ASSIGNMENT 3 – Individual Assignment Theory question tariff in a small country

ASSIGNMENT – Individual Assignment Subject Code ECON1269 Subject Name Campus International Trade Saigon South Campus Student Name Vo Thanh Dat ID S3915261 Lecturer’s Name Daniel Borer Word count 1966 Theory question: tariff in a small country a From the start of 2017 to the end of 2021, Vietnam was the leading exporter of footwear, clothes, nuclear reactors, hardware, and gaiters Electrical equipment, personal computers, plastics, optics, and iron are the top five imports concurrently The United States, China, Japan, Korea, and Hong Kong are Vietnam's key commodities and import partners with 14.35 million tons in 2018 to 24.15 million tons respectively By 2020, commerce will achieve true success at a rate of 131 percent Prior to the 'Doi Moi,' car ownership in Vietnam was severely restricted, with the few available automobiles imported from Third World countries with a more pro-government political orientation In 1995, the first car assembly lines employing thump down packs were developed to make automobiles for Mitsubishi, Toyota, and Isuzu Between 2003 and 2006, the automotive transaction tax was increased from 5% to 50%, resulting in a decline in vehicle sales (OEC n.d) Despite its little size, the Vietnamese car market is Southeast Asia's fastest expanding The Vietnamese Vehicle Manufacturers' Association (a non-governmental organizations) represents the bulk of the country's automobile manufacturers (VAMA) According to General Statistics Office, Thailand, Korea and Indonesian are the most common car imports partners from 2018 to 2020 Meanwhile, the number of cars imported by Vietnam was 165.6 thousand unit in 2018 and 270.8 thousand unit in 2020 in that order Figure 1: Vietnam Exports of iron and steel Source: Trade Economics n.d https://tradingeconomics.com/vietnam/exports/iron-steel Figure 2: Imports of vehicles to Vietnam 2015-2020 Source: General Satistics Office n.d b Allowing for the possibility that Vietnam has not imposed any taxes on the entry of vehicles It is visible in the figures below that the production potential curves for autos and iron and steel in Vietnam are both flat, demonstrating that the country benefits from free trade Figure 3: Vietnam’s PPF at free trade situation c Consider the scenario in which Vietnam implements a 65 percent import tariff on automobiles for the sake of argument As a result of this condition, the utility curve changes to the left Because of this, overall satisfaction tends to deteriorate with time Furthermore, as a result of this, the welfare of consumers will be harmed Figure 4: PFF after applying 65% tariff d When the welfare of consumers decreases as a result of the imposition of tariffs, the balancedtrade line can be used to further research This will be the driving force behind the growth in product prices in the future Furthermore, the customer will suffer a loss as a result of this, whilst the manufacturer and the government would benefit from it Figure 5: Welfare Implications e Although it is theoretically conceivable for the value of Vietnamese Dong appreciates towards world currencies to rise, doing so would result in reduced import charges and greater export expenses, as opposed to the opposite Price increases for items and services manufactured in Vietnam will occur as a result of the strengthening of the Vietnamese currency A drop in the demand for products and services will follow as a result of this As a result of this decision, exports will also suffer as a result Due to the fact that Vietnam is a small open economy, any gain or depreciation in the value of the VND would have only a little influence on the worldwide prices of goods As long as global demand for iron and steel remains completely inelastic, the appreciation of the Vietnamese dong (VND) will have no influence on the amount of iron and steel that is demanded in the nation, and vice versa Figure 6: PPF when VND appreciates towards the world currencies Inequality and poverty reduction through international trade a In 2018, South Africa remained Vietnam's most important African commercial partner, with bilateral trade totalling US$1.1 billion, an increase of 11.7 percent over 2017 levels and accounting for 16 percent of total bilateral trade in the country (Trading Economics 2019) Last year, Vietnam exported items to South Africa worth US$724.3 million, a 3.7 percent decline from the previous year, while imports jumped by 59.5 percent to US$386.4 million, a 59.5 percent rise from the previous year Vietnamese footwear exports to South Africa were valued US$108.8 million and US$96.2 million, respectively, in 2017, and computer and electronic equipment exports were for US$96.2 million in 2017 It's worth highlighting that the value of coffee exports increased by 108.4 percent last year, reaching US$17.3 million in total Pepper, on the other hand, suffered a 37% drop in income to US$9.2 million Vietnamese imports from South Africa increased considerably in recent years, with fruit and vegetables climbing 46.9 percent and timber and wood