4.3 Arguments For and Against Trade Protection Questionbank

Japan–European Union Economic Partnership Agreement (JEEPA)

1. In July 2017, the Japan–European Union Economic Partnership Agreement (JEEPA) was announced and it may come into force in 2019. Jointly, Japan and the European Union (EU) currently account for 28 % of global gross domestic product (GDP). The trade agreement could raise the EU’s exports to Japan by 34 % and Japan’s exports to the EU by 29 %. Economists say that this trade agreement marks a determined effort to combat rising protectionism and sends a powerful signal that cooperation, not trade protection, is the way to tackle global challenges.

2. The largest benefit to Japan will be for Japanese car manufacturers, as Europe will gradually lower tariffs from 10 % on Japanese cars. Car tariffs are a big concern for Japanese car manufacturers, who struggle to compete with South Korean car manufacturers. South Korean cars are sold to the EU tariff-free thanks to a free trade agreement signed in 2011. Within Europe, car manufacturers are one of the largest sources of jobs. Car manufacturers in the EU are concerned that cutting tariffs on car imports from Japan may lead to a large increase of Japanese cars into the European market.

3. The trade agreement will also resolve non-tariff barriers, such as technical requirements and regulations. More importantly, however, the EU and Japan will make their environmental and safety standards on cars the same, which will make trade easier.

4. Japanese politicians have been defending their relatively inefficient farmers for a long time. Now, Japan will lower tariffs on European meat, dairy products and wine, cutting 85 % of the tariffs on food products coming into Japan. This includes removing the current 30 % tariff on some European cheeses, such as cheddar and gouda cheese. However, imported camembert cheese will face a quota. This may be because Japan produces some camembert cheese.

5. JEEPA is particularly alarming for United States (US) beef and pork farmers because Japan has been the biggest export market for US beef and the second biggest export market for US pork. Any preferential tariff that EU farmers receive will make it much tougher for American farmers to sell meat in Japan.

6. With this trade agreement, the EU and Japan are trying to promote the values of economic cooperation and environmental conservation, which are both important for long-term economic growth and sustainability. However, JEEPA faces significant challenges because it will have to be passed by the Japanese Parliament, the European Parliament and European national governments. There is no guarantee that all governments will agree to the economic partnership.

Source: adapted from The Japan-EU Trade Agreement: Pushing Back Against Protectionism, http://globalriskinsights.com, 15 July 2017; Japan-EU trade agreement may hurt U.S. meat producers, by Katherine Hyunjung Lee, Jul 12, 2017, _Medill_ _News Service_, https://dc.medill.northwestern.edu; and A new trade deal between the EU and Japan, _The Economist_ (London, England), Jul 8th 2017, https://www.economist.com/finance-and-economics/2017/07/08/a-new-trade-deal-between-the-eu-andjapan. © The Economist Newspaper Limited, London, July 8th 2017

Northland Free Trade Agreement

Northland is a landlocked developing country of 5 million people. Despite agriculture employing 60% of the labor force, the sector contributes only 25% to GDP, highlighting significant productivity challenges. The country's trade profile reflects this economic structure, with exports concentrated in primary products like coffee, tea, and textiles, while relying heavily on imports of machinery, oil, and processed foods, resulting in a persistent annual trade deficit of $1 billion.

In response to growing concerns about import dependency and the need to protect domestic industries, Northland's government initially implemented substantial tariffs on processed food imports. This protection policy aimed to nurture local food processing capabilities and reduce the trade deficit. However, while these measures provided some shelter for domestic producers, they also resulted in higher consumer prices and limited market competition.

Recently, Northland has taken a significant step by signing a free trade agreement (FTA) with a neighboring country, marking a shift from protectionist policies toward regional integration. This move presents both opportunities and challenges: while it promises improved market access for Northland's exports and potential technology transfer through increased regional trade, it also exposes local producers to stronger competition. However, to maintain domestic standards of living in face of fear of machinery replacing jobs, the Northland's government has imposed a minimum wage. The success of these policy shifts will largely depend on how well Northland's agricultural sector can adapt to new market pressures while leveraging its traditional export strengths.

