Week 9 - Regional Trade Effects in Brazil

Trade effects in Brazil incorporate a wide variety of issues.  According to author Filipe Lage-de-Sousa, Brazil experienced "trade shocks" in the 1990's (http://ideas.repec.org/p/wiw/wiwrsa/ersa06p441.html, 2011).  Essentially, what this means is that the effects of "unilateral liberalization" and "drastic devaluation of exchange by 47% in 1999" had caused Brazil to cease trading--or, at least drastically reduce it.  Lage-de-Sousa goes on to say that Brazil reduced its involvement in the industry sector from 52% to 47% (Ibid., ibid). 

I was curious why this all would have come into a perfect storm of economic distress, and found that it has a lot to do with raising wages and increasing the number of jobs.  There appears to be some sort of reduction in production, which in turn has laid off all of these workers.  Hence, no revenue is generated for the workers, or the country, which leads to all of these financial problems. 

According to another source, Sandra Polaski, in 2009, they expected that another Doha round would help Brazil out of its crises (http://carnegieendowment.org/2009/04/09/brazil-in-global-economy-measuring-gains-from-trade/exw, 2011).  How this would be done is that hypothetically speaking, there would be less subsidies given to European countries for agricultural purposes--or nations part of the OECD--which would then provide more opportunity for Brazil and other countries like it to boost their agricultural productions.  Thus, more jobs!  I wonder how this is being done in today's era--with the global economy in a constant state of unrest? ...

Week 8 - U.S. - Morocco Free Trade Agreement

To start, one thing I found very interesting about the U.S.-Morocco Free Trade Agreement was that Morocco was the 1st African nation to begin free trade with the U.S.  It was also the 2nd Arab nation to engage in free trade.  On a side note, according to some sources, Israel was the first Arab nation to begin , but other sources say Jordan.  After talking with two of my colleagues--one being from Lebanon and the other being from Morocco, they said it was Jordan, as Israel is not an Arab nation.  So true!  Israel is a Hebrew nation--and Jordan is Muslim.

That being said, I find that interesting and exciting that Morocco was the 2nd Arab nation to engage in free trade.  It is a predominantly Muslim country, and being that the U.S. is non-secular, I didn't know if that would have been a problem or not.  I suppose not, considering that "trade agreements" (I put "trade agreements" in quotes because the way business was conducted during pre-Colombian times was solely based on simple bartering and auctioning) are not necessarily religiously affiliated.

Anyways, I digress!  I found that exciting that Morocco wanted to do a free trade agreement, and remove all tariff and non-tariff barriers to create an agreement with the United States.  There were obviously elements of appeal from both ends that enticed each nation to want to have access to the other nation's goods and services.  According to our Economics class lessons, a free trade area is "[an] association of trading nations, [where] members agree to remove tariff and non-tariff barriers amongst themselves...each deals with outsiders differently" (Robson, 2011).  This basically means that Morocco and the U.S. can engage in trade without interference of other countries and their laws. 

The agreement is still young (only about 7 years old), and of course there are kinks that need to be ironed out.  For example, the U.S. only trades a fraction of what it wants from Morocco--about 0.1% or so.  All raw materials.  There must be a way to increase better trade between the two! 

Moran Shipping Agency - Part II

Continuing on from my previous blog, the shipping industry clearly proves to be a lucrative business to this day.  And, to name one very successful agent, Moran Shipping Agency of Providence, Rhode Island, this shipping mogul ensures that "vessels get in and out [of the United States] in a cost-effective way" (Kelly, 2011).  They take care of all logistics associated with products being shipped in and out of Rhode Island/the United States.  This means dealing with Homeland Security, the Coast Guard, Customs Management, Immigration Services, adhering to the ISO standards, and many more!  This one agency handles all of that--almost a mini-embassy in itself!

The Moran Shipping Agency in Providence oversees the dominant shipping of products such as scrap metal and steel (going overseas to China) to home heating oil, to metallurgic coal (which is used to make steel, and is scheduled to ship out for the first time sometime next month!).  Very exciting indeed!  And to think that we, Johnson and Wales students, are subject to these materials every day!  Whenever driving in or out of the Harborside campus, I have noticed many substances on Shipyard street--that I am assuming are the ones Jason talks about?  On occasion, there are piles at least 500 ft. high of different kinds of (sand), products that are treated with methane or sulfur (hence the very potent smells that emanate!), and many others. 

