FORUM DESCRIPTION Please create a thread before viewing other threads in this forum. See the questions here. See the questions here. After reading the opening case "The Evolution of Taiwan's International Trade in Chapter 6 and using the framework and Toble 6.1, which is also uploaded toWeek by Week, Week 4 explain which of the theories relate to Taiwan's trade policy during each of the eros described in the case you were the manager of a US company doing business with would you agree with Towar trode policy? Why? Why not? You are responsible for a comments posts in this forum Orman of 10 sentences each poso urrit answer the question tse minimum of 10 sentencest 2 Offer one response to the other classmate's post with your feedback on their answers minimum of 10 sentences MAP 6.1 CASE The Evolution of Taiwan's International Trade competitive in extra markets real GDP increasing steadily at 7.1 percent a year However, the negative effects of the import substitution - pro of the author Lichung many sector soha dome camers would buy do Tawalay the Republic of China, a small southeast Asian produced goods rather than-ported ones nown as an Island Country slightly larger than the US state of Maryland, with palind so that traditional primary pro W a 2015 population of about 23.4 million. Given a lack of naturale sources Town's main natural advantage as its lication on the impor These policies allowed domestic Industries to developing tant seaway connecting the east Asian mand with the rest of the creased Tan's foreign earnings and reserves. For example, world Map 6.1 shows Taiwan's location and major export markets.) 1950 Taman forbed the import of radios, but not rado pasha Taiwan has been called one of the Asian Tigers because of encouraging local assembly of radios to se domestically in rapid economic growth. Despite being ranked only 55 among con on the policies helped the sun of some light Simple-tch tries in terms of population, it is 28 in per capita GOP, rising from and borneste industries, such as textiles, plywood, and he 3 in 1950. International trade has been an important engine of its appliances. During this period, Tawan's economy boomed with the economic growth and it is the world's 21-largest exporter. Dur. ing the last hallotury. Twan's economic and export dependence polia have shifted from agricultural to industrial products included (1) Overproduction of some goods because of Evidence of Tawan's habitation po back about 10.000 years, but domestic demand coupled wea lack of scale economies to com we will overview its trade policies only since the beginning of the Japanese occupation in 1895. perte international Industry inefficiency because noncompete manufacturers were not eliminated through market competitionare THE JAPANESE OCCUPATION (1895-1945) the emergence of several monopolies that damage commune and societal welfare Japan took over Taiwan ga Chinese province since 1885) in 1895 after defeating China at war. At that time, Taiwan depended almost en tirely on agricultural exports-mainly a sugarcane, and rice. (The THE PERIOD OF EXPORT EXPANSIO. opening photo shows tea harvesting in Taiwan's highlands) In fact (1958-1969) its only significant manufactured export was take Panama huts. This Given the negative effects of import substitution, y te dependence changed little under Japanese ocupation, however, the reliance of production for the domestic market, the rest Japanese did much to make Taiwan's business environment more changed its trade policy to promote export expansion. It promoted competitive With funds and Japanese technical experts, it modem- ized the infrastructure and social structure through the building of series of policies to encourage exports. First, Taiwan deated to roads, railroads, dams for electricity, hospitals, schools, and irrigation currency (the NT dollarby 50 percent to make its productes cheaper when bought in foreign currencies. Second, the governmct set up systems. It also brought law and order often brutally, through strict police control. At the same time, Japan absorbed almost all Taiwanese a system whereby companies could be rebated for the trees exports at higher-than-world-market prices in order to feed its agri- ties) they paid on imported raw materials when they used them in cultural needs because a considerable portion of the Japanese popu exported finished goods. Third, companies could avoid duties as tation was moving from agriculture into the manufacturing sector gether it imports were processed in bonded factories or warehouses and then exported. Fourth, the government set up export processing THE PERIOD OF IMPORT SUBSTITUTION zones (the first in the world in three cities. There were no import (1945-1958) duties in these zones as long as companies exported all the finished goods produced therein At the end of World War Il in 1945, Taiwan once again became a part of China, but trade was short-lived. The communists took power in In the meantime, companies in industrially advanced countries the mainland the same year, the nationalist government moved to such as Japan and the United States, Invested in Taiwan to