What this lesson teaches
I can weigh the benefits and costs of free trade and open flows for consumers, producers and governments.
Syllabus 9570, 3.3.1(c). Globalisation, International Trade and Economic Co-operation: Benefits and costs of free trade and flows of capital and labour on:; Consumers - Prices, choice and variety of goods and services; Producers - Size of markets, degree of competition, cost of production and innovation; Government - Macroeconomic objectives (and policy choice)
I can explain why a government may sign trade agreements or protect its industries to meet its aims.
Syllabus 9570, 3.3.1(e). Globalisation, International Trade and Economic Co-operation: Governments may decide to engage in economic co-operation and trade agreements between countries or impose protectionist measures to achieve macroeconomic aims
Make a guess
Workers lose jobs because cheaper imports replace local goods. What is usually the better response for Singapore?
- Ban the imports to protect the jobs.
- Retrain and support them, and keep trade open.
- Leave it to the market, because cheaper imports help the whole country.
Show the answer
Retrain and support them, and keep trade open.
Trade raises national income overall. Targeted help for the losers keeps those gains while easing the cost to the people hit.
Openness brings large overall gains; the key is to spread them fairly and build resilience against disruption.
Trade raises national income overall, but the gains and losses are unevenly shared. A strong judgement separates the gains to the country from who receives them.
If imports displace workers, retraining and temporary income support target the problem more directly than permanent protection.
If the concern is reliable supply of essentials, diversifying suppliers and holding stockpiles can build resilience without giving up the benefits of trade.
For Singapore, the usual conclusion is to stay open, keep signing agreements, raise productivity to stay competitive, and support workers who lose out.
- Principle
- Keep the gains; support those who lose.
- Resilience
- Diversify suppliers; stockpile.
Worked example: Reliable supplies and jobs need different tools
A government wants reliable medical supplies and jobs for workers displaced by imports. One proposal bans imports permanently; another combines several import suppliers, a stockpile and retraining.
- A ban raises costs and still leaves the country exposed if local production fails.
- Several suppliers and a stockpile protect supply more cheaply.
- Retraining helps displaced workers directly.
- The second option targets each goal with the right tool.
Watch out for this
If some workers lose from trade, the country should restrict trade.
The country as a whole usually gains. It is better to support those who lose than to give up the gains.
Check your understanding
Singapore wants to secure its rice supply. Which approach fits its situation best?
- Banning rice imports, so local farms grow more of what it eats.
- Buying from many countries and keeping a stockpile.
- Growing all its rice locally.
Show the answer
Buying from many countries and keeping a stockpile.
Right. This builds resilience without costly self-sufficiency.