Role play on the topic "Trade or Protect?"

The ASEAN Free Trade Agreement (AFTA) called for Malaysia to reduce tariffs in its car industry drastically.

Role 1: CEO of Proton
As CEO of Proton, you decide to lobby the government to press for a 2 year extension before the tariff reduction takes effect. Present arguments for your stance.

You may want to consider the effect of your stance on domestic firms, workers, economic growth etc.

v Imports of foreign cars, increased competition.
v Dumping of foreign cars
v Malaysian car firms cannot compete with the cheaper ASEAN car imports
v Malaysian workers maybe retrenched, wages may decrease due to increased competition
v Prevent reliance on foreign products
v Prevent great outflow of foreign exchange
v Continued monopoly of market, maintain supernormal profits.

Role 2: Secretary-general of ASEAN
As the secretary-general of ASEAN, present arguments why this AFTA deal will be beneficial to Malaysia.

You may want to consider the effect of the deal on Malaysian firms, workers, economic growth.

v Lower trade barriers => Malaysians gets access to greater car choices, higher utility, lower prices
v Domestic car workers may be laid off, but will move to productive sectors where Malaysia has comparative advantage
v Tariffs => direct more workers into car industry where their productivity is less, and direct workers out of other sectors where their productivity is greater; thus, restrictive trade policy would lower the overall productivity, and wages, of workers in Malaysia
v Ensure much needed reforms in the car industry in Malaysia
v Cheaper transportation costs by Malaysian firms =.> more competitive exports

Do you know that some economists blog? Read their blogs to find out their views on current economic issues:
Greg Mankiw
Brad Delong

Read the news article below and think about the following questions:
1. What is a minimum-wage policy?
2. How does minimum-wage policy affect employment?
3. How does the article shows that the aims of government might conflict with each other?

This article appeared on the Straits Times on the 31st March.

Economists say the combined pressures of a deepening recession and collapsing exports mean the MAS will probably allow the currency to fall further in value against other currencies. A weaker Singdollar would make exports more attractive, but would also mean that imports and trips overseas for Singaporeans may become more expensive.

The MAS conducts monetary policy through exchange rate adjustments, which it carries out by trading the Singdollar within an undisclosed band.

Points to ponder on:
1. What is the term used to describe the fall of the currency in value against other currencies?
2. How will the weaker Singdollar affect our terms of trade and balance of payment?
3. How is exchange rate adjustments made by the MAS?

The leaders of the world’s largest economies came together in London to deal with the global financial crisis. Read more about it on http://www.londonsummit.gov.uk/en/.

The focus of the G20 summit was on Stability, Growth and Jobs.
The members are: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the UK, the US and the EU.

Gordon Brown's closing speech at the G20 summit - headlines by BBC live broadcast on 2 April 2009 :

• Global problems require global solutions
• Agreed $1 trillion extra for IMF and other - increased liquidity
• Protectionist countries will be named and shamed - commitment to fight all forms of protectionism and maintain open trade
• Exchange of tax information - End to tax havens that aren't open to international scrutinity
• Banking secrecy of the past must end
• Sorting out problems of the banking system. Establish more confidence with the banks - people secured with homes and jobs. Regulatory system to deal with restructuring of banks.
• New rules on pay and bonuses globally
• Injection of $5 trillion to boost world economy - largest fiscal stimulus
• A new world order is emerging

French President Sarkozy: Conclusions are more than we could have hoped for..there will be more scrutiny and strighter regulation on funds.

The big picture - how the topics are related for O level Econs. I hope that this mindmap will help you see the relationship. Click on the image for a bigger view.

Define exchange rate.
The rate at which one currency can be exchanged for another

Explain what is meant by the appreciation of exchange rate.
A rise in the value of the country’s currency (e.g. £) in relation to other currencies – each £ buys more of the other currency.

Explain what is meant by the depreciation of exchange rate.
A fall in the value of the country’s currency (e.g. £) in relation to other currencies – each £ buys less of the other currency.

The value of exports might be affected by changes in a country’s exchange rate. Discuss why exchange rates fluctuate.
Exchange rates fluctuations reflect changes In the demand for and supply of the currency in the foreign exchange market which can be attributed to:
§ Credit items / capital inflows ( Demand for the country’s currency )
§ Debit items / capital outflows ( Supply of the country’s currency )

Comment on factors affecting current account flows / capital flows
Exchange rates are determined by the interaction of demand for, and supply of, the currency in the foreign exchange market. The factors causing changes in floating exchange rates are many and varied.

Exchange rates are determined by the demand for and the supply of currencies on the foreign exchange market. What are the factors which influence the demand and supply for currencies?
Relative interest rates, the demand for imports (D£), the demand for exports (S£), investment opportunities, speculative sentiments, global trading patterns, changes in relative inflation rates

Explain how appreciation and depreciation of exchange rate can affect the balance of payment.
A depreciation in exchange rate should lead to a rise in demand for exports, a fall in demand for imports – the balance of payments should ‘improve’
An appreciation of the exchange rate should lead to a fall in demand for exports and a rise in demand for imports – the balance of payments should get ‘worse’ But
The volumes and the actual amount of income and expenditure will depend on the relative price elasticity of demand for imports and exports.