take Taiwan, and business between the mainland and Taiwan came to advantage of its abundant low-cost labor. This furthered Taiwan's a virtual halt. Taiwan expelled nearly all Japanese lover 400,000), economic growth. The result was that in 1966, the export value and lost its protected Japanese export market. It faced a food short- of Taiwan's industrial goods exceeded those of agricultural goods age, high inflation, unemployment and insufficient foreign earnings for the first time, despite continued agricultural growth resulting to buy the imports it needed. The government focused on increasing from agricultural productivity gains that took place in the so-called production and exports while decreasing imports. To do this, the gov- "green revolution in turn, this growth freed agricultural workers emment strictly controlled imports and gave production subsidies to to move into the manufacturing sector. The economic structure of the economy had also changed from dependence on domestic to 155 CHAPTER International Trade and factor Mobil Theory Taiwan and Its Major Export Markets me to an enormous in Thiwan Taiwan put demand. Meanwhile, Taiwan became a bigger part of the economy and its exports became the principal thrust of its nic growth The 1970s also saw the growth of small and medium-sized com- panies, most of which were family owned, dependent on private loon clubs, labor intensive, export oriented, and involved in processing inputs from other companies. The portion of these companies sales in export markets grew from 56 percent in 1972 to 75 percent in 1983. This period also saw the growth of foreign investment in export industries The number of foreign companies exporting from Taiwan increased from 52 in 1986 to 300 in 1980. FDt in exporting businesses increased from US$10 million to US$380 million in the same time frame. THE SECOND PERIOD OF IMPORT SUBSTITUTION (1969-1980) was the first period of import substitution sought to reduce de- dent on finished foreign consumer goods, the aim during this word import substitution period was to reduce foreign dependence tequipment and components needed to produce finished goods. During this period, the government sought to improve competi- eness by Investing in what was referred to as the "The Big Ten Constructions. These focused on six transportation projects (a new hey extended railroad, railroad electrification, two harbor devel- pers, and an international airport and four projects in heavy in- Aistes steel shipbuilding. petrochemicals, and nuclear power). In ition to decreasing foreign dependence, "The Big Ten Construc- for speeded up economic growth and created 146,000 new jobs. He not all of the heavy Industries were equally successful schemicals were more successful than shipbuilding and steel. THE PERIOD OF ECONOMIC REFORM AND CONTINUOUS EXPORT EXPANSION (1981-1989) Although exports continued to expand during this period, the basic government policy was "Liberalization and Globalization." The aim was to increase competition and to open the economy more to imports. The first step was to reduce import duties. This was done gradually to lower the impact on domestic industries The average nominal import duty fell from 31.71 percent in 1980 to 9.65 percent in 1989. The second step was to liberalize fi- 156 PARTO Thanations Trade and Investment MASSIVE FDI AND FACTOR MOBILITY (2000-PRESENT) nance and banking, such as by the deregulation and establish- ment of private banking institutions, the use of market forces to determine interest rates, and the relation of foreign currency controls THE ECONOMIC POLICIES IN THE 1990s A major change for Taiwan during the 1990s was its renewal and growth of trade and investment with China While part of this change was caused by political leadership change, economic fac tors influenced the growth. By this time, Taiwan was no longer en paged primarily in the labor intensive processing of components from abroad. Instead, its economic growth, rise in technology, and accompanying higher-wage rates required it to offshore and out- source assembly leg, laptop computers) to a lower wage rate country in order to be competitive. Chinese coastal cities across the strait from Taiwan were ideal for this, and China needed the jobs it would create. At the same time, many Taiwanese firms made investments in the Chinese assembly operations and moved ma- chinery and equipment into China as part of their investment. The United States result was that China became Taiwan's largest export market and recipient of its direct investment. Concomitantly, Chinese exports to and direct investment in Taiwan have consistently been lower than QUESTIONS Since the millennium, Tawan as continued to reduce 2002 We will discuss the WiOS functions in Chapter 8 strictions, such as by joining the World Trade Organization 2000 and 2013. Its exports increased 100 percent and its percent Because unemployment rates have been very long has had to foreign contract workers to help keeps Dion increasing more than 400 thousand of them in 2013. almost al from other Asian countries over 50 percent om and Indonesiand are employed at