I can't believe that Rhode Island's government was thinking of converting that area into hotels/making it a resort location.  While it would be potentially extraordinary for visitors to see the bay so up close, the fact that it remains a shipping/maritime location adds even more appeal.  Besides, being the Ocean State, there is essentially a beach every 10 square miles.  I can even walk to one from my house (Gaspee Point). 

One thing Jason mentioned that I also found very interesting was that the laws of the sea are different than the laws of land (countries).  It is pretty much fair game, correct?  I remember taking trips to Florida when I was younger, and we would go down to Key West.  We would go deep sea fishing, but could go only to a certain point, at which the captain would say "we can't go any further than this, as these are now international waters."  I always wondered what that meant?  Does that mean that anything goes from there?  If a bunch of Cuban pirates (if they exist?) decided to come by at that very moment, and we were 1 foot outside of what is deemed the 'United States' waters,' could they seize us?  Would we be under Cuban law?  How exactly does that work? 

I also very much like the fact that Moran employs such an extensive use of MS Sharepoint.  It really is an awesomely (word?) collaborative tool!  When I worked at Educational Testing Service, we also used Sharepoint.  It really is an easy way to find and share information amongst fellow employees, clients, and government officials (where applicable).  It seems quite a bit more professional than Facebook, and is very secure!  A server that contains sharepoint sites is pretty much impermeable--requires crazy data encryption!  Anyways, slightly off topic there, but Moran, overall, will absolutely continue to be successful--as it incorporates fundamental ideas set by James Moran in 1937 with the solid ideals set forth by its current administration in 2011 ad infinitum.  Keep it up, guys!

Moran Shipping Agency - Part I

Moran Shipping Agency has given me a lot to think about regarding shipping, trade, technology, and the global economy.  I had no idea that shipping via bodies of water was still used at the frequency and at the calibur that it is!  Honestly, before our class trip, I suppose I took all of that for granted --how imports get here to the United States. 

I assumed (because of how much faster they are) that we primarily used planes to ship cargo.  For obvious reasons, planes cannot carry as much as a ship can.  Even the Airbus A-380, which can carry over 500 passengers and several hundred thousand gallons of fuel--that could convert to 300 tons of weight (http://www.airbus.com/aircraftfamilies/passengeraircraft/a380family/, 2011), this still has no comparison with how much a ship can carry (at least 30 times this!).  Not to mention, cargo shipped via air will undoubtedly be astronomically expensive, as it is cutting short the amount of time needed for arrival.  Reason being, the exporter (or importer, depending on how their contract is outlined), is paying for the speed of the aircraft itself, but they are also paying for the expedited customs review, fuel costs, pilot costs, etc. 

Slightly off-topic, but my mother used to be a flight attendant, and she said that the general cost of operating an aircraft is $20M.  Judging from what was said last week, while very expensive to operate, a ship is not nearly $20M.  Regardless, I am pleased to know that it is still very much in operation--for commercial uses just as much as military/naval.  The fact that they are steamship, though, is also very good.  I don't know if this makes the ships go any faster (I should have asked this last week!), but it definitely is more environmentally friendly than using primarily gas or coal.  I am curious what combustive element they are using though?  The rest of this blog is To Be Continued...

International Monetary Fund and Developing Nations

As outlined by the text and class discussion, the IMF (International Monetary Fund) serves as more of the World Bank than the actual World bank does.  Seems interesting that they would call it a fund--fund as a singular object/concept--versus funds. 

I guess because the concept of the IMF is so complex--being that it incorporates currencies from 187 different nations (and not a one is of higher ranking than the other)--its purpose is to provide a universal 'funding' to all of those member nations.  Some nations who have surplus resulting from their financial activities can put their monies into the IMF, whereas the other nations who have deficits can withdraw from the IMF (interest free?).  Then those deficit nations can 'pay back' the IMF but putting their own currency back in to the fund. 

