Sudan and South Sudan
have agreed to open trade. By utilizing the Standard Trade Model we can see, in
theory, why this decision was made and why it is in fact a good one. First off,
each country’s welfare will be expected to increase. Each country can offer
competitive advantages in certain services and goods. Opening up to trade
allows them to take advantage of such competitive advantages.For example, the diagram below is taken from the homework
set we had. It shows how the different countries benefit from opening up to
trade. The dotted line is based on their original domestic pricing whereas the
solid black line shows what happens when they open up to trade.
Moving on, this situation got me thinking; what about the
United States and Cuba? As many know, the United States still has a trade
embargo in place with Cuba. This was a political decision of
the past. As the article from the Washington Post points out the embargo is out
of date and the United States needs to stop being hard-headed. Opening up to
trade with Cuba would help provide positive net gains for the welfare of both the United States and
Cuba as can be seen with the Standard Trade Model.
For Sudan and South Sudan to open up to world trade, it will help them immensely because they can import many more goods and specialize exports to trade. Net national gains for both countries will increase immensely. Opening trade between the United States and Cuba will not likely show as many increases or help. The proximity between the two countries is a plus for trade but it is not sensible in many other ways. What would the United States import from Cuba? The only imports the U.S. would buy would be goods that are cheaper. The terms of trade would improve in that degree but would hurt the country that the U.S. currently imports from. For Cuba, their price of exports would be decreasing and their price of imports would also decrease. But again, the country that Cuba imports from now would be taking a toll on their terms of trade. The two countries' trade would probably not have a noticeable effect on world trade supply or welfare because they are most likely not going to be making large changes to trade. It would be different if the U.S. and Cuba did not trade with the world at all, like Sudan and South Sudan. I predict the gains would be minimal for both countries.
ReplyDeleteI think that this was a good idea for the US to open trade with Cuba. But with what we can see from the graphs that one of the price lines becomes more horizontal. This would mean that that country does not have a much welfare from the trade then they would if they did not trade. I think that because of this that trade should not be done because one country does not profit from the trade, then there would be not benefits for that country to trade.
ReplyDeleteOpening up trade with outside countries does not necessarily means that there must be a equal gain in trade,that is Pareto optimality as we learn in class.On the part of South Sudan and North Sudan,Geographically they are together, and also they are almost of the same size, and this in fact will increase trade gains and improve trade terms.In fact, on the level of business partnership all the countries involve in the trade gain in the open market. On the case of US nad cuba, I hope there will be gains in various areas of trade being at least near by compared to other countries like India.However, on the case of Cuba and US,on my side I hesitate to agree on the following bases, first of all Cuba being a small country compared to US,its business will never affect US whatsoever as we learnt in class.Therefore, opening US opening trade with Cuba will very much have impact on Cuban economic life than it will do with US.
ReplyDeleteTherefore, following the above graphs, we can prove the trade partnership with South and North Sudan to true, but it is not necessarily that trade between Cuba and US can follow the same trade due to the above reasons of size of the Country.
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ReplyDeleteThat is a very valid point. Cuba is small enough that it probably won't have an impact on world prices. This being said, I still believe it could be beneficial to both countries welfare. The following article makes some valid points as to why we should lift the embargo. For example, "The United States has trade agreements with governments similar to that of Cuba - including China, Vietnam and North Korea." Furthermore, I would encourage looking at the chart provided on the site that shows the potential economic benefits to the U.S. of trade between the U.S. and Cuba. http://www.ncpa.org/pub/ba427
ReplyDeleteDepending on what it is that Cuba specializes in, it could be advantageous for the US to open trade with the country. While they may be small enough not to dramatically impact world prices, they may still impact them enough to benefit the US slightly while increasing their own gains by even more. Overall, this would improve net national gains.
ReplyDeleteWhen weighing the options here, there are many more factors than just economic welfare. The slight net national gains received by the US due to Cuba's size may be less important than a political issue that we are trying to stand against; ultimately a cost/benefit analysis. If the US were to economically benefit from opening to trade more than the "cost" of point we are trying to prove, I think we would open up to trade with Cuba. We just need to weigh the costs and benefits of doing so.
^This is exactly the point I was trying to make! However I feel like the U.S. is being too stubborn to weigh the costs and the benefits of the situation due to the political issues of the past.
ReplyDelete