Assignment 3 Final ECON1269 Le Thanh Trung s3790472 PDF

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Campus Saigon South CampusCourse International Trade (ECON1269)Assignment Individual Assignment 3 - Research reportLecturer Prof. Ngoc Pham Thi BichStudent name Le Thanh Trung – sDue Date Sep 20thWord count ~2000 words (not including cover page, abstract, diagrams, appendices, headings and sub-headi...

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ECON1269 International Trade - Research report

Campus

Saigon South Campus

Course

International Trade (ECON1269)

Assignment

Individual Assignment 3 - Research report

Lecturer

Prof. Ngoc Pham Thi Bich

Student name

Le Thanh Trung – s3790472

Due Date

Sep 20th

Word count

~2000 words (not including cover page, abstract, diagrams, appendices, headings and sub-headings, in text citation and reference list)

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ECON1269 International Trade - Research report

Briefing of three main aspects of international integration between Vietnam and the rest of the world [maximum 200 words, not counted the data tables and reference citations]: Globalization, international economic integration and trade liberalization have been and are outstanding trends of the contemporary world economy. In line with that trend, according to the Reports of Ministries, from 1986 up to now, Vietnam has carried out the renovation and accelerated the international economic integration. In order to gain benefits from trades, Vietnam must know its strength, so it can gain competitive advantage to maintain a healthy international integration. First, Vietnam is known for their rich natural resources including forest, sea and minerals. For instance, rice is the most important crop which is grown mainly in the Red and Mekong river deltas. Vietnam’s rice export rank in top 5 countries in the world (Daniel Workman, 2020). Not only agriculture, oil deposits have been discovered in the South China Sea, and these are near Vietnam’s Southern offshore.

Second, in trading, Vietnam mainly imports and exports computer parts. Statistically, the top exports of Vietnam are broadcasting equipment, telephones, integrated circuits, textile footwear respectively. While the top five imports are integrated circuits, telephones, refined

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ECON1269 International Trade - Research report

petroleum, light rubberized knitted fabric, and electrical parts (The Observatory of Economic Complexity (OEC), 2018).

Third, regardless of political conflicts, China is still the most important trading partner with Vietnam. According to OEC 2018, the top five countries Vietnam export to are China, the US, Japan, South Korea, and Germany. Beside exports, Vietnam imports mostly from Asian countries such as China, South Korea, Japan, Thailand, and Singapore.

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ECON1269 International Trade - Research report

Essay 1 – Analysis of effects of trade on income distribution [maximum 600 words]: The US Department of Commerce (DOC) on December 16, 2019 officially announced the decision to impose the highest tax of more than 450% on some imported steel products from Vietnam (Mai Phuong, 2019). This, raising concerns among foreign investors about the potential for more tariffs in the future. The goal of this essay is to review the effect of tariff and the theory of an economic factor model that shows effects of tariff in Vietnam. This paper uses the approach of computable general equilibrium (CGE) to demonstrate the labor movement(s), employment rates and wage rates/income. First of all, a tariff is another way to call import tax,or a tax that is imposed by one country on the goods and services which are imported from another country.

Based on the model provided by “Atarsurvivalguide.com”, it’s clear to see that consumer surplus (red area) is much larger than the producer surplus (green area). As for consumers, they pay the world price at Pw for the highest quantity of goods or services at Q4. So, the government may

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ECON1269 International Trade - Research report

help the producers by imposing tariffs to raise the price of imported products greater than the world price towards the domestic price. One thing to keep in mind is that import tax should not be imposed to makes the market price equivalent to the domestic price because this would greatly expand the green area, and this would bring a negative impact on the revenue.

The model above shows the effects of tariff when the price of imports is moved from Pw to Pt. As shown, the area A, B, C, and D reflect a loss of consumer surplus. Also, consumers pay higher prices at Pt, so their quantity of demand declines from Q.4 to Q3. In contrast, suppliers receive benefits because they can sell their products at a higher price as shown in green area A. In addition, domestic market share rises from Q1 to Q2 which encourages production activities. As for the government, the amount of tax they collected is the area C. Last but not least, the area B and D are the deadweight loss. These are the loss of consumer surplus that are not transferable to suppliers or policy makers, so this causes a decline