While I see the IMF as sort of a Federal Reserve for the World, (and a fantastic concept it is--being able to help one another out financially!) I also see it as very vast and seems almost too complicated.  How can they keep track of all the different currencies, and make sure that all of the nations are fair in withdrawing/depositing?  Seems like it could be a very stressful job--managing the IMF.  Albeit the Board itself (http://www.imf.org/)  consists of 187 nations--2 representatives per nation--like any standard membership organization, there is always the President, Vice President, Secretary and Treasurer.  I feel like in this particular case, the Treasurer would have the most important job!  Not to mention that the United States' alternate officer rep is Ben Bernanke, the Chairman of the Federal Reserve.  I wonder if it is the same with all of the other nations? 

In terms of how this relates to developing nations--regarding both institutionally and politically--I think that the IMF is definitely a positive influence. It is nice to know that it is there and available to provide support should the need arise.  Howerver, at the same time, it should be restrictive in how it assists nations.  This really relates in terms of fairness.  Let's say that a (relatively) politically- and economically-sound nation has invested a good portion into the IMF (from a surplus), and then another nation (one not as politically or economically priveleged) just goes in and borrows what they need.  Sure, they could write a promissory note, but that may not ensure payment back into the IMF.  What would the IMF do then?  Just kick that unstable nation out of the IMF membership?  It seems like this would be much more complicated.  I'm not entirely sure what kinds of things would happen!

Openness to Trade Part 2

In adding to my previous blog on the Openness to Trade, I would definitely say I am open to trade.  It is the basis for all interaction amongst human civilization.  Without it, every single society would be isolationist--cut off from one another with tremendous amount of fear an uncertainty.  Trade has helped to eliminate such things.

For example, if Christopher Columbus was not so passionate about trade, and decided not to go out on his famous journey, two entire continents would have (hypothetically speaking) never been discovered!  Trade has opened many doors and bridged many gaps, and continues to do so to this day.  Be it through fancy items like gold and diamonds, or something invaluable like education, trade is essential to sustain the human race. Who knows what the world would be like without it?

Openness to Trade

Generally speaking, from a minimalist consumer standpoint, I would say I am open to trade.  As alluded to in class, we talked about how we learned about trade in history class, etc., where countries would trade with one another.  What I found though, is it seems that trade initially started where people were seeking items of luxury, but then transititioned into items of necessity.

Think silkworms, tobacco, and (now) gasoline.  These, many centuries ago (with exception of gasoline), were considered luxuries and were not readily available to the average consumer.  Trade was an exclusive business that everyone (but only the rich and affluent could do so) would be a part of. 

However, due to many economic advancements that have occurred, what was once viewed as a luxury now became necessity.  This can be attributed to the increased demand for technology and travel.  While tobacco products (depending on the nation) and silk are lesser a priority, gasoline is an essential commodity that most of the world uses.  This of the cars, trucks, buses, planes, and much more that utilize it.  Page 10 in the textbook discusses this in much greater detail. 

Trade Wars

To be perfectly honest, upon hearing the term Trade Wars, I was a bit apprehensive as to what it actually meant.  I still am!  From a really simplistic standpoint, all I kept picturing were children sitting around a table at lunchtime, looking at one another’s goods—deciding who was going to trade what for lunch.  One boy has a lunchbox full of wonderful goodies—ranging from Oreo cookies to a bag of Cheez Its to a ham and cheese sandwich.   Another girl has peanut butter cookies, an apple and extra money to buy something from the cafeteria.  A third child—another boy--has a banana, tuna sandwich, and a bottle of grape soda.

Essentially, what happens now is that the boy with the Oreo cookies asks the girl who has the peanut butter cookies if he can have them.  Knowing the girl’s background, the Oreo cookie boy knows that the girl’s father packed her lunch this morning.  Her father also forgot that she has peanut allergies and cannot eat peanut butter.  Therefore, those cookies will not be consumed by her—but could definitely be eaten by someone else!  He asks her to trade her cookies.  She replies by saying “Yes, I will give you my cookies, but I want your ham and cheese sandwich—because now I don’t have as much to eat.”  The boy disagrees and says “Well, you can’t eat your cookies anyways because you are allergic to them.  I would really like to have them.  You have some money—you can buy a part of my sandwich if you want.”

In the meantime, the other boy in the group offers to give the girl his tuna fish sandwich, in exchange for some of her money.  She immediately dismisses the idea, saying that she is not in the mood for tuna.  He then says to the boy with the Oreos “Hey, can I have your Oreos since you are taking her peanut butter cookies?  I would love something to make my lunch a little better.”  The boy with the Oreos says “No way.” 

