This is a case study and following discussion conducted during summer at the UIC, a text transcript are copied here.
I wish to began with the two major topic included in the article.
It begins with the trading relationship between the United States and the European Union (EU), discussing the obstacles and benefits of creating a free trade agreement (FTA) between the two, who have the world’s largest trading relationship. This policy has garnered significant support from both regions, with notable supporters including former President Barack Obama. However, two significant events in 2016 cause a period of global political volatility and challenging the status quo and impeded the progress towards a more unified trading system: The Brexit vote, which resulted in the United Kingdom’s unprecedented decision to leave the EU, and the election of Donald Trump as President of the United States, a leader known for his disagreement towards policies promoting free trade and globalization. Negotiations between the U.S. and the EU also faced other obstacles, such as the EU’s restrictions on importing genetically modified crops (GMO) and regulations on cross-border investment and purchasing. Additionally, cultural differences caused friction, with European policymakers arguing that American exports may overwhelm local industries (Green & Keegan, 2020, p.103).
We also discusses the Trans-Pacific Partnership (TPP), a free trade pact signed in 2015. The United States of America. Under then president, Barack Obama, joined the TPP with the aim of increasing American exports and creating jobs. However, there were concerns that the TPP might lead to job losses in the U.S. and that it could be part of an American strategy to counterbalance China’s growing influence in the Asia-Pacific region. As a result, President Trump withdrew the U.S. from the TPP in January 2017. Despite the U.S. withdrawal, the remaining TPP countries continued with negotiations, and in 2017, they announced a tentative agreement on a new pact called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (Green & Keegan, 2020, p.103).
There are few question for discussion provided by the end. We will go over these question one by one in today’s session.
The economic and socio-political implications of international trade agreements, such as the Free Trade Agreement and the Trans-Pacific Partnership, have sparked intensive debates across the globe. Particularly in Western democracies, these trade agreements have been subjected to criticism and rejection by various sectors of society, predominantly those from the lower-skill-required working class.
The apprehension around such agreements stems from a belief that international trade agreements may erode domestic jobs, particularly within the manufacturing sector (Dorn & Hanson 2016) free trade can lead to a relocating of jobs to other countries and dimmish of income, leaving unskilled workers at a disadvantage. In economies like the United States where democracy gives the lower class significant political leverage, protectionist sentiments may be driven by the fear of job losses and wage stagnation, even in the face of potential aggregate economic benefits that trade agreements can bring.
On the issue of tariffs, they can indeed serve as a tool for nations to protect their domestic industries from harmful practices like dumping. However, the utility of tariffs is double-edged. While they can discourage the import of cheaper foreign goods and thus protect domestic industries, they can also incite retaliation from trading partners and may result in higher prices for consumers (Carbaugh, 2010). This reflects the previous question; higher prices may cause more harm to the lower class. A statement from a GE executive quoted in our textbook (Green, M. C., & Keegan, 2020) suggests that the elimination of tariffs could bring about substantial benefits even with a marginal increase in trade. However, it is crucial to remember that such benefits may be unevenly distributed within a society, intensifying income inequality, and exacerbating political and social tension.
Finally, the protection of lower-value jobs versus focusing on higher-value industries presents another complex dilemma. From a purely economic standpoint, offshoring lower-value jobs to countries with a comparative advantage makes sense. However, such an approach overlooks social realities. If low-skilled jobs are shipped overseas without providing adequate skill-upgrading opportunities for affected workers, it could result in widespread unemployment and social unrest. Closing of plants in America is not necessarily a negative development if adequate retraining programs are in place for the displaced workforce.
Shall the United States dropping tariffs , even if it means some employees might lose their jobs?
While this is a complex and multifaceted issue, I lean towards the support for dropping U.S. tariffs. The primary reason is that the United States doesn’t possess a comparative advantage in production compared to some countries. For example China and Vietnam, where a majority of the world’s shoes are manufactured. As the tariffs essentially act as a protective barrier for the domestic industry, artificially elevating the prices of foreign-made shoes, These inflated prices are invariably passed on to U.S. consumers (Rosyadi & Widodo, 2018).