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ECON1269 International Trade - Research report

in total surplus. In short, after a brief analysis of the effects of tariff, it’s clear to say that tariff can create a burden on society and net society loss if the government uses it incorrectly. Now, let’s relate this theory to the national issue of the US imposing tariffs on Vietnam’s steel. In order to protect the US from foreign dumping, in 2002, the George W. Bush administration put a high import tax on steel products (Erica York, 2018). However, this actually caused more American workers to lose their jobs because of higher steel prices. So, Trump should've learned from empirical histories otherwise he can reduce available quantities of goods and services for U.S. businesses because it will potentially lead to unemployment, reduction in income, and reduction in economic output. And, these are the deadweight losses when imposing tariffs. Recently, benefiting from the US-China trade war, Vietnam is gaining the market share over China. For example, many companies in furniture, refrigerators, and car tires industries moved their production to Vietnam (Pritesh Samuel, 2020). However, there are some challenges for investors such as level of manufacturing and quality of sourcing materials. In the production of aerospace parts, for instance, it requires a high level of technical rigor which might be difficult to find in Vietnam. Regardless, Vietnam still has a comparative advantage because of the low wage. In fact, Vietnam surpassed China for the first time in manufacturing Nike shoes (Pritesh Samuel, 2020). After becoming a member of the World Trade Organization (WTO) in 2007, Vietnam has been trying to comply with the WTO activities, and this results in a reduction in tariffs (Fosse, 2012). According to the computable general equilibrium (CGE) model that was conducted by Fosse, Henrik Barslund, and Raimondos-Møller and Pascalis in 2012, the state-owned enterprises (SOE) react correspondingly to the WTO accession tariff reforms. If SOE acts as profit maximizers, tariffs will increase real income and reduce income inequality. In contrast, if SOE behaved as revenues maximizers, the WTO accession tariff reforms will decrease the real income and increase income inequality. Based on this, Vietnam usually put high import tax on luxury goods but low tariff on machineries, materials and supplies needed for production. In short, under the accession of WTO, Vietnam increasing/reducing trade restrictions depend on goods and services that favor the economy. Vietnam should focus on its strength to gain comparative advantages when partnering with foreign firms.

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ECON1269 International Trade - Research report

Essay 2 – Analysis of Government’s motive in imposing trade restrictions [maximum 600 words]: Trades occur when both parties gain benefits. Firms in one country may be good at producing a particular product due to demographic or expertise while firms in another country may be good at making something else. So, often these firms use their comparative advantage to trade with each other. Today, in the age of globalization, trade happens across borders more frequently due to international trade agreements as shipping cost and tariffs are low. Though, there are some cases where the government purposely impose tax on import products to protect domestic firms from foreign firms. This essay is going to review the policy of Infant-industry protection, and then investigate the case of Vietnam in the automobile industry. The act of protectionism is to shield the domestic economy from competition from foreign companies. However, there are theoretical arguments about this action. Some favor infant-industry protection (IIP) while some argue that there are many factors that need to be pointed out before applying IIP. First, IIP can bring instant benefits. In the early state, the government will choose an industry that seems to be on the frontier. Next, imposing high import tax to protect those businesses. After the protected industry has matured, the government starts to drop tariffs and impose tariffs on other infant industries. Singapore, for example, gains significant comparative advantage in producing hard drives only after 3 years (1980-1983) of applying learning by doing (LBD) strategy (Young, p.27). This was thanks to the IIP imposed by the Singaporean politics. On the other hand, some argue that there are challenges worth mentioning. IIP at first, increases the demand for domestic manufactured products, and decreases the foreign supply. Initially, this created plenty of jobs and prosperity for a country. However, there are consequences. Lack of international competition can cause a slump in innovation and sometimes an increase in product price. Also, former foreign partners can also impose protectionist policy against the country. For example, the US-China trade war, where the US placed a tariff of $550 billion of Chinese products, and China reciprocated with import tax on more than $185 billion of U.S. goods (Ryan Hass and Abraham Denmark, 2020). In the long run, this could result in a recession like in the 1930s (Irwin and Eichengreen, 2005).

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ECON1269 International Trade - Research report

In Vietnam, automotive is still a new industry, so policymakers are trying to protect this infant-industry. Almost all cars, SUVs and trucks were imported before Vinfast was introduced in 2018. Since then, Vinfast has been trying to gain a marketplace in this industry. Currently, Vinfast is facing difficulties because imported vehicles from ASEAN are on a rising trend. This is because Vietnam is a part of ASEAN, and the zero-tariff policy has been applied. Therefore, imported vehicles are sometimes cheaper than domestically produced vehicles (Do Thanh Ha, 2020). In addition, although the assembly line is in Vietnam, Vinfast still has to import high technology parts such as engines and transmissions from BMW. In fact, roughly 85% of raw materials are still imported (Do Thanh Ha, 2020). This is another disadvantage of Vinfast when competing with import cars because the cost of production is still high. In a nutshell, Vietnam should know when and where to apply IIP to gain maximum benefits. In a short-run, IIP will create jobs, and boost start-up firms domestically. However, the up-front losses from the initial low productivity need to be included in a long run to decide whether to impose a tariff or not. This is because the LBD period is often costly due to lack of experience.