Then both boys say to the girl “You have extra money.  You can buy something from either one of us, or even from the cafeteria.”  She does not want to spend her money, but rather, save it for a toy she is looking to buy.  As a result, all three parties are in a fight (war?) with one another simply because they cannot agree on trading.  They all stand up, leave from the table, and sit with other people. 

In a way, this is a very elementary (no pun intended!) perspective of looking at trade and trade wars.  Albeit from a much smaller scale, each of those children mentioned could serve as a metaphor for different countries and their policies.  When looking from one angle, the girl with the peanut allergies could be the United States—as she was not going to eat the cookies, why not exchange them with someone else?  This can easily parallel the Chinese chicken feet (Ramzy, 2010).  Those feet are lefotvers that the US chicken farmers do not plan on using (unless it is for feed).  If someone else can find a better use for it, why not?  Furthermore, she has extra money to buy something from the cafeteria, but she wants to save it to buy something else.  This could be an example as a protectionist policy.  She is not trading or exchanging it with an outside source anytime soon.

The boy with the Oreos could be a representation of China.  After all, since the United States cannot eat its peanut butter cookies, what good would those cookies do for them?  China is happy to trade a bit of its tire manufacturing (Andrews, 2009)—even with influence by the United Statesfor a little more money from the United States.  However, the US wants to save its jobs (and money), so it doesn’t want to do that. 

The other boy with the tuna fish sandwich represents a conglomeration of developing nations.  Those nations that want to participate in trade and be a part of trading agreements—but are dismissed because some of the other industrial nations are not interested in what they have to offer. 

I believe I am still slightly confused as to what the trade wars are.  Nevertheless, I am going to keep trying to understand!  Essentially, from what I am able to infer, nations keep hiking up their trade tariffs.  These tariff increases are directly correlated with the retaliatory measures set by a nation who believes its trading partner is being unfair.  Be it through dumping (or what is perceived as dumping) or other such action, a trade war is further instigated by those actions.  The only way ‘peace’ could come about is if there was a fair agreement amongst both parties.  What policies could be enacted to make that happen? 

The War on Terror and the Fight for Survival (Economic and Security)

The North American Fair Trade Agreement (NAFTA) incorporates the United States, Canada, and Mexico in a strong interdependent trade relationship (http://www.fas.usda.gov/itp/policy/nafta/nafta.asp, 2011).  As I actually had created a presentation on this very topic in my previous Economics class, all three nations benefit one another by trading with one another.  By simply having the advantage of geographic proximity, Canada, Mexico, and the United States have a relatively harmonious cooperation when it comes to trading with one another.

From a profitable standpoint, since Canada is the United States’ biggest trading partner, (http://www.census.gov/foreign-trade/top/dst/current/balance.html, 2011), it clearly has manifested itself as a strong entity that will continue to improve the US economy (by the US ‘exporting’ to Canada, with 1/3 the transportation costs).  This is extremely advantageous, as aforementioned, it is MUCH closer than China (the US’ 2^nd largest trading partner).  A similar situation applies with Mexico, the southern neighboring country.  By trading with one another, many steps are eliminated—expensive transportation costs, the time-consuming processes of getting goods/products from one location to another (the primary sources being more required paperwork, more people needing to review that paperwork, etc.).  There really are no trade barriers between Canada, the US, or Mexico.  How convenient!

Or is it?  One could verify these statements were (relatively) true—as they were probably said 10 years ago.  Yes, 10 years ago--before the catastrophic and mind-shattering September 11 event that changed the world forever.  What used to be safe and secure is no longer—even with all measures taken--and the attentive-yet-not-Big-Brother-is-Watching trading capacities between countries also cease to exist.  Where the US Border Patrol used to worry about illegal drug-smugglers and immigrants, now they must worry about who is on the road, when they are on the road, and what they are carrying—all in a 24-hour, 7-day-a-week basis.  Will a person (or people) die today due to a potential terrorist attack?  How can we prevent that?  For starters, the US should bulk up on security at the borders.  It will only let the most secure people through. 