Also, these tariffs have the unintended effect of locking valuable labor and resources in a relatively lower value industry. A large portion of our workforce and resources is dedicated to an industry in which are not efficient, prevents these resources from being reassigned and redeployed to industries where the U.S. has a comparative advantage and where they could contribute more to the overall economy. Dropping tariffs might result in job losses in the short term, especially for companies like New Balance that manufacture some shoes domestically. However, from a long-term perspective, maintaining tariffs is not beneficial for both the companies and their employees. Tariffs merely decrease the profitability of foreign goods without fundamentally enhancing the competitiveness of US products.
Continual reliance on protective measures can lead to lack of innovation and improvements, which are crucial for long-term growth. Even though dropping tariffs can lead to short-term pain, it may also prevent a long-term decline. It is important to consider a transition strategy and policy, including retraining and social safety nets such as SSN to mitigate the adverse impacts on workers who may lose their jobs in the process. These may help to ensure that the benefits of trade liberalization are broadly shared, leading to a more dynamic and resilient economy in the future.
How we view President Trump’s decision to withdraw the United States from TTIP and TPP?
These multilateral international trade agreements represented a significant commitment from participating nations to establish mutually beneficial trade relationships. Withdrawing from such agreements can harm the United States’ credibility as a reliable trade partner and may jeopardize its ability to negotiate favorable terms in future trade agreements. The demonstrated willingness to abandon commitments, can create uncertainty and instability in global trade, potentially undermining long-term economic interests of the US.
The decision to withdraw from the TPP has geopolitical implications that extend beyond economic, It vacated a strategic space to China. As China is being given an opportunity to assert its dominance and influence more significantly in the region, potentially at the expense of U.S. interests. Other nations might see China as an increasingly important trading partner if the U.S. is no longer viewed as a valuable and reliable in global trade.
Withdraw from these agreements also could potentially discourage the American from adapting to changing global trends and shifting its focus from industries that are no longer profitable or sustainable. Instead of looking towards the future and focusing on sectors where the U.S. could potentially have a comparative advantage, the withdrawal encourages the preservation of the status quo, potentially at the expense of long-term economic growth and sustainability.
What maybe the future of the regional integration in the Asia-Pacific region.
The future of regional integration in the Asia-Pacific region could be driven by several key factors.
China stands out due to its significant advantage of its vast internal market. With a massive population and an exponentially growing middle class, China possesses an intrinsic demand that has the capacity to support its manufacturing and service industries which provide environment for the realization of economies of scale. This in turn lends Chinese businesses a remarkable flexibility to engage with international markets, pivoting between entering or exiting, thereby positioning them favorably in the global market. Consequently, it becomes clear that China’s internal market could be a driving force for preventing regional integration, as other may fear China overwhelming (Rosyadi & Widodo, 2018)
However, in contrast to the economic prospect, geopolitical issues present substantial challenges. Countries within the Asia-Pacific region tend to share fewer common interests compared to regions such as the European Union, partly due to the historical and geopolitical conflicts embedded within their relationships. These persistent issues may decrease the likelihood of deep-level collaborations. The South China Sea disputes, territorial clashes, and divergent political ideologies are just a few examples of this problem.
In my opinion, smaller-scale sectional integration is a more viable path forward for this region. Regional organizations, such as the Association of Southeast Asian Nations (ASEAN), may provide a more palatable model of integration. The ASEAN framework allows countries to maintain their unique identities while simultaneously enabling a level of cooperation and integration, which may be more suited to the complex dynamics of the region.
The world becomes more intertwined, and as interdependencies grow, the implications of change become increasingly complex. A modification in a small part of the global economy can trigger ripple effects, ultimately influencing economic landscapes in unforeseen sectors. It is a complex network where each knot is tied to countless others, and a single alteration can reverberate throughout the entire system.