Table 1: Northland's Trade Data Before and After FTA

Table 2: Price Elasticities of Demand for Northland’s Key Exports and Imports

Study the following extract and answer the questions that follow. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Australia and Japan 1 In 2018, Australia signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)*. The agreement creates the third largest free trade area in the world, covers nearly 500 million people and is worth more than US$12 trillion. The members of the agreement have stated that economic integration and free trade is important to help foster good political relations and inclusive growth for all nations. 2 The trade agreement will aim to gradually eliminate most trade protection within the member countries. The agreement will see tariffs eliminated for Australian cheese and beef exports to Japan, and increased quotas for the export of rice to Japan from 4400 to 8400 tonnes. Nikkei Asian Review reported that "Fast-food restaurants in particular are embracing the import as a way to cut costs to cope with rising wages." Additionally, Japanese food manufacturers will be able to lower production costs for rice-based meals and benefit from increased stability of input prices. The benefits from the agreement for Japan's economy are projected to exceed US$70 billion, but some industries would be negatively affected. 3 Japanese farmers are worried about the increase in imported food from Australia. Furthermore, the Japanese government is concerned about the effects of the CPTPP on Japan's food self-sufficiency—Japan relies on other countries for over 60% of its food. In response to these concerns the Japanese government has offered support for domestic farmers to diversify production into other crops. The government also plans to subsidize the rice farmers through the initial phase of lowering trade barriers. 4 The agreement is said to be worth more than US$37 billion to Australian agricultural exports. It is hoped that CPTPP and the falling value of the Australian dollar will help Australia to reduce its current account deficit, but some economists have argued that this can take a long time. According to some estimations, the short-run price elasticity of demand (PED) for Australian exports is 0.2 and the short-run PED for imports in Australia is 0.4. However, the long-run PED for Australian exports is 1.1 and the long-run PED for imports in Australia is 1.3. 5 There have also been concerns about the CPTPP from trade unions in Australia. They argue that it deregulates the labour markets and gives corporations from other countries an ability to take legal action against governments for implementing laws that raise wages or protect the environment, if the foreign corporation can prove that the law hurt their commercial interests. One university lecturer said that the future costs to the taxpayer could be significant if foreign companies take the Australian government to court. 6 The trade agreement would allow workers from other countries to work in Australia without employers being required to check if Australian citizens are available to fill the jobs before the migrant workers are employed. It is estimated this may risk 39000 jobs in Australia. Furthermore, environmental activists have expressed concerns that the negative environmental and social effects of the agreement have not been well considered. This may lead to conflicts with Australia's commitment to the United Nations' Sustainable Development Goals. * The CPTPP includes eleven member countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

Text A: Trade and Industrial Policies in Country Y

Country Y has recently joined its neighbouring Free Trade Area, eliminating tariffs on agricultural imports. This has led to an increase in cheaper food products but has also resulted in declining incomes for local farmers due to intense competition. In response, the government has introduced subsidies to help farmers purchase modern equipment and seeds to improve productivity.

In addition to agricultural reforms, Country Y has imposed tariffs on imported luxury goods to counter its widening trade deficit. Policymakers argue that these tariffs will protect domestic manufacturers, though critics warn they could lead to inefficiencies and harm diplomatic relations with trade partners.

Text B: Environmental Challenges and Policies in Country Y

To achieve carbon neutrality by 2050, Country Y has implemented stricter environmental regulations on industries emitting greenhouse gases and introduced a tax on single-use plastics. While these policies are designed to curb pollution, they have increased production costs for domestic firms, leading some companies to relocate to countries with less stringent regulations.

To foster green innovation, the government has launched a subsidy program for renewable energy firms and offered incentives for businesses that produce eco-friendly goods. However, critics argue that the slow implementation of these policies has limited their effectiveness in reducing carbon emissions.

Table 1: Trade Statistics of Country Y

Table 2: Environmental Policies in Country Y

Relief as Kenya raises tariff for steel and iron imports

Steel manufacturers in Kenya are set to benefit as the government moves to protect the local manufacturing industry from cheap steel and iron imports.

In 2014 a government official announced an increased tariff on steel and iron imports. “Our steel mills are closing down due to unfair competition from cheaper imported iron and steel products,” he explained. “To protect and create more jobs in the iron and steel industries, tariffs on a wide range of imported iron and steel products will be increased from 0 % and 10 % to 25 %,” he said. The government official further stated that as well as protecting the local industries from cheaper imports, the protectionist measures would raise an additional 2.6 billion Kenyan shillings (Kenya’s currency) annually in government revenue and support economic growth.

The potential of local industries to expand and create jobs through trade has been held back by a number of administrative barriers. The government remains focused on improving the business environment. Over the past six months, the government has made it easier to register a company and trade across borders. The time taken to move goods out of the main harbour has fallen sharply; non-tariff barriers such as roadblocks have also been reduced. Importers of refined industrial sugar and wheat are also pleased after the government scrapped requirements to pay unnecessary administrative charges.

However, there is a belief among manufacturers that there is a need for more deregulation to lower their costs of production and in effect reduce the cost of doing business.

Kenya sees gross domestic product (GDP) growth picking up but current account a concern

Good economic growth rates in neighbouring countries like Uganda help to boost Kenyan exports, particularly for agriculture that makes up nearly a quarter of the Kenyan economy. The government suggests that the main risks to growth are the slow performance of developed economies that are key export markets for Kenyan goods and services, and Kenya’s large and persistent current account deficit of over 10 % of gross domestic product (GDP) in the last three years. This is a major concern for sustained economic growth and the value of the Kenyan shilling.

