YIJC 2024 JC2 H2 Prelim Essay Q6 Suggested Answer

1 | P a g e Prelim Essay Q6 – International Trade & Globalisation Amidst global economic slowdown and rising unemployment, there is growing dissatisfaction with free trade, globali sation, and increasing protectionism of some countries. a. Explain the reasons for the rise in protectionism in some countries. [10] b. Discuss whether the use of policies promoting greater free trade is the best strategy for Singapore to improve her balance of trade amidst rising protectionism in the globalised world. [15] Suggested answer for part (a): Question Analysis Command Explain the reasons – Use economic reasoning to explain Content Rise of protectionism (Reasons for Protectionism- Choose 2) - Infant Industry Argument - Protect domestic production and employment using sunset industry argument - Protection against dumping - Protection to align environmental and social standards Context Some countries 1st Requirement: Reason 1 for the rise in protectionism – Costs of globalization, i.e., l oss of comparative advantage , rise in structural unemployment and deterioration of trade balance 2nd Requirement: Reason 2 for the rise in protectionism – Explain the benefits of protectionism in improving trade balance and protecting domestic industries. Introduction Protectionism refers to economic policies or practices that governments use to protect their domestic industries from foreign competition. Common tools of protectionism include tariffs, quotas, and subsidies. In recent years, rising dissatisfaction with free trade and globalization has prompted some countries to ad opt protectionist measures, driven by factors such as loss of comparative advantage, rising structural unemployment, and efforts to protect domestic industries and improve trade balances. 1st Requirement: Reason 1 for the rise in protectionism – Costs of globalization, i.e., Reducing the impact of loss of comparative advantage, rise in structural unemployment and deterioration of trade balance • Loss of Comparative Advantage: Some developed countries, such as the United States, have experienced a loss of comparative advantage in various sectors due to

2 | P a g e increased competition from developing economies like China and Vietnam. These countries often have lower labour costs, attracting foreign direct investment (FDI) and outsourcing from developed countries. As domestic industries become less competitive, loca l firms may close down or shift operations abroad, leading to job losses. Eg: The U.S. has experienced a loss of comparative advantage in electronics manufacturing, as companies like Apple outsource production to China, which offers lower labour costs and an efficient supply chain. Similarly, U.S. automobile manufacturers have faced competition from Japanese, South Korean and Chinese manufacturers, leading to declining market share and job losses in the industry. • Structural Unemployment: Structural Unemployment: As industries close down, workers face long-term unemployment due to a mismatch between their existing skills and those required in the evolving economy. The "skills gap" widens as the demand for highly skilled labor in growing industries outpaces the supply of qualified work ers. Displaced workers from shrinking sectors may struggle to transition to new roles, particularly in countries with generous unemployment benefits, which can reduce the incentive to retrain. Even when retraining is pursued, the rapid pace of economic restructuring often surpasses the rate of skill development, leading to structural unemployment in the short term as workers experience occupational immobility in high-skilled industries. • Deterioration of Balance of Trade: As developed countries lose competitiveness, exports decline, and imports rise, leading to trade deficits. This deterioration in the BOT can result in reduced foreign reserves, increased borrowing, and heightened economic instability. Protectionist measur es are thus seen as a way to counter this negative trend by boosting domestic production and reducing reliance on imports. 2nd Requirement: Reason 2 for the rise in protectionism – Explain the benefits of protectionism in improving trade balance and protecting domestic industries. Protectionist policies are often implemented with the aim of protecting domestic industries, maintaining employment levels, and improving the balance of trade. While such policies may provide short-term relief, they also come with potential drawbacks like higher prices and inefficiencies. • Protecting Infant Industries: Protectionism can help infant industries, which are still developing their comparative advantage, by giving them time to grow and become competitive. Without protection, these industries might fail to achieve economies of scale, leading to a loss of potential future competitiveness. By protecting these sectors in the short run, governments can encourage diversification, reduce dependency on specific imports, and support long -term economic stability. Eg: China's renewable energy sector, particularly solar panel manufacturing, benefited from protectionist measures like subsidies and low -interest loans in the early 2000s. These policies allowed domestic companies to scale up, reduce costs, and become global leaders in solar panel production, helping China dominate the global market. OR • Export Subsidies and Trade Balance: Export subsidies lower the unit cost of production for domestic firms, enabling them to sell their goods at more competitive prices in international markets. This can help increase exports, reduce trade deficits,

3 | P a g e and boost AD, potentially leading to economic growth and higher employment. Countries with large current account deficits may resort to protectionism to boost exports and reduce imports, improving their BOT in the short term. Eg: The European Union’s Common Agricultural Policy (CAP) provides export subsidies to farmers, reducing production costs and enabling competitive pricing in global markets. This has boosted EU agricultural exports, reduced trade deficits in the sector, and suppor ted domestic farm incomes. OR • Import Tariffs and Employment: Import tariffs raise the prices of foreign goods, making domestically produced alternatives more attractive to consumers. This can support domestic industries, safeguarding jobs, especially in industries facing strong international competition. Thus, reducing structural unemployment. However, the extent of the benefit depends on how long protectionist measures are in place and how effectively domestic firms can adapt and become more competitive. Conclusion The rise of protectionism in some countries can be attributed to the need to address domestic economic challenges such as structural unemployment, loss of competitiveness, and trade imbalances. While protectionist measures can offer short-term benefits, especially in protecting jobs and improving trade balances, their long -term effects on economic efficiency and global trade relationships need to be carefully considered. Markers’ Comments: Only 46 candidates attempted this question. While most candidates were able to identify the two key reasons for the rise in protectionism, many struggled with providing strong theoretical explanations and did not substantiate their points with relevant real -world examples. Additionally, candidates need to maintain a sharper focus on the key requirements of the question. Crafting clear topic sentences can help ensure that responses directly address the question and are structured logically. Mark Scheme: Knowledge, Understanding, Application, Analysis L3 Analysis & Application For an analytical answer that addresses the question thoroughly with