International Trade Theory

Chelsea McCann

Chapter Five:

3. Unions in developed nations often oppose imports from low-wage countries and advocate trade barriers to protect jobs from what they often characterize as “unfair” import competition. Is such competition “unfair”? Do you think that this argument is in the best interests of (a) the unions, (b) the people they represent, and/or (c) the country as a whole?

Low-wage countries produce the same products for less than a developing country could. The reason unions in developing countries oppose imports from low-wage countries is the increase in competition. With a similar product for a lower price, the consumers will obviously choose the cheaper product. This is very bad for business in the developing nations. When business does not do well, unemployment increases and in the end, nobody benefits. Whether we consider this to be “unfair” depends on what perspective we take. Of course a low-wage country thinks that this is perfectly normal because they are the ones benefiting the most. If they could not beat their competition, they would certainly not have as high employment as they do. On the other hand, if we are looking at the situation as a developing nation, we would be very opposed. Of course the immediate response as a consumer would be satisfaction, but this constant low cost competition would kill business and drive up unemployment, thus leading to a weaker economy. For this reason, although the consumers may directly benefit, overall it is not in the best interest of the unions, the people, or the country as a whole.

8. The world’s poorest countries are at a competitive disadvantage in every sector of their economies. They have little to export. They have no capital; their land is of poor quality; they often have too many people given available work opportunities; and they are poorly educated. Free trade cannot possibly be in the interests of such nations! Discuss.

This is correct in some aspects. A poor country with little attraction will have very few businesses, if any, willing to invest in their country. If a business is unsure of the stability of a poor country, they will not be confident in that countries ability to trade. With no imports, the poor country will not benefit from free trade at all. The problem is not so much the lack of capital, though that is crucial, but more the abundance of labor in relation to capital, leading to an extremely weak economy. On the other hand, with a poor country comes cheaper labor. This means cheaper products. If a country has enough to produce, the product will be significantly cheaper for a buyer when comparing to a more developed country. If a country can export, that will definitely be beneficial since there are no taxes or tariffs involved in free trade. As discussed in the previous question, developing nations strongly oppose any competition with a low-wage country. This is obviously due to the fact that lower costs are always more attractive. With that in mind, the world’s poorest countries are definitely at a huge competitive disadvantage when it comes to trading.