Table 1: Steel and Iron Trade Data

Table 2: Kenya’s Current Account Data

Unwanted consequences of United States–China trade war

1. In order to reduce its trade deficit, the United States (US) announced tariffs of 25 % on imports of steel and 10 % on imports of aluminium from various countries in March 2018. The US government also accused China of unfair trade practices and wants China to import more American-made products.

2. In July 2018, the first tariff on Chinese imports took effect and the Chinese government retaliated with a ban on US soybeans. In response, the US threatened to impose additional tariffs on imports worth almost US$300 billion, including a 25 % tariff on cars and car parts. This would be very damaging to the Chinese economy, which is slowing down, and workers in some provinces have become unemployed.

3. The trade war has also caused anxiety in the European Union and Australia, which are likely to see their trade with China affected. Global trade in goods has been slowing, with exports from trade-dependent nations (such as Japan and South Korea) to China declining. Economists have estimated that other countries could see exports to China drop by as much as 20 %. As of early 2019, Germany’s economy is almost in recession, partly because of the slowing Chinese economy. If the US imposes its threatened car tariffs, a recession in Germany is inevitable.

4. In the US, concerns were raised that the trade war has reduced business confidence. The decrease in demand from China, which results partly from trade tensions, has hurt the profits of US companies such as Apple Inc. and Caterpillar Inc. On the other hand, consumers and producers in the US are switching to domestically-produced goods due to the higher prices of some imported products from China.

5. In an attempt to reduce the risk of a sharp economic slowdown, China’s central bank eased monetary policy. Economic data showed that small- and medium-sized manufacturing companies saw the largest negative impact from the slowdown of its economy. Therefore, the government changed the definition of a “small business”, allowing more firms to have access to subsidized lending by state-owned commercial banks.

6. As the impacts of tax cuts enacted in the US in 2017 are disappearing, the US government is becoming more aware that the US economy is hurt by the trade war and is heading towards slower growth.

$Source: Adapted from Tang, F. and Wang, O., 2019. China prepares for testing 2019 by freeing up US$210 billion in latest
move to boost ailing economy. South China Morning Post, https://www.scmp.com/economy/china-economy/
article/2180758/china-prepares-testing-2019-freeing-us210-billion-latest-move; and Donnan, S., 2019. U.S.-China
Negotiations Risk Shutting Out the Rest of the World. Bloomberg Businessweek, https://www.bloomberg.com/news/
articles/2019-02-28/u-s-china-negotiations-risk-shutting-the-rest-of-the-world-out. Used with permission of Bloomberg
LLP Copyright © 2021. All rights reserved.$

Kenya Implements Tariffs to Protect Domestic Steel Industry

The Kenyan government has taken steps to shield its domestic steel industry from cheaper imports by increasing tariffs on steel and iron products. The policy aims to support local manufacturers, reduce dependency on foreign suppliers, and stimulate job creation.

In 2014, a government official announced a tariff hike on steel and iron imports, raising rates from 0% and 10% to a uniform 25%. "Our domestic steel mills are struggling due to unfair competition from low-cost imports," the official stated. "Our domestic steel mills furthermore provide employment to large populations. They have also been ensured to follow sustainable measures throughout the production chain", he added. The new tariffs are projected to generate an additional 2.6 billion Kenyan shillings in government revenue, fostering economic growth and industrial expansion.

Kenya’s manufacturing sector has long faced structural challenges, including high production costs and bureaucratic hurdles. To address these, the government has introduced measures such as reducing non-tariff barriers, streamlining business registration, and expediting cargo clearance at ports. Importers of refined industrial sugar and wheat have also benefited from the elimination of excessive administrative fees.

However, local manufacturers argue that further deregulation is necessary to enhance efficiency and lower costs, ensuring the long-term competitiveness of the industry.

Kenya’s Economic Growth and Trade Deficit Challenges

Strong economic growth in neighboring Uganda has increased demand for Kenyan exports, especially in agriculture, which constitutes nearly 25% of Kenya’s GDP. Nevertheless, concerns persist over slow economic recovery in key export markets and Kenya’s substantial current account deficit, which has remained above 10% of GDP for three consecutive years. Policymakers fear that this could hamper sustained economic expansion and depreciate the Kenyan shilling.

Table 1: Tariff Revenue from Steel and Iron Imports

Table 2: Kenya’s Current Account Deficit

[Sources: adapted from www.standardmedia.co.ke, 13 June 2014; www.af.reuters.com, 25 July 2014; www.cnbcafrica.com, 25 November 2013]