ACJC International Trade Answers Essay Qns 4

1 2024 International Trade Tutorial – Essay Q4 Answer [2019 A’ Levels Question 6] Globalisation has been a major influence on Singapore’s economic performance. The uncertainty and instability happening around the world in recent years could threaten the economic benefits that globalisation brings. Source: BBC News, Globalisation, Key Facts: The Global Economy (a) Explain two different factors that have enabled globalisation to occur. [10] Question Analysis: Command Explain • Start: Two different factors • End: Globalisation Concepts Globalisation Context Not given Introduction: Globalisation refers to the development of an increasingly global economy characterised by free trade of goods and services, international flows of capital, and labour mobility. Factors driving globalisation include government policies and technological advancements. R1: Government Policies Governments around the world have increasingly accepted globalisation as an engine of economic growth and have implemented policies to enable greater trade and movement of investment. According to the theory of comparative advantage, countries can benefit by exporting products they have a relative cost advantage in (i.e. can produce at a lower opportunity cost than other countries) and importing the goods they have a relative cost disadvantage in. Through specialisation and trade, there will be a higher world output and all countries would mutually benefit from higher levels of consumption than before (countries can now consume beyond their production possibilities curve) . Recognising this advantage of trade, governments around the world have signed more Free Trade Agreements (FTA), which has resulted in in the removal or lowering of trade barriers such as tariffs. For example, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership was signed in 2018 allowing for free trade between 11 countries including Singapore, Australia, Mexico, and Vietnam. The following diagram shows the impact of removing trade barriers:

2 Before the signing of FTAs, these countries imposed tariffs on imported goods, shifting the world supply curve from Sworld to Sworld + tariff raising the price of imports as indicated by Pt. With the tariff in place, domestic firms produce QD0, and QD0 – QT quantity of the goods consumed in the economy are imported. With the removal of tariffs, imports are now cheaper, as reflected by PW. Without the tariff, only Q D1 goods are produced by domestic firms while imports have increased to Q D1 – Q F. This increase in imports shows that trade volume has increased, contributing to greater integration between economies and giving rise to globalisation. It also becomes easier and more attractive for firms to invest and expand overseas, resulting in greater flow of FDI and capital between countries. R2: Advancements in technology Technological advancements have resulted in faster and lower cost of transportation and communication. Supply chains can be globally fragmented according to the pattern of comparative advantage. Firms can source for/import their raw materials or components from different parts of the world. Low transport costs allow countries to maintain their comparative advantage even with transport costs factored in, therefore enabling countries to benefit from specialisation and exchange of goods and services. Lower cost of transportation and communication enables firms and multinational corporations to expand overseas, taking advantage of markets and lower costs of different places. This leads to FDI being an important source of AD and source of potential growth for many countries such as Singapore. Marking Scheme: Level Knowledge, Application, Understanding and Analysis Marks L3 • Well-developed analysis on both requirements: - Good use of relevant economic concepts in analysis. - No major conceptual inaccuracies. - Start and end point are clearly explained with no missing links in elaboration. Annotation Level Mark out of 10 A+A L3 10 A+C or C+A L3 8-9 A+K or K+A L2 7 C+C L2 6-7 A+0 L2 6 K+C or C+K L2 5-6 C+0 L1 4 K+K L1 2-4 K+0 L1 1-2 8-10 L2 • Lacking in any one of the L3 criterions. 5-7 L1 • Descriptive answer without any or with minimal economic reasoning. • Major conceptual errors. 1-4 (b) Discuss the most appropriate policy measures that Singapore government should take in the face of countries retreating from globalisation. [15] Question analysis: Command Discuss = Explain + Evaluation • Start: policy measures

3 • End: overcome challenges posed by other countries ‘retreating from globalisation’ Note to students: A second policy must be included in your analysis (inferred by the words “most appropriate”) Context Singapore Concepts • DD/SS analysis • PED and PES concepts (if relevant) Introduction: In recent years, although technology continues to improve, government policies have been leaning towards protectionism and in some cases , restrictions to the inflow of foreign direct investment. The US-China trade war is an example of countries retreating from globalisation in the form of free trade . Being small and open, Singapore has no choice but to continue to embrace globalisation. The retreat from globalisation makes it harder for Singapore to export goods and services and in some cases, the country has also faced the difficulty of importing due to export bans by foreign countries. All these apply even more pressure for Singapore to be resilient while it continue to depend on foreign markets for exports, imports and foreign direct investment. R1: Signing more free trade agreements to sustain exports and diversify import sources. As countries adopt more restrictions on imports, it will be harder and costlier for Singapore to export and import goods and services . The small and open economy may inevitably suffer from a fall in its external demand and/or experience imported inflation, should there be protectionist policies such as tariffs or export bans being implemented by its trade partners. To minimise the potential negative impact, Singapore will have to continue to sign free trade agreements (FTAs) with other countries by being pro-active in establishing regional and global trade links, particularly through bilateral trade ties to diversify its export and import markets. This way, the diversification of export demand and import supply will help to counter potential decreases in export demand and stabilise import cost even if Singapore’s trade partners were to impose tariffs that would hurt the country’s export revenue or export bans that would raise domestic producers’ imported cost. For example, in May 2023, S ingapore and Kazakhstan inked four agreements, including one that will give Singapore firms greater access into Kazakhstan’s services sectors and protect investors’ interests. E1: The example of Kazakhstan illustrates the importance of Singapore being open to trade with both developed and developing countries. Singapore cannot favour only developed countries and neglects developing countries. By fostering free trade with developing countries, there can be demand for more technologically -advanced products and services which Singapore has comparative advantage in. Such free trade ties in fact benefit Singapore’s consumers too because there will be greater inflow of products from Kazakh stan. As Singapore improves foreign market access, the domestic market will also see greater inflow of imports and foreign firms. This requires domestic firms to toughen up to deal with foreign competition.

4 R2: Strengthening of domestic competitiveness and economic resilience via supply- side policies. If its trade partners implement trade restrictions such as tariffs, Singapore’s exports will become less competitive in those markets. It wi