International trade is not only an economic exchange of goods and services; it is an intricate web involving politics, culture, and socio-economic dynamics. The economic vitality of a nation does not always determine its stature in international trade. Often, political power and cultural factors underpin the dynamics of global commerce. Politics can alter the contours of trade, instigating shifts in tariffs, embargoes, or quotas, while culture can influence consumer behavior, product preferences, and consumption patterns.
Value creation is indeed a collective endeavor, and we must learn to coexist, interact, and collaborate in this global marketplace. The foundation of the economy remains the same, emphasizing cooperation, interdependence, and synergy as the route to shared prosperity. However, these rules may not always be viewed as fair. Therefore, a good agreement is one that no party is completely happy with. In every international trade agreement, there are gains and losses. Trade agreements invariably involve a delicate balancing act, attempting to reconcile divergent national interests, economic aspirations, and social realities. Such agreements frequently embody the principle that a good accord is one where no party is completely satisfied. These gains and losses are valued differently by different nations, and such differences in value can present both challenges and opportunities.
Reference:
Green, M. C., & Keegan, W. J. (2020). Global Marketing (10th ed.). Pearson.
Trivić, J. (2017). GLOBAL TRADE IMBALANCES – AN ANALYSIS BEFORE AND AFTER THE GLOBAL ECONOMIC CRISIS. [ГЛОБАЛНЕ ТРГОВИНСКЕ НЕРАВНОТЕЖЕ – АНАЛИЗА ПРЕ И НАКОН СВЕТСКЕ ЕКОНОМСКЕ КРИЗЕ] Zbornik Radova Ekonomskog Fakulteta u Istočnom Sarajevu, (15), 11-20. doi:https://doi.org/10.7251/ZREFIS1715011T
Rosyadi, S. A., & Widodo, T. (2018). Impact of donald trump’s tariff increase against chinese imports on global economy: Global trade analysis project (GTAP) model. Journal of Chinese Economic and Business Studies, 16(2), 125-145. doi:https://doi.org/10.1080/14765284.2018.1427930
Sebastian, K., Ocelík Václav, & Walentek, D. M. (2021). The instability of globalization: Applying evolutionary game theory to global trade cooperation. Public Choice, 188(1-2), 31-51. doi:https://doi.org/10.1007/s11127-020-00799-1
Autor, D., Dorn, D., & Hanson, G. (2016). The China shock: Learning from labor market adjustment to large changes in trade. Annual Review of Economics, 8, 205-240.
Christopher E.S. Warburton. (2010). International trade law and trade theory.Journal of International Trade Law & Policy, 9(1), 64-82. doi:https://doi.org/10.1108/14770021011029618
Discussion Q&A
Muhammad J:
In your presentation, you mention how the GE execuitive believes that the elimination of tariffs would bring substantial benefits. Is this something you believe in, and why or why not?
Yes and No
Under ideal ecomomic model and where everyone play by the rule, I will say yes.
There are times, tariffs become necessary tools of economic policy. For instance, some governments offer their domestic companies with incentives designed to undercut foreign competition, thereby sabotaging other countries’ industries, it disrupts the traditional economic concept of comparative advantage. These actions tend to be propelled more by political motivations than economic.
Free trade, in its essence, tends to yield mutually beneficial outcomes. Regrettably, the current global economic climate does not fully reflect this idealism.
Good question.
Phillip H
Hello Dennis,
You discussed how you did not agree with President Trump pulling out of the deal with the Trans-Pacific Partnership (TPP) because it allowed China to step in and become a major role player. What I am curious about is the reason behind President Trump doing so. I get that not every person can be happy in a negotiation or deal, but if America was taking on a lot of the burdens or a majority of deals weren’t beneficial. Why do we as a country have to stay in the partnership? Even President Biden did not rejoin the partnership during his presidency and instead established a new group called the Indo-Pacific Economic Framework.