Nevertheless, what about a trucker who doesn’t have all of his papers? What if the administration at his workplace had filled out the wrong documentation and this trucker has 8 tons of milk to deliver?  As long as the borders are secure, though, he should be fine, right?  Not necessarily! Adding insult to injury, the waits at the borders are 10-15 hours (Carbaugh, 2008).  This delays essential deliveries, and potentially adds overtime hours for truckers who are carrying that freight. In the case of our trucker, he was carrying milk.  Milk does not keep fresh for very long, so, by waiting 10-15 hours, there are 8 tons of it that just completely spoiled.  How much will that cost the company?

Therefore, it is valid to say that the War on Terror in the United States has significant impacts in many arenas.  Be it through travel, transportation or entertainment, every single person encounters an example where potential terrorism is a threat.  In the case of posing trade barriers amidst the same continent, the War on Terror has begun to do that as well.  Nevertheless, I do believe that those measures are extremely necessary and am glad that officials are being very thorough in their methodology.  It is unfortunate, though, that it must take such a long time (and is thusly very costly!) to search and ensure each individual (and the goods they are carrying) is not a threat to other civilians.  I am curious if there is such a cost-effective, less intrusive way of doing this?  Hmm, this sounds like a highly potential topic for my white paper! 

Cars and Health Benefits: A "Driving" Force Behind Many American Consumers

How Do Nations Decide What to Trade?  How Does Public Policy Affect Comparative Advantage?  You should focus on whether you believe that the obligation of businesses in the United States to pay a portion of healthcare benefits affects comparative advantage.  Can they compete with countries who offer national healthcare? Are there other policies that could be enacted to improve the comparative advantage of US car manufacturers?

In a number of cases, it is better to have an employee who has worked at the company for 20 years than one who has just started.  Those employees have demonstrated the utmost loyalty to the company, and continue to work just as diligently towards perpetuating its successes.  Additionally, their job security is quite solid (relatively speaking!), so their employment with the company could be sustained indefinitely.

For obvious reasons (from both a production and an ethical standpoint), it is better to have a healthy employee than an ailing one.  After all, an employee cannot perform his or her duties to the best of their abilities if they are sick.  Plus, an employee’s sickness could become exacerbated simply by continued work (so they don’t miss a day of pay), and then that puts the workload even more far behind. 

As we can see here, there are a number of issues addressed when it comes to employees, dedication, and the direction of that dedication.  In the United States, we have a philosophy (perhaps associates of the New Deal vision generated by FDR?) that it is the most ideal situation for a company to provide benefits (be they health, financial, retirement, life insurance) to their employees.  After all, if a person is to work practically his or her entire life into one company and has successfully assisted in achieving that company’s goals, why can’t the company give something back?  A little help with health insurance, a matching 3% on a 401K—why, the employee would stay forever if they could!

I remember it was a dream to transition from a temporary to a full-time employee, because I would gain access to all of those things.  What a relief!  Especially with the price of health insurance (even with COBRA it is a staggering $449/month for a healthy 28-year-old female), it is nice to know the institution that employs you could support in paying for that. 

However, in today’s global economy, this ideal situation is diminishing at an alarmingly rapid rate.  What was once a secure idea has now become very unstable.  Since many businesses have lost significant amounts of money, and are not generating the profits they formerly had.  Now these business must unfortunately must reallocate finances so they can stay afloat in a cutthroat market—even if it means cutting employees’ benefits in half (or completely).  This is one negative impact of opportunity cost. 

As discussed in the questions surrounding the article on pages 78-79, I believe that the US car companies' obligation to pay health benefits to its current and previous employees does affect comparative advantage.  While automobiles now are more expensive (and thusly fewer are being purchased), the other nation who does not charge as much per auto that has national health care may have other problems.  Some friends from other nations I have spoken to who have national health care have to wait months and months before they can see a doctor or get a prescription filled.  However, on the other hand, a US company may put employees out of work where that employee could conceivably collect months and months of unemployment insurance.  It really depends on the opportunity cost in this case as well. 

Unfortunately, in the case of the retired workers from the US car companies, I don’t believe it would be fair to downsize their benefits for increasing comparative advantage on their products.  After all, who is to say that those retirees are able to start working again?  Those employees were in a safe environment.  Well, I suppose there really is no safe environment anymore—look at US Treasury bonds.