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.