Trade wars are punishing buyers

There are many economists who find Keynesian theories obsolete and old school. Keynes's emphasis on increase in employment and government spending to boost the economy by creating multiplier effect   has been criticized highly. However, if we look at today's world and see what the governments are doing, I think we owe an apology to Keynes. We are seeing many examples of governments imposing additional tariffs on particular products to protect their own industries from the effect of imports. These type of government actions helps these inefficient industries to survive which is against the nature of 'real' free market. Industries which needs to vanish continuing to produce with the help of governments. Does the government do good for society or just for the industry? Inefficient industries might not compete with their competitors in global market because of the differences in price. Citizens are being affected from the situation in very first place because the products are sold much higher than its real market price by the imposition of additional tariffs and protection of inefficient industries. Citizens are forced to pay more as a result of the government actions. We could say the Chinese-American Tire war is a significant example for this particular case. The US imposes additional tariffs to protect its own industry against cheap Chinese tires. The additional taxes protects the local manufacturing, but has huge  impact on prices and real market prices.

In my opinion, a country cannot manufacture or service everything due to scarcity in resources. Therefore, the protection of US tire industry is against free market rules. If the industry is not able to compete with it other countries, I think there is no reasonable understanding to protect this inefficient industry by imposing additional taxes. In my opinion, US should stop protecting the tire industry and switch to different attention which they have competitive advantage on. There is no need to create Trade Wars in today's world. We should let countries or industries to do what they are good at without protecting our  inefficient local ones. Otherwise, this trade war would keep going as today's wars such as chicken feet and tire wars. To sum up, I  think the countries needs to say ` laissez-faire`and stop protecting their ' own ' industries and punishing their own citizens.

Intentional And Unintentional Trade Barriers: Two Examples

Trade barriers between countries is very common in today's world. Barriers, intentionally or unintentionally change the dynamics of trade in a significant way. Some countries do it intentionally and create trade barriers by increasing tariff rates or fluctuating currency exchange rates. The main purpose of the intentional trade barriers is to protect local industries in the country,  control and balance the import-export relationship. The major example of these type of intentional trade barrier is President Obama's Stimulus Plan in 2009. The neo-keynesian plan tried to boost the American economy by saying '' Buy American Provision ''. The success of the stimulus plan is debatable. However, its is certain the plan aimed to create a trade barrier for exporting countries. From comparative advantage perspective, the plan could be considered as disaster. The plan tried to boost local industries in US which do not have any comparative advantage. The neo-keynesian plan was against the dynamics of  free-market economy, damaged the US economy and led USA to lose it comparative advantage.

On the other hand, unintentional trade barriers, occur due to political and socio-economical reasons. An action of a country create problem for other countries and this issue might lead to unintentional trade barriers. Various examples might be given to describe the situation of unintentional trade barriers. One of the examples about the situation is the tension between France and Turkey  in 2011. In 2011, France’s Parliament passed a bill that would criminalize the denial of ''so-called Armenian genocide ''. Turkey warned France about the possible economic and  political results of the law. French parliament passed the bill and it caused serious damage to economic and trade ties. French products were boycotted in Turkey. The government did not sponsor an official boycott because Turkey is a member of European Customs Union, the boycott has been done by society. The impact of the law caused a major trade barrier between two countries. Unintentional trade barrier was occurred as a result of  an action of French Parliament. This unintentional trade barriers highly affected the French export and products.

* Translation: We are not selling french products after 12 / 22 / 2011. 

Major Problem of Detroit Three

Auto manufacturing is very difficult issue in today's world. The emergence of new manufacturing systems which are mostly based on time and cost reduction led manufacturers to become leaner than ever. While  trying to compete in highly competitive environment, Detroit Three  has other problems that make the situation even worse.

The major problem of US auto makers is healthcare benefits of the employees. In 2008, the numbers of auto employees in US are; 355,000 auto workers and 1,000,000 retirees. The healthcare of retirees is a huge burden for Detroit Three and the additional healthcare expenses make them to lose their competitive advantage. Detroit Three's biggest rival, Toyota, also manufactures its cars in southern part of the US. These two sides of car manufacturers both are under the same legislation, which we can say wages, healthcare, pensions are relatively close to each other. The only difference at this point causes the biggest problem for the North. Toyota and other foreign companies have been operating in USA less than 30 years. Therefore, foreigners do not need to worry about pensions and healthcare of retirees yet. However, Detroit Three needs to deal with these extra cost of the retirees and this leads to a comparative disadvantage for now. To show the negative impact of the healthcare on the industry, GM vice president Bob Lutz claims that, "Sometimes it feels like we're a health-care company that tries to sell enough cars to pay the bills."

The situation does not seem bright for Detroit Three. The other manufacturers does not have these problems that the North has had. Sooner or later, foreign manufacturers will be experiencing the same problems and it is going to cause a chaos for auto manufacturing industry in USA.  So, what can be done to solve the problems of car manufacturers? The answer of the question consists nationalist elements in itself. A reform that will bring public healthcare system might solve the problems of American auto manufacturers. To show the possible improvement, health benefits in Canada cost $120 per car, in the US the number is $1,500 per car could be given as a good example. If the US can reach to these numbers by reforming its healthcare system, they might have the chance to save the auto industry. Otherwise, things does not seem bright for Detroit Three and other manufacturers in the US. Under this circumstances, it would be very optimistic to say that Detroit Three can compete with other car manufacturers which have national healthcare system.




Resources;

https://www.commondreams.org/view/2008/12/13-2

http://www.boldtypemag.com/auto-manufacturing-healthcare/

http://www.richmondfed.org/press_room/speeches/president_jeff_lacker/2011/lacker_speech_20110613.cfm

Introduction to Global Economics

Hello my name is Murat and welcome to blog. This is my second year as a graduate student. I created this blog for my global economic environment course and I will be posting on my blog about global economic issues each week. I will be trying to discuss and analyze different topics of global economics and will give my personal opinion about the concepts.