products increasing 35.5 percent, among other categories While this was happening, metal imports decreased by 3.3 percent to US$89.7 million, accounting for the vast majority of Vietnamese imports from South Africa In recent years, purchases of metals, machinery-tools, and steel have dropped dramatically in Vietnam, by 88.2 percent and 40 percent, respectively During the year 2000, the governments of Vietnam and South Africa signed a trade agreement with the goal of increasing bilateral trade and economic cooperation while adhering to their respective domestic laws as well as the obligations imposed by international treaties, conventions, and agreements to which they may be parties b According to the General Department of Customs, total import and export revenue between Vietnam and South Africa would be around 177.4 million USD in June 2020 With about 30.3 million USD in income, phones and components of all sorts have developed into Vietnam's largest export group to your nation On the other hand, fruit and vegetables are a big import from South Africa to Vietnam Vietnam is more suitable to companies such as telecommunications, which require just specialized workers and a small amount of land, due to a larger labor supply and lower labor costs The Ricardian model indicates that the amount of smartphone and component production in Vietnam has increased in response to South African demand Because labor expenses have decreased, the budget constraint has shifted to the right, resulting in a steeper indifference curve suggesting an increase in degree of ultility (Phung 2020) c South Africa established diplomatic relations with the communist republic of Vietnam in 2010, and the two nations reinforced their ties in October 2011 Both South Africa and Vietnam have outstanding investment prospects, and the private sector should be encouraged to join in and explore all conceivable routes of collaboration and trade Both sides have also committed to continue exchanging views on multilateral issues such as a just global trade system, banking system reform, development, peace and stability, and climate change South Africa's bilateral trade with Vietnam also exceeded one billion dollars in 2012 4.With bilateral trade increasing from R18,4 billion in 2015 to R20,5 billion in 2016, Vietnam is South Africa's second largest ASEAN trading partner By awarding scholarships to South Africa in the Maritime Economy at the Hanoi Maritime University, the Vietnamese government demonstrated its appreciation for Vietnam's support to South Africa's talents and progress 6 Since 2012, South Africa has reduce the Business Tax with Vietnam from 34.55% to 28% (KPMG n.d) 2010 Vietnam 2012 39.3 35.6 South Africa 63.4 63 2014 34.8 2016 35.3 2018 35.7 The average annual income of family members from impoverished rural regions is less than 2,400,000 Vietnamese ng (VND) per capita (equal to $150 US dollars) According to the local administration, families in the city with an annual average income of less than VND 3,120,000 (US$195) per capita are deemed to be poor According to the three cost of living indicators, food poverty was expected to be R624 per month in April 2021, lower-bound poverty was assessed to be R890 per month, and upper-bound poverty was estimated to be R1335 per month in April 2021 d According to the Stolper-Samuelson theorem, eliminating tariffs on labor-intensive goods will reduce salaries more than prices, disproportionately harming the working class even while total welfare rises The justification for this theorem is based on interactions across industries with varied labor intensity South Africa, for example, has a stronger economy with higher wages, which can be divided into two sectors: vegetables (land consumption) and smartphone manufacture, which is a labor-intensive industry with tax benefits [import smartphone] In Africa, the price of cellphones and components has reduced after [tax] protection was removed As a result, the industry will be compelled to [reduce its size], lay off employees, and vacate the premises As a result, wages and land rents will be squeezed As a result of the newly available land and people, vegetable farmers will expand production This trend will continue until the cost of producing smartphones reaches the level of the tax cut, allowing the sector to compete with duty-free imports Vietnam's annual surge in smartphone exports to South Africa confirms this International business has benefited the poor in Vietnam as new sectors such as cellphones and autos have developed South African demand has aided the sector's growth This produces new positions and demands a competent labor force; it has resulted in the resignation of a group of employees, making place for additional unskilled people From an agrarian country, agriculture currently contributes for just 17% of Vietnam's GDP, followed by industry at 39% and services at 44% (Alexander 2020) This change happened when Vietnam transitioned to a market economy and opened its borders to more commerce Additionally, because the majority of sectors are based in affluent nations, employees