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