the bottom rungot economic ladder Meanwhile, Twan's outward For more bled between 2000 and 2015. By 2016. its stock of direct abroad was almost four times greater than the rol with an it needs to make two changesit needs to change its root At the same time, the Tawanese government has indica from an efficiency Socking model to one of innovation its primary export market dependence from China to lacan described in the case Taiwan's exports and investments in China. However, official sta- 6-1. Using the framework la Table 6.1. explain which of the tistics obscure both the value and direction of trade. For instance, es relate to Taiwan's trade policy during each of the when Taiwan ships components to China, those components may Do reshipped in finished products that 90, say, to the United States. 06-2 Map 6.1 shows that 814 percent of Tas exports go But U.S. and Taiwanese trade figures show the reshipment merely Only five countries territories. Which traderes muy as Chinese exports to explain this concentration and why? Trade theory helps managers and government policymakers focus on these questions What products should we import and export? How much should we trade? . With whom should we trade? Some trade theories prescribe that governments should influence trade patterns others propose a laissez faire treatment of trade INTRODUCTION: WHY DO POLICYMAKERS RELY ON INTERNATIONAL TRADE AND FACTOR MOBILITY THEORIES? Figure 6.1 shows countries'international links through trade and factor mobility (movemes of capital, technology, and people). The preceding case illustrates Taiwan's use of these links to help achieve its economic objectives. Not only are trade and factor mobility important growing portions of the global economy, the theories to explain them help all governmen wrestle with the decisions of what, how much, and with whom to trade. These questions are intertwined with considerations of what they can produce competitively by boosting the quality and quantity of capital, technical competence, and worker skills This chapter will first examine theories that endorse great governmental interventions trade movements (mercantilism and comercantilism) versus a laissez-faire approach of governmental intervention free-trade theories of absolute advantage and comparative adre tage). It will then look at theories to explain trade patterns (how much countries depende trade, in what products, and with whom), including theories of country size, factor proportion and country similarity. It will subsequently consider theories dealing with the dynamics FORUM DESCRIPTION Please create a thread before viewing other threads in this forum. See the questions here. See the questions here. After reading the opening case "The Evolution of Taiwan's International Trade in Chapter 6 and using the framework and Toble 6.1, which is also uploaded toWeek by Week, Week 4 explain which of the theories relate to Taiwan's trade policy during each of the eros described in the case you were the manager of a US company doing business with would you agree with Towar trode policy? Why? Why not? You are responsible for a comments posts in this forum Orman of 10 sentences each poso urrit answer the question tse minimum of 10 sentencest 2 Offer one response to the other classmate's post with your feedback on their answers minimum of 10 sentences MAP 6.1 CASE The Evolution of Taiwan's International Trade competitive in extra markets real GDP increasing steadily at 7.1 percent a year However, the negative effects of the import substitution - pro of the author Lichung many sector soha dome camers would buy do Tawalay the Republic of China, a small southeast Asian produced goods rather than-ported ones nown as an Island Country slightly larger than the US state of Maryland, with palind so that traditional primary pro W a 2015 population of about 23.4 million. Given a lack of naturale sources Town's main natural advantage as its lication on the impor These policies allowed domestic Industries to developing tant seaway connecting the east Asian mand with the rest of the creased Tan's foreign earnings and reserves. For example, world Map 6.1 shows Taiwan's location and major export markets.) 1950 Taman forbed the import of radios, but not rado pasha Taiwan has been called one of the Asian Tigers because of encouraging local assembly of radios to se domestically in rapid economic growth. Despite being ranked only 55 among con on the policies helped the sun of some light Simple-tch tries in terms of population, it is 28 in per capita GOP, rising from and borneste industries, such as textiles, plywood, and he 3 in 1950. International trade has been an important engine of its appliances. During this period, Tawan's economy boomed with the economic growth and it is the world's 21-largest exporter. Dur. ing the last hallotury. Twan's economic and export dependence polia have shifted from agricultural to industrial products included (1) Overproduction of some goods because of Evidence of Tawan's habitation po back about 10.000 years, but domestic demand coupled wea lack of scale economies to com we will overview its trade