will benefit from higher wages as a result of the currency strength mismatch Industry Talk The Regional Comprehensive Economic Partnership (RCEP) is a free trade agreement that brings together 15 nations with a combined population of 2.2 billion people and a combined GDP of $26.2 trillion, or 30% of the world's population This approach is based on the convergence of standards and regulations, the removal of trade barriers, the expansion of market access, and the streamlining of procedures When it comes to economic progress, China is undoubtedly the winner, having benefited from the US-China trade war, geopolitical developments, and the pandemic-induced global slowdown China exports have expanded significantly in recent years, representing for 4.4% of total UK exports and 6.8% of total UK imports China, of course, is a major potential market for the United Kingdom On the other hand, industry sources indicate that the UK is supporting the CPTPP because of its more autonomous trade policy; yet the UK stands to benefit from participation in this trading organization Given that the great majority of CPTPP countries that trade with the UK are also members of the Regional Comprehensive Economic Partnership (RCEP), the UK stands to benefit considerably from a backdoor into RCEP By incorporating the deal into its trade policy, the UK will be able to spur economic growth by lowering trade barriers between the UK and other countries Reduced tariffs and taxes will result in higher spending and lower income Because it would remove impediments to international business, such as taxes and fees, it would foster more international trade with other countries Additionally, it will promote foreign direct investment (FDI) Foreign nations will gain from the promotion of home industries Shipments will increase as a result of the reduction in the export tax Additionally, it will pave the path for future market access Physical travel around the world will be easier for natural persons, SMEs, economic and technical cooperation, competition rules, intellectual property protection, financial services, e-commerce, government procurement, and dispute resolution Additionally, as a result of its alliances, it will be able to bolster the nation's security in the face of threats As a result, the United Kingdom should become a member of the Regional Comprehensive Economic Partnership (RCEP) in order to reap these benefits while also enhancing economic growth and development Reference General Statistics Office n.d, Some main goods for importation, General Statistics Office, viewed January 2022, https://www.gso.gov.vn/en/pxweb/?pxid=E0818&theme=Trade%2C%20Price%20and %20Tourist%5C %5C&fbclid=IwAR1xI4a0d3XllSFXzO9DLW7D4pNTVEGL9N8aRLe_Yijy6j5RTL8YQWEJV pc The Observatory of Economic Complexity n.d, Vietnam (VNM) Exports, Imports, and Trade Partners | OEC, The Observatory of Economic Complexity, viewed January 2022, https://oec.world/en/profile/country/vnm KPMG n.d, Thuế doanh nghiệp, KPMG, viewed January 2022, Department of Trade, Industry and Competition 2020, South Africa and Vietnam to Support Business Engagement and Trade for Both Countries, Department of Trade, Industry and Competition, viewed January 2022, General Statistics Office n.d, Some main goods for importation, General Statistics Office, viewed January 2022, The Observatory of Economic Complexity n.d, Vietnam (VNM) Exports, Imports, and Trade Partners | OEC, The Observatory of Economic Complexity, viewed January 2022, Ward, M 2020, Statistics on UK trade with China, House of Commons Library, viewed January 2022, Phung, N 2020, Xuất nhập Việt Nam Nam Phi tháng 6/2020: Nhập siêu 54 triệu USD, Vietnambiz, viewed January 2022, The World Bank n.d, Gini index (World Bank estimate) – Vietnam, The World Bank, viewed January 2022, The World Bank n.d, Gini index (World Bank estimate) – South Africa, The World Bank, viewed January 2022, World Trade Organization 2000, ‘TRADE AGREEMENT BETWEEN THE GOVERNMENT OF THE REPUBLIC OF SOUTH AFRICA AND THE GOVERNMENT OF THE SOCIALIST REPUBLIC OF VIETNAM’, World Trade Organization, viewed January 2022, Trading Economics n.d, Vietnam Exports of iron and steel, Trading Economics, viewed January 2022, Alexander, L 2020, International Trade has Benefited the Poor in Vietnam, BORGEN, viewed January 2022, < https://www.borgenmagazine.com/the-poor-in-vietnam/> Petri, P and Plummer, M 2020, RCEP: A new trade agreement that will shape global economics and politics, Brookings, viewed January 2022, ... Inequality and poverty reduction through international trade a In 2018, South Africa remained Vietnam's most important African commercial partner, with bilateral trade totalling US$1.1 billion, an increase... (VND) per capita (equal to $150 US dollars) According to the local administration, families in the city with an annual average income of less than VND 3, 120,000 (US$195) per capita are deemed... development, peace and stability, and climate change South Africa's bilateral trade with Vietnam also exceeded one billion dollars in 2012 4.With bilateral trade increasing from R18,4 billion in 2015