Essay 3 – Analysis of corporations’ decision in foreign directed investments (FDIs) [maximum 300 words] Increasing returns to scale (IRS) is a concept that is widely present in economies. This short essay briefly states the connection between IRS and FDI. First, based on IRS phenomena , production costs fall with the level of production (Yang, Zili, 2019). In international trade, implementing IRS helps the domestic firms to sustain an advantage over foreign firms through expanding the production scale. The nations have strong incentives to boost the productions and gain from it through lowering the average outputs cost. According to the “Energy economics” book, IRS is considered internal to the business if the business’s average costs depend on the business’s size. In contrast, it’s external to the business if the business’s costs do not depend on the business’s scale. And, IRS are internal to the industry if the business’s average costs related to the size of the industry.

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ECON1269 International Trade - Research report

According to Ms. Chau Ta, the real estate is a unique investing channel because of six characteristics which are durable, lack of transparency, location, illiquidity, high start-up cost, and investment formability. Understanding when, where, what, how to invest in real estate before putting down your cash is a must. In addition, for FDI consideration, investors should look for demographics, entry price vs labours and expense, interest rate, government policies, political stability, and pandemic (Covid-19). Essay 4 – Analysis of global production sharing (“Offshoring”) [maximum 300 words]: When a business looks for a location to conduct its activities, economists often come across the term “offshoring”. So, what does this concept mean? One of the best selling car in the US is the Toyota Corolla, which is made in Japan for years before the manufacturing was offshored to Canada due to two factors, Canada-US Auto Pact of 1965 (policy aspect) and Increasing returns to scale (IRS) which is previous mentioned in essay 3. In order words, offshoring involves the relocations of firm activities from its hometown to a different foreign location. Offshoring in Vietnam is on the rise during Covid-19. For example, Samsung said that there are more than 40 computer screen products that have been researched by engineers to complete production lines in Vietnam. In fact, Samsung is currently the largest foreign investor in Vietnam, with a total investment of more than 17 billion USD (Thanh Long, 2020). According to the Feenstra-Hanson Model, producing a product may require many tasks and steps to be completed, and these tasks can be offshored to a skilled-labor abundant country. In the production of a smartphone, for example, Samsung will offshoring the task of making the phone's display to Vietnam. Vietnam is known for their skilled-labor abundant especially in IT (Stephanie Overby, 2016). As a result, both countries can gain benefits in which Samsung can have their displays at a low cost while providing jobs for Vietnamese workers.

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ECON1269 International Trade - Research report

References: http://www.mofahcm.gov.vn/vi/mofa/nr091019080134/ns120222162217/ http://www.worldstopexports.com/rice-exports-country/ - (Daniel Workman, 2020) https://oec.world/en/profile/country/vnm

Essay1: 

Fosse, Henrik Barslund, and Raimondos-Møller, Pascalis, "Reducing Tariffs According to WTO Accession Rules: The Case of Vietnam." Review of Development Economics 16.2 (2012): 331-41.

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Phuong, M., 2019. Mỹ Chính Thức Áp Thuế Hơn 450% Với Thép Việt Nam. [online] Báo Thanh Niên. Available at: [Accessed 20 September 2020].

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Christian Bien, 2020. [online] Atarsurvivalguide.com. Available at: [Accessed 20 September 2020].

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Pritesh Samuel, 2020. US - China Trade War Inspires Vietnam Growth. [online] Vietnam Briefing News. Available at: [Accessed 20 September 2020].

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Dezan Shira & Associates, 2019. Understanding Vietnam's Import And Export Regulations. [online] Vietnam Briefing News. Available at: [Accessed 20 September 2020].

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ECON1269 International Trade - Research report

Essay 2 

Duong, Tran Lam, "Optimal Infant Industry Protection during Transition to World Trade Organization Membership - A Numerical Analysis for the Vietnamese Motorcycle Industry." The Journal of International Trade & Economic Development 23.4 (2014): 491-510.

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Ederington, Josh, and McCalman, Phillip, "Infant Industry Protection and Industrial Dynamics." Journal of International Economics 84.1 (2011): 37-47.

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VnExpress, 2017. Vietnam Driven To Protect Domestic Automobile Industry - Vnexpress International. [online] VnExpress International – Latest news, business, travel and analysis from Vietnam. Available at: [Accessed 20 September 2020].

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Phan, Tuan and Nguyen, Van Anh Thi, 'Impacts of the Protection Policy for Vietnam’s Automobile Industry', MPRA Paper No. 54067.

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Irwin, D. and EICHENGREEN, B., 2005, 'The Slide to Protectionism in the Great Depression: Who Succumbed and Why?', IMF Working Papers, 05(31), p.1.

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Do Thanh Ha, 2020, 'Vietnam’S Automobile Industry And Opportunities For EU Investors', Vietnam Briefing News. Essay 3:

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Yang, Zili. "Increasing Returns to Scale in Energy-intensive Sectors and Its Implications on Climate Change Modeling." Energy Economics 83 (2019): 208-16. Web.

http://people.tamu.edu/~aglass/econ652/e652ln4.pdf Essay 4: 

Remoteresources, 2020. The Benefits Of Offshoