International Trade Economics Mathematics & Economics Coursework

International Trade Economics
Student’s Name
Institutional Affiliation

International Trade Economics
Question 1
A country’s terms of trade (TOT) comprises of the ratio between the prices of export and that of imports. The TOT is calculated by dividing the costs of exports by that of imports and multiplying it with 100. Indeed, it rises when the number of units exported can buy more imported products. At that juncture, a country tends to receive more capital than it gives out when importing various commodities. For a proper understanding of the TOT, it is appropriate to consider a scenario where the export price index increased by 10% and that of import by 5%. In this case, the TOT will be 110/105*100, which is equal to 104.8. In particular, it means that TOT increased by 4.8%, which is a good thing. Many countries want to ensure that their TOT is over 100%, which means that they are generating more revenues from exports than they are spending on imports.
In the case of New Zealand during the quarter of December 2018, the TOT was below 100%. In other terms, the country was spending more on imports than it was getting from exports. Based on the information from Statistics New Zealand, the country spent $14.1 billion on export values and $15.6 billion on import values (Statistics New Zealand, 2019). The diagram below shows the New Zealand TOT during the last quarter of December 2018.


Figure 1: New Zealand TOT in December 2018
The red arrowheads show a decline while the green ones should an increment. In particular, figure one shows that the TOT in December 2018 was -3.0%. Notably, as the export prices decreased, the import prices were increasing. The export prices declined by 1.7% while the import prices increased by 1.4%. The export volumes rose by 0.8% while the import volumes grew by 1.4%. In addition, the export values decreased by 1.3% while that of imports increased by 2.7% (Statistics New Zealand, 2019). The two primary factors that caused the deterioration of New Zealand’s TOT are the declining confidence levels between the country and China and policy uncertainties. Besides, the biggest trading partner of New Zealand is China. As such, slow growth in China’s economy affected New Zealand adversely. During the last quarter of December 2018, the prices of exported dairy products decreased by 5.7%, and that of imported petroleum products increased by 7.5% (New Zealand Parliament, 2019). Overall, those factors significantly contributed to the decline of New Zealand’s TOT.
Question 2
Indeed, it would be false to assert that a large country such as the United States of America (USA) can improve its welfare by increasing tariffs on imports, particularly solar panels from China. Based on a report by the Tax Foundation (2019), the tariffs that have been imposed by the Trump administration so far are likely to decrease the gross domestic product (GDP) of the USA by 0.25%, which is equivalent to $62.50 billion. Moreover, the wages might reduce by 0.16%, and about 193,649 people are likely to lose their jobs (York, Pomerleau, & Bellafiore, 2019). On that note, increasing the tariffs on solar panel imports from China will affect the economy adversely. In reality, the rapid advancement of technology has made the prices of solar panels to decline in the USA. For example, in June 2018, the cost of one watt was $3.03, which was a 20% decline since 2015. Although the USA solar panel manufacturers pushed for the increase of tariffs to discourage the importation of these products, they were unable to sell them at increased costs. They forgot that 80% of the solar panels used in the USA were imported from China (Mayes, Mellnik, Rabinowitz, & Tan, 2018).
Despite the USA having fewer manufacturers of solar panels, increasing the tariffs on importation will make many people lose their jobs. Moreover, Americans would not be willing to buy the products manufactured in their country if their prices are inflated. Besides, the majority of people use solar panels as an alternative source of energy, which means they can live without them. The diagram below shows the jobs that are likely to be lost in the USA due to the increase of tariffs on solar panel imports from China.


Figure 2: Effects of Increasing Tariffs on Solar Panels in the USA
The ongoing trade wars between the USA and China is affecting American consumers adversely. The Trump administration has the perception that increasing tariffs will reduce the consumption of Chinese products in the country, such as solar panels. However, customers and manufacturers are hurt. When producers cannot absorb the price fluctuation by selling their products at lower prices, they increase the costs of commodities, making them unaffordable for many Americans.
Question 3
Inter-industry trade involves the exchange of commodities between different markets, either locally or internationally. Countries benefit from this type of...