policies only since the beginning of the Japanese occupation in 1895. perte international Industry inefficiency because noncompete manufacturers were not eliminated through market competitionare THE JAPANESE OCCUPATION (1895-1945) the emergence of several monopolies that damage commune and societal welfare Japan took over Taiwan ga Chinese province since 1885) in 1895 after defeating China at war. At that time, Taiwan depended almost en tirely on agricultural exports-mainly a sugarcane, and rice. (The THE PERIOD OF EXPORT EXPANSIO. opening photo shows tea harvesting in Taiwan's highlands) In fact (1958-1969) its only significant manufactured export was take Panama huts. This Given the negative effects of import substitution, y te dependence changed little under Japanese ocupation, however, the reliance of production for the domestic market, the rest Japanese did much to make Taiwan's business environment more changed its trade policy to promote export expansion. It promoted competitive With funds and Japanese technical experts, it modem- ized the infrastructure and social structure through the building of series of policies to encourage exports. First, Taiwan deated to roads, railroads, dams for electricity, hospitals, schools, and irrigation currency (the NT dollarby 50 percent to make its productes cheaper when bought in foreign currencies. Second, the governmct set up systems. It also brought law and order often brutally, through strict police control. At the same time, Japan absorbed almost all Taiwanese a system whereby companies could be rebated for the trees exports at higher-than-world-market prices in order to feed its agri- ties) they paid on imported raw materials when they used them in cultural needs because a considerable portion of the Japanese popu exported finished goods. Third, companies could avoid duties as tation was moving from agriculture into the manufacturing sector gether it imports were processed in bonded factories or warehouses and then exported. Fourth, the government set up export processing THE PERIOD OF IMPORT SUBSTITUTION zones (the first in the world in three cities. There were no import (1945-1958) duties in these zones as long as companies exported all the finished goods produced therein At the end of World War Il in 1945, Taiwan once again became a part of China, but trade was short-lived. The communists took power in In the meantime, companies in industrially advanced countries the mainland the same year, the nationalist government moved to such as Japan and the United States, Invested in Taiwan to take Taiwan, and business between the mainland and Taiwan came to advantage of its abundant low-cost labor. This furthered Taiwan's a virtual halt. Taiwan expelled nearly all Japanese lover 400,000), economic growth. The result was that in 1966, the export value and lost its protected Japanese export market. It faced a food short- of Taiwan's industrial goods exceeded those of agricultural goods age, high inflation, unemployment and insufficient foreign earnings for the first time, despite continued agricultural growth resulting to buy the imports it needed. The government focused on increasing from agricultural productivity gains that took place in the so-called production and exports while decreasing imports. To do this, the gov- "green revolution in turn, this growth freed agricultural workers emment strictly controlled imports and gave production subsidies to to move into the manufacturing sector. The economic structure of the economy had also changed from dependence on domestic to 155 CHAPTER International Trade and factor Mobil Theory Taiwan and Its Major Export Markets me to an enormous in Thiwan Taiwan put demand. Meanwhile, Taiwan became a bigger part of the economy and its exports became the principal thrust of its nic growth The 1970s also saw the growth of small and medium-sized com- panies, most of which were family owned, dependent on private loon clubs, labor intensive, export oriented, and involved in processing inputs from other companies. The portion of these companies sales in export markets grew from 56 percent in 1972 to 75 percent in 1983. This period also saw the growth of foreign investment in export industries The number of foreign companies exporting from Taiwan increased from 52 in 1986 to 300 in 1980. FDt in exporting businesses increased from US$10 million to US$380 million in the same time frame. THE SECOND PERIOD OF IMPORT SUBSTITUTION (1969-1980) was the first period of import substitution sought to reduce de- dent on finished foreign consumer goods, the aim during this word import substitution period was to reduce foreign dependence tequipment and components needed to produce finished goods. During this period, the government sought to improve competi- eness by Investing in what was referred to as the "The Big Ten Constructions. These focused on six transportation projects (a new hey extended railroad, railroad electrification, two harbor devel- pers, and an international airport and four projects in heavy in- Aistes steel shipbuilding. petrochemicals, and nuclear power). In ition to decreasing foreign