SAJC Cluster 1.2 Lecture 13 Notes (Role of Actors in Shaping the Economy Pt.1)

St. Andrew’s Junior College H2 Cluster 1: Development, Economy and Environment H2_DEE_lecture13_2025/pg 1 Lecture 13 Relative Role of Actors in Shaping the Global Economy (I): Role of the State KEY QUESTION: Can states influence economic activities? With the completion of this lecture, attached readings and tutorial, you should be able to discuss the: - influence of states on TNCs’ operations through their role as regulators of economic activities; and - varying degree of states’ influence over the operations of TNCs Lecture Outline 13.1 Introduction 13.2 How Do States Regulate Economic Activities? 13.3 How Does the Regulation of Economic Activities by A State Influence TNCs? 13.3.1 Trade policies 13.3.2 Foreign Direct Investment (FDI) strategies Example 1: Economic Clusters Example 2: Export Processing Zones Box 1: The Development of Special Economic Zones in China 13.3.3 Labour market strategies 13.3.4 The State as a Business Owner: State-owned enterprises (SOEs) 13.3.5 Hold TNCs Accountable for Wrongdoings 13.5 Conclusion Box 2: Singapore – case study Box 3: China – case study An artist's impression of the Jurong Innovation District (JID) in Jurong West. The 600-ha JID is a recent and large scale example of the Singapore government’s effort to stimulate manufacturing in new growth areas, such as advanced manufacturing, robotics, urban solutions, cleantech and smart logistics. To date, despite the pandemic, JID has attracted close to $2 billion in private investment. Among the entrants are major players in the advanced manufacturing sector, including: Hyundai Motor Group, Konica Minolta, Nvidia, and Omron. The effort here is an example of a state taking steps actively to provide key infrastructure that will enable the country to attract FDIs from TNCs, so as to remain competitive and to upgrade or strengthen the local talent pool. How else does a state influence TNCs?

St. Andrew’s Junior College H2 Cluster 1: Development, Economy and Environment H2_DEE_lecture13_2025/pg 2 13.1 Introduction • In Lecture 12, we learnt that the GPNs of TNCs contribute to flows of trade, capital and labour, which connect different places in the global economy. Such connection also contributes to interdependence. In tutorial, we learnt that the flows of trade, capital and labour are uneven, resulting in different impacts on home countries, as well as host countries in different macr o- regions. • In Lecture 13 , we will find out how states can also shape the global economy through their influence on TNCs. This is because a state very often does not directly participate in the economy, as its role is largely in governing a country. However, the policies, initiative s and measure s adopted by states can affect TNCs’ locational decisions, thereby affecting their GPN s and how TNCs connect places in the global economy. States can also affect how TNCs behave in the ir countries, influencing the development levels of their countries. This will then affect the variations in development levels across the world. • As you consolidate this chapter, you should understand how states shape the global economy. In the process, you will also be able to discuss the extent to which states are able to exert their sovereign power over TNCs. • By the end of Topic 1.2, we will be able to discuss the relative influence of the different actors (states, labour, multilateral institutions and TNCs) in shaping the global economy.

St. Andrew’s Junior College H2 Cluster 1: Development, Economy and Environment H2_DEE_lecture13_2025/pg 3 13.1 How Do States Regulate Economic Activities? • According to the Cambridge Dictionary, to regulate something means to control it, especially by making it work in a particular way. States regulate economic activities by means of rules, policies and strategies. • States are the primary regulators of the economic activities that take place within, and across, their borders. • States regulate economic activities based on economic, environmental, social, and ethical considerations. 13.2 How Does the Regulation of Economic Activities by A State Influence TNCs? The global economy is characterized by flows of trade, capital and labour. The flows are largely coordinated by TNCs through their GPNs. At the same time, state regulation can influence TNC behaviour and operations. i. One way is through influencing the (direction and magnitude of) flows of trade, capital and labour within a TNC’s GPN, thereby shaping the global economy. ii. Another way is through ‘capturing’ the benefits of TNCs in a country. This influences a country’s level of development, which would then affect the variations in development levels in the global economy, thereby shaping the global economy. When reviewing this section, it is important to bear in mind how states affect TNCs, which then shapes the global economy, as opposed to how a state affects its national economy. 13.2.1 Trade policies • States often actively manage trade in the interests of domestic producers. In most cases, the result is policies that seek to stimulate exports while being restrictive to imports. Fig. 1 summarises the major types of trade policy pursued by national governments. Fig. 1 Major types of trade policy

St. Andrew’s Junior College H2 Cluster 1: Development, Economy and Environment H2_DEE_lecture13_2025/pg 4 • In terms of imports, while World Trade Organization (WTO) rules mean that tariff barriers have been dramatically reduced across the global economy (see Lect 14), states may implement a variety of non-tariff barriers to curtail imports - including, for example, quotas, licensing regulations, labeling and safety requirements. • Policies on imports fall into two distinct categories: o Tariffs. These are taxes levied on the value of imports that increase the price to domestic consumers and make imported goods less competitive (in price terms) than otherwise they would be. ▪ In general, the tariff level tends to rise with the stage of processing, being lowest on basic raw materials and highest on finished goods. The purpose of such ‘tariff escalation’ is to protect domestic manufacturing industry while allowing for the impo rt of industrial raw materials. ▪ Thus, although tariffs may be regarded simply as one means of raising revenue, their major use has been to protect domestic industries: either ‘infant’ industries in their early delicate stages of development or ‘geriatric’ industries struggling in the fac e of external competition. ▪ For instance, the US in the Trump era has placed tariffs on billions of dollars’ worth of good from abroad in order to protect US’s industries. China’s imports of the US goods in 2019 fell 31.4% from 2018, while exports to the US declined 7.8% amidst a tariff war. o Non-tariff barriers (NTBs). While tariffs are based on the value of imported products, NTBs are more varied: some are quantitative (e.g. import quotas), some are technical (e.g. health and safety regulations). Although, in general, tariffs have continued to decline, the period since the mid-1970s witnessed a marked increase in the use of NTBs. Indeed, it has been estimated that NTBs affect more than a quarter of all DC imports and are even more extensively used by LDCs. • For exports, the state may get involved in promoting exports through its various agencies, or manipulating the cost of exports through subsidies and exchange rate policies. For instance, the low exchange rate of the Chinese renminbi, particularly with the U.S. dollar, is a huge ongoing geopolitical issue given its effect on the relative cost of Chinese manufacturing exports. • A state’s regulation of imports and exports could influence where TNCs locate, thereby affecting flows of trade, capital and labour in the global economy. Table 1 shows how some firms have relo