ACJC International Trade Tutorial Optional Essay Qn

1 International Trade Tutorial – Optional Essay Question TJC 2022 Prelims 6. Recently, many countries implemented export bans on food products such as grains and meat. When countries ban exports, this can cause soaring prices, presenting potential risks to Singapore's economy. Source: International Food Policy Research Institute (a) Explain the likely consequences of export bans on both the exporting and importing countries. [10] (b) Assess the extent to which the Singapore government can manage the harms of export bans by other countries on her economic performance. [15] Part (a) Question Interpretation Command word/phrase Explain Make clear the process of cause (export bans) - effect (macroeconomic performance) relationships using economic theory and examples. Content Export bans Consequences Restrictions on the quantity of goods exported to a specific country or countries by a Government. Impact on macroeconomic performance. Context Exporting and Importing countries May apply to any country, including Singapore that conduct and/or are affected by export bans. This response requires students to explain how export bans that have been implemented by countries around the world have impacted these countries as well as the countries they export to. Introduction ● Export bans are restrictions on the quantity of goods exported by a country. ● Countries around the world have been enacting export bans amid shortage in their own country. Examples of these include face masks, vaccines at the start of Covid-19 and chicken and grain following global supply chain disruptions caused by the Russian-Ukraine crisis. Body 1: Explain the likely consequence of export bans on exporting countries ● The intended consequence of export bans is to manage shortage and the resulting high prices in the exporting country. For example, Malaysia recently banned the exports of chicken to prevent escalation of chicken prices domestically thus maintaining equity since chicken is a basic food item for Malaysians. By imposing an export ban, domestic firms are prevented from exporting their goods, leading to an increase in domestic supply. As domestic supply increases, price of these goods fall, resulting in cost of production decreasing and AS increasing from AS1 to AS2 in Figure 1. This leads to lower general price levels from P1 to P2 and thus lower inflation.

2 ● However, the unintended consequence is that export bans result in lower exports for the exporting country. Since firms can no longer export their products, export revenue decreases, and since X is a component of AD, AD falls. Assuming there is spare capacity, the reverse multiplier effect sets in resulting in a multiplied fall in AD from AD1 to AD2 in Figure 2. With lower economic growth, derived demand for labour falls and demand-deficient unemployment increases from Yf-Y1 to Yf-Y2. Figure 1: Impact of Export Ban on AS Figure 2: Impact of Export Ban on AD Body 2: Explain the likely consequence of export bans on importing countries ● Export bans result in shortage of these products in the importing countries, driving up prices. Even if these countries try to diversify their import sources, prices of these imports are still likely to be higher than from the original source. Importing countries thus face higher cost of production. AS falls in the short run and the AS curve shifts upwards from AS2 to AS1 in Yf Y2 Real Output GPL 0 P2 Y1 AS1 AD P1 AS2 Real Output GPL 0 P2 AD1 Y1 Y2 AS AD2 P1 Yf

3 Figure 1, and the country faces cost -push inflation as GPL increases from P2 to P1 and potentially lower economic growth from Y2 to Y1. Mark Scheme Level Knowledge, Application / Understanding and Analysis Marks L3 For a well-developed answer that has: ● good scope – explains at least two different consequences of export bans on both exporting and importing countries; ● good rigour - thoroughly analyses the consequences of export bans using relevant tool of analysis, ie AD/AS; and ● good application to context - supports explanations with real-world and relevant context. 8 - 10 L2 For an underdeveloped answer that: ● lacks scope – explains only one consequence of export bans on exporting and importing countries; and/or explains two consequences of export bans on either exporting or importing countries. ● lacks rigour – provides some degree of economic analysis of consequences of export bans on exporting or importing countries; and/or ● lacks application to context – limited or no reference to real-world context. 5 - 7 L1 For an answer that shows some knowledge of export bans and its consequences but is largely irrelevant or contains conceptual errors. 1 – 4 ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● their lack of

4 ● due to signing of FTAs (b) Assess the extent to which the Singapore government can manage the harms of export bans by other countries on her economic performance. [15] Part (b) Question Interpretation Command word/phrase Assess the extent... To examine and present the different aspects of a problem or subject, usually in support of a position or argument and give a judgement. Present the arguments to support your judgment of how far the Singapore government is likely to be successful in managing the harms of export bans. Content Harms of export bans Follow through from part (a), cost -push inflation and/or weaker economic growth. Context Singapore government Bring in relevant examples applied to different contexts of the export bans faced by Singapore. This response requires students to first explain the different policies the Singapore government could adopt to manage the harms of export bans. The answer should go on to explain the limitations and/or negative unintended consequences of these policies. Finally, the evaluation requires students to give a sound judgement on how likely the Singapore government is in managing the harms of export bans. Introduction ● As mentioned in the preamble, when countries ban exports, this can cause soaring prices, presenting potential risks to Singapore's economy. Part (a) shows that importing countries such as Singapore face higher cost-push inflation which could lead to lower economic growth. This essay assesses the extent to which the Singapore government can manage the harms of these export bans on her economic performance. Policy 1: Encourage investments/promote R&D Singapore can manage the harms of export bans by other countries through the use of supply - side policies to increase domestic supply. For example, Singapore has its 30 by 30 plan to meet 30% of Sigapore’s nutritional needs by 2030. Such measures decrease S ingapore’s reliance on imports, making it more resilient to external shocks. This allows Singapore to mitigate effects of shortages and ensure sufficient supply for the population. After facing vaccine and mask shortage at the onset of Covid, Singapore has now attracted German biotechnology company BioNTech, which developed the COVID-19 vaccine, to establish its Asia -Pacific regional headquarters in Singapore, where it will also set up an mRNA manufacturing facility which will produce several hundreds of millions of mRNA vaccine doses per year starting from 2023. Other firms such as Thermo Fisher and Sanofi will also manufacture a range of vaccines. Singapore has also been ramping up its masks production capabilities, with

5 government agency A*STAR working with local enterprises, including local textile and apparel manufacturer Ramatex, to help design effective masks for Singaporeans’ use. (Limitation) However, given that Singapore does not have comparative advantage in producing these goods, this may lead to productive inefficiency and higher cost of production, decreasing AS. As such, Si