Economics Of Globalization Watch Essay

1194 words - 5 pages

The goal of this paper work is the evaluation of the article published in The Australian, on 21st April 28, 2008. The article is the comment of Mr. Ban Ki-moon UN General Secretary, about the increasing food prices globally and the possibility of further globalization helping in fixing this problem. Mr. Ban reckons that many countries had taken steps in barring the exports of wheat and rice, or introducing incentives for easier imports of these products. If we look into the theories of international trade, the first issue to be noted is the strengths of various countries, in accordance with the different food product lines being planned. The Production Possibility Frontier shows the best ...view middle of the document...

Ricardo's theory further notes that a country should export goods in which its relative cost advantage, and not their absolute cost advantage, is greatest in comparison to other countries (Irwin, 2001). For instance, suppose that my company is a small nation and can produce canned olives and canned tuna more efficiently than Australia can. If we produce canned tuna twice as efficiently as Australia and canned olives three times more efficiently than Australia does, then we have an absolute productive advantage over Australia in both products but a relative advantage in producing canned tuna. If this was the case, we might export canned olives in exchange for imports of canned tuna, even though we can produce canned tuna more efficiently than Australia can. So we have to begin to export so that both have a great advantage.Before TradeAfter TradeTariffs are taxes governments place on internationally traded goods and can be called customs duties (Colander, 2004). Tariffs are the most used type of trade restriction and operate in the same way any tax does. Tariffs increase the cost of imported goods, which encourages the consumption of domestically produced goods (Colander, 2004). Placing a tariff of $40 per unit on imports from India had caused domestic production to double while imports dropped from nine to two million units. The following cycle discusses an overabundance of corn and imposing tariffs on India. By imposing a tariff level of 12% on imported corn, both countries impose a tariff on cheese exported by Australia and this causes trade to decrease. Quotas are quantity limits placed on imports (Colander, 2004). According to David Colander in Macroeconomics, quotas increase price and reduce quantity. The difference between tariffs and quotas is that with a tariff, the government collects tariff revenue, but with a quota, the government collects no revenue (Colander, 2004).“More trade, not less” is the slogan coined by the members of the UN. Therefore with the prevailing hike in the prices of food there is the need for the Free Trade Agreements (FTA) between countries to lower trade barriers, increase the volume of trade, allow producers to explore different markets, allow consumers a better range of products, and open up new avenues for investment. Douglas Irwin notes that as developed by Adam Smith and the classical economists, any impediments to trade would detract from the gains from trade and therefore harm the economy (Irwin, 2001). These economists also recognized that there might be situations in which a government might wish to sacrifice economic gains for some other political...

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