk Seri Anwar Ibrahim urged the regime to halt wounding subventions to aid rage the increasing price of livelihood.

Problems

There will be an inflationary stress in the marketplace that affect the lubricant subdivisions such as fuel refinery, indiscriminately and merchandise job and motorized cars, since their indirect taxes of 10%, 20% and 30% will upsurge in acreage and wealth rental for homes.

Abuses

The local job, helpful and consumerism ministry freeze the permits of gasoline station operatives who illicitly sells funded petroleum to every gasoline station for the motorbike and sneak in doings should be eradicated.

Financial Data

Those getting below RM 5,000 per month will accept filled subvention while those getting between RM 5,000 and RM 10,000 will get an incomplete subvention. High revenue collection who gets above RM 10,000 have to wage RM2.58 per litre for RON95 whereas the low revenue collection who gets below RM 10,000 have to wage RM 2.30 per litre.

Critical opinions and Conclusion

For the critical views for deliver petroleum subvention and stop petroleum subvention is regime deliver petroleum subvention allow sneak in 10 percent of petroleum out of Malaysia is equal to an leakage of 660 million rather than stop petroleum subvention.

In conclusion, I did not support on the fuel subsidy because the benefits of fuel subsidy will only lift inflation. They should upsurge smallest salary for all subdivisions, terminate all overseas employee license to lift local occupation.

References:

Vengedasalam, D., & Madhavan, K. (2007). Principles of Economics (1^st ed.). Shah Alam: Oxford Fajar

Bridel, A., & Vis-Dunbar, D. (2013). A Citizens’ Guide To Energy Subsidies In Malaysia. Retrieved 30 June 2014, from http://www.iisd.org/gsi/sites/default/files/ffs_malaysia_czguide.pdf

Adkins. T. (2012). Free Trade Definition | Investopedia. Retrieved 5 July 2014, from http://www.investopedia.com/terms/f/free-trade.asp

Adkins. T. (2009). Protectionism Definition | Investopedia. Retrieved 5 July 2014, from http://www.investopedia.com/terms/p/protectionism.asp

Hall, S. (2014). Pros & Cons of Protectionism | eHow. eHow. Retrieved 5 July 2014, from http://www.ehow.com/about_5106315_pros-cons-protectionism.html

Crompton, .S. (2014). Protectionism. Retrieved 5 July 2014, from http://www.readyratios.com/reference/business/protectionism.html

Gabilaia, T. (2014). proton. Retrieved 5 July 2014, from http://www1.american.edu/ted/proton.htm

Wales, J. (2014). Subsidy reform in Malaysia. Retrieved 5 July 2014, from http://en.wikipedia.org/wiki/Subsidy_reform_in_Malaysia

Subramaniam, P. (2014). Stop subsidy cuts amid worsening inflation, urges Anwar. Retrieved 5 July 2014, from http://www.themalaymailonline.com/malaysia/article/stop-subsidy-cuts-amid-worsening-inflation-urges-anwar

Siang, L. (2014). ‘Scrap diesel subsidy’. Retrieved 5 July 2014, from https://my.news.yahoo.com/scrap-diesel-subsidy-160100736.html

Khoo, N.K. (2014). Stop the waste from fuel subsidies. Free Malaysia Today. Retrieved 5 July 2014, from http://www.freemalaysiatoday.com/category/opinion/comment/2014/06/05/stop-the-waste-from-fuel-subsidies/

Jones, J. (2014). Malaysia moves to stop fuel subsidy abuse – The Nation. Retrieved 29 October 2014, from http://www.nationmultimedia.com/business/Malaysia-moves-to-stop-fuel-subsidy-abuse-30237431.html

Nazreen, M. (2014). Deputy minister mocked for defending Najib over fuel subsidy cut – The Malaysian Insider. Retrieved 30 October 2014, from http://www.themalaysianinsider.com/malaysia/article/deputy-minister-mocked-for-defending-najib-over-fuel-subsidy-cut

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