National Defense Argument

National Defense argument is the Trade Restriction argument which says that trade with certain buyers for certain goods should not be carried out. This is because the buyer cannot be trusted and may use what they buy for reasons other than originally stated. This may lead to a situation where the selling country’s defense and/or internal stability are threatened. An example is the restriction against selling machinery for refining Uranium as the refined Uranium can be used to make nuclear warheads.
2>Declining Industry Argument
The Declining Industry Argument is the argument that once foreign made imported goods are allowed into the domestic market under free trade, the supply of goods will far exceed their demand, which will lead to fall in prices, the extent of fall depending upon the elasticity of the particular item. Domestic industries will not be able to offer their products at prices competitive enough because of relatively expensive labor, intellectual capital costs, etc. This will therefore result in the domestic industries closing down or diversifying, or in other words, a decline of industrial growth in that particular segment. The flooding of the domestic inexpensive, unbranded toys market by dirt cheap toys from China is an example of the Declining Industry argument.
3>Infant Industry Argument
The Infant Industry Argument argues that a start-up industry cannot compete with established outside competitors, similar to an infant being unable to compete with an adult. The established industries have so designed their operations to get the maximum benefit from the economics of scale; the operations are the most efficient as regards the conditions in the place of manufacture, etc. To compete against these established industries, the new start-up industries require some time during which they tune up their operations. Therefore, for a pre-decided initial period, these industries need to be protected (high import duties, tax concessions to the startup, etc.). Indian Industries used to be protected before the Indian economy was made open. This protection used to be in the form of a five year tax holiday.
Question 10:
Pro trade protection arguments suffer overall from fallacies in logic. The main points in favor of free trade are as follows:
* Jobs may be lost by cheaper imports but at the same time, the import procedures and process create much more jobs than the lost jobs. These created jobs are in fields such as transportation, wholesale, retail, construction, and finance, and in a myriad of other activities. The imported goods first have to be transported, stored, converted, distributed, wholesale purchase and finally retail sale purchase for use of the US Consumer.
* Countries should import goods where they have leading comparative advantages and not basic advantage. The time and money spent on producing goods with a basic advantage, if spent upon producing goods with a comparative advantage, will result in more production of the latter, more exports and more foreign exchange.
* Protectionism gives consumers no choices and inefficient products. Without competition, firms are content making old technology items thereby increasing technology gaps. Also, Innovation and creativity in manufacturing are frequent in the face of competitor pressure.
The only scenario where protectionism may be justified is in voluntary embargoes against rogue nations, generally enforced by a group of democratic nations. However, this is open to debate since it has been seen that nations turn rogue on capture of power by dictators. Dictators are concerned with only their wellbeing and not the people’s wellbeing. An example of rogue protectionism is the ‘trade sanctions’ placed by the UNSC against Iraq after its invasion of Kuwait on, from 1990 to 2003.
Chapter 18:
1a) Merchandise Trade Balance = Total Exports- Total Imports
= $350 – $2425 = (-)$2,075 billion
The Merchandise Trade Balance is $2,075.00 Billion of Imports.
b) Balance of Goods & Services is the Merchandise Trade Balance with services values also considered
= ($350 + $2,145)-($ 2,425+$170) = (-) $ 100 billion
Balance of Goods and Services is $100 billion imports.
(c ) Balance on current account = Balance of Goods & Services + net Income and transfers
= (-$100) + $221.5 = $121.50 billion
(d) Financial account balance = Change in Foreign Ownership of US Assets – Change in US Ownership of Foreign Assets
= $100-$245
=(-) $145 Billion
Hence the US has more claims then liabilities in the world.
(e ) Statistical discrepancy = Balance on Current Account – Financial Account Balance
= 121.5-(-145) = 266.5 Billion
2. a. A Hong Kong financier buys some U.S. corporate stock
Credit Account (Cr): Change in Foreign Owned Assets in US
Debit Account(Dr): Net Income and Net Transfers
b. A U.S. tourist in Paris buys some perfume to take home
Cr: Net Income and Net Transfers
Dr: Merchandise Imports
c. A Japanese company sells machinery to a pineapple company in Hawaii
Cr: Net Income and Net Transfers
Dr: Merchandise Imports
d. U.S. farmers gave food to starving children in Ethiopia
Not applicable as this is not a trade.
e. The U.S. treasury sells a bond to a Saudi Arabian prince
Cr: Change in Foreign Owned Assets in US
Dr: Net Income and Net Transfers
f. A U.S. tourist flies to France on Air France
Cr: Net Income and Net Transfers
Dr: Service Imports
g. A U.S. company sells insurance to a foreign firm
Cr: Export of Services
Dr: Net Income and Net Transfers

 
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