In my perspective, it is primarily influenced by political factors, regardless of one’s wealth or education status, each individual possesses an equal right to a single vote. Reflecting upon the 2016 elections, it’s evident that President Trump’s campaign strongly emphasized trade issues, passionately advocating for the jobs loss in the United States. The top exports from the United States currently are Refined Petroleum ($83.3B), Petroleum Gas ($70.9B), Crude Petroleum ($67.6B), Automobiles ($55.4B), and Integrated Circuits ($51.3B) (OEC,nd). None of these industries, however, offer a substantial quantity of entry-level manufacturing opportunities.
Also, a noteworthy but unaccounted “export” from the United States consists of technology, services, and international operations of American corporations. Corporations like Google or Apple, have many foreign subsidiaries, generate significant revenue outside the United States. Unfortunly all these high value activity are out of the circle of relative less trained entry level seeking Americans.
I disagree with the quote “a lot of the burdens or a majority of deals weren’t beneficial.” The United States derives considerable advantages from the majority of trade agreements, given that we possess the world’s largest consumer market and thus hold significant leverage in trade deal negotiations. The issue lies in the United States are loosing manafucting jobs that require relative less training.
My question will be, is there a possibility of preserving these jobs and whether it’s judicious for us to do so. While many citizens wish to preserve their current way of life, at this juncture, the country lacks a compelling economic incentive to preserve manufacturing operations to the United States. If domestically produced versions of the same product were to cost five times more, could we reasonably expect consumers to accommodate this price increase?
As for the Indo-Pacific Economic Framework, I perceive it as a public relations operation, reintroducing a dead product to the market never appeare good on CNN. This is somewhat similar to the transition from Obama-care to Trump-care, where almost identical policies were repackaged under a different label. I plan on delving deeper into this matter to ascertain whether there exist any significant difference.
Reference:
OECD. (n.d.). United States. Retrieved June 28, 2023, from https://oec.world/en/profile/country/usa#:~:text=Exports%20The%20top%20exports%20of,South%20Korea%20(%2466.4B).
Alec J
Dennis, Do you think trade deals always benefit one side, while hindering another? Like is there always a winner and a loser?
No, not most of the time for a country as whole, as different county have different oppounity cost and Comparative advantage, for UIC student, the concept was introduced in ECON 120.
Unless a county have absolute advantage, which almost never the case for all industry sector for two nation. Some individual in a country may feel as a loser in global trade, thats a different story.
Jack J
Dennis, Something that you mentioned at the end of your presentation was that rules are not alwyas fair. Do you think that this could also potentially be viewed as an ethical debate?
I really don’t know. A fair rule will be eye for a eye.
Rules are not invariably established with fairness as the primary objective. Instead, they are often constructed and sustained based on mutual interests. When these shared interests evaporate, it becomes unlikely to expect that these rules will continue to be upheld.
For ethical debate, an individual, corporation, or even a nation often adheres to certain rules or, another term, “laws.” Such behavior establishes them as trustworthy entities that exhibit predictable patterns of action, making them more desirable partners for future collaboration due to perceived lower risk. However, an individual’s adherence to ethical standards often has a self-interest origin, even it may appare as a self-less origin. Making this a far more complex topic than our current discussion.
One example I like to give is Ford Pinto, Which is a case Ford calculated few human life lost are cheaper than put more safety mechanism.
In summary, rules are human creations, established and broken based on interest. Historical retrospection often reveals that the victorious party is deemed the ‘right’ party, primarily because the loser never had the opportunity to author their version of history. If our enemy decide not to play by the rule or been fair, can we really judge them?
Reference:
Birsch, D., & Fielder, J. H. (1994). The Ford Pinto Case: A Study in Applied Ethics, Business, and Technology. Albany: State University of New York Press.
Dirk C
Hello Dennis, Good job on a very complex topic. I am glad that you pointed out that the costs of tarriffs are largely passed on to consumers, which I think is generally misrepresented. My question would be if you could think of any major company that has off-shored “lower-value” jobs and offered an adequate retraining program for the employees they let go of?
Not really, perhaps there is no concrete initiative from the corporate side. Corporations are primarily motivated by profit, and without a clear economic incentive, it is improbable for such for-profit entities to invest in retraining programs. Often, it is more cost-effective to terminate existing contracts and recruit new individuals. In the event that a retraining program is implemented, it is more likely to be initiated by government intervention or driven by individuals rather than corporations.