dependence, "The Big Ten Construc- for speeded up economic growth and created 146,000 new jobs. He not all of the heavy Industries were equally successful schemicals were more successful than shipbuilding and steel. THE PERIOD OF ECONOMIC REFORM AND CONTINUOUS EXPORT EXPANSION (1981-1989) Although exports continued to expand during this period, the basic government policy was "Liberalization and Globalization." The aim was to increase competition and to open the economy more to imports. The first step was to reduce import duties. This was done gradually to lower the impact on domestic industries The average nominal import duty fell from 31.71 percent in 1980 to 9.65 percent in 1989. The second step was to liberalize fi- 156 PARTO Thanations Trade and Investment MASSIVE FDI AND FACTOR MOBILITY (2000-PRESENT) nance and banking, such as by the deregulation and establish- ment of private banking institutions, the use of market forces to determine interest rates, and the relation of foreign currency controls THE ECONOMIC POLICIES IN THE 1990s A major change for Taiwan during the 1990s was its renewal and growth of trade and investment with China While part of this change was caused by political leadership change, economic fac tors influenced the growth. By this time, Taiwan was no longer en paged primarily in the labor intensive processing of components from abroad. Instead, its economic growth, rise in technology, and accompanying higher-wage rates required it to offshore and out- source assembly leg, laptop computers) to a lower wage rate country in order to be competitive. Chinese coastal cities across the strait from Taiwan were ideal for this, and China needed the jobs it would create. At the same time, many Taiwanese firms made investments in the Chinese assembly operations and moved ma- chinery and equipment into China as part of their investment. The United States result was that China became Taiwan's largest export market and recipient of its direct investment. Concomitantly, Chinese exports to and direct investment in Taiwan have consistently been lower than QUESTIONS Since the millennium, Tawan as continued to reduce 2002 We will discuss the WiOS functions in Chapter 8 strictions, such as by joining the World Trade Organization 2000 and 2013. Its exports increased 100 percent and its percent Because unemployment rates have been very long has had to foreign contract workers to help keeps Dion increasing more than 400 thousand of them in 2013. almost al from other Asian countries over 50 percent om and Indonesiand are employed at the bottom rungot economic ladder Meanwhile, Twan's outward For more bled between 2000 and 2015. By 2016. its stock of direct abroad was almost four times greater than the rol with an it needs to make two changesit needs to change its root At the same time, the Tawanese government has indica from an efficiency Socking model to one of innovation its primary export market dependence from China to lacan described in the case Taiwan's exports and investments in China. However, official sta- 6-1. Using the framework la Table 6.1. explain which of the tistics obscure both the value and direction of trade. For instance, es relate to Taiwan's trade policy during each of the when Taiwan ships components to China, those components may Do reshipped in finished products that 90, say, to the United States. 06-2 Map 6.1 shows that 814 percent of Tas exports go But U.S. and Taiwanese trade figures show the reshipment merely Only five countries territories. Which traderes muy as Chinese exports to explain this concentration and why? Trade theory helps managers and government policymakers focus on these questions What products should we import and export? How much should we trade? . With whom should we trade? Some trade theories prescribe that governments should influence trade patterns others propose a laissez faire treatment of trade INTRODUCTION: WHY DO POLICYMAKERS RELY ON INTERNATIONAL TRADE AND FACTOR MOBILITY THEORIES? Figure 6.1 shows countries'international links through trade and factor mobility (movemes of capital, technology, and people). The preceding case illustrates Taiwan's use of these links to help achieve its economic objectives. Not only are trade and factor mobility important growing portions of the global economy, the theories to explain them help all governmen wrestle with the decisions of what, how much, and with whom to trade. These questions are intertwined with considerations of what they can produce competitively by boosting the quality and quantity of capital, technical competence, and worker skills This chapter will first examine theories that endorse great governmental interventions trade movements (mercantilism and comercantilism) versus a laissez-faire approach of governmental intervention free-trade theories of absolute advantage and comparative adre tage). It will then look at theories to explain trade patterns (how much countries depende trade, in what products, and with whom), including theories of country size, factor proportion and country similarity. It will subsequently consider theories dealing with the dynamics