Alissa J
Hi Dennis! Lots of great information in here- you handled this topic well. In regards to dropping the tariffs on footwear, you stated that you tend to lean towards support for dropping. During your research process, did you come across any primary reason that almost made you change your mind on this matter?
Indeed, while acknowledging the potential impact on job loss, I maintain that, under normal circumstances, tariffs do not yield long-term benefits. I liken policies such as tariffs to “Painkiller” Policies; they alleviate immediate discomfort but do not offer a sustainable solution.
However, it’s important to concede that these “painkillers” are necessary, sometimes for reasons extending beyond pure economic theory. Given enough time, the invisible hand of the market will adjust, correctly allocating all values, and labor as a resource should follow same principle. Despite this, I am also cognizant of other factors, for example:
In the long run, we are all dead. – John Maynard Keynes
Marisol J
Hi Dennis,
This is a complicated subject regarding global trade and Trump’s solution to issues he believed to fix. What do you believe would help the United States benefit more than lose out on global trade within the partnership that has already been established when it comes to Trump’s beliefs?
Trump correctly points out the symptoms, but not necessarily the causes.
As it stands, I contend that the United States continues to derive benefits from its active involvement in global trade. The US is deeply integrated into the global economy, and a withdrawal from this network could potentially inflict serious harm on the US economy and jeopardize the status of the US dollar as a global reserve currency. The problems we currently face may not have immediate solutions and could simply be part of the cost of business.
Farrukh A
Why can other countries and mainly China agree to trade free agreements?
This question can be too general, I will need more deatils for case by case base. However, as a general observation, post the 1990s, China emerged as a significant player advocating for free trade policies with other countries while concurrently maintaining certain restrictions on foreign investments within their internal market, notable examples being the banking and telecommunications sectors.
Reference:
U.S. Department of Commerce. (n.d.). China – Trade Agreements. In Country Commercial Guides. Retrieved from https://www.trade.gov/country-commercial-guides/china-trade-agreements
Shreeya B
How can the United States and the European Union overcome the obstacles and disagreements in order to successfully establish a free trade agreement that benefits both regions economically and politically?
Generally, to deslove obstacles and disagreements, the involved parties must identify shared interests, or one party must possess greater leverage during negotiations.
A case in point is the recent developments in Ukraine. The conflict resulted in the European Union being unable to trade natural gas with Russia, thus becoming more reliant on US imports of Liquefied Natural Gas (LNG). Did this transition occur due to the EU and US finding common ground? I propose that it was primarily because the EU lost its negotiating leverage once its supply line was cut, leaving them no choice but to resort to the higher-cost US alternative. Many similar case can be applied here, as trade are not always about economics, but also political objectives.
Pranav J
What are the long-term consequences of the United States’ withdrawal from the Trans-Pacific Partnership (TPP), both in terms of economic competitiveness and geopolitical influence in the Asia-Pacific region?
At this moment I don’t know, we haven’t reach the long-term time period, as it only happened few years ago.
The United States is indeed experiencing a diminution in its geopolitical influence in the Asia-Pacific region, largely due to shifts in power dynamics. Another pivotal player, China, is ascending not merely as a regional power but also as a global one. The contest between these two nations extends well beyond the Asia-Pacific, pervading Africa, Europe, and Latin America. We’ve even observed Chinese influences in the economic policies of the EU and recent conflicts in Ukraine. In order to preserve its economic competitiveness, the United States may need to consider more assertive countermeasures or identify strategies for peaceful coexistence, and share good relationship with more country never a bad idea.
Some reference I like to share:
Jacques, M. (2010, September). Understanding the Rise of China [Video]. TED. Retrieved from https://www.ted.com/talks/martin_jacques_understanding_the_rise_of_china?
“United States vs. China: A Comparison of Economies.” (n.d.). In StatisticsTimes.com. Retrieved from https://statisticstimes.com/economy/united-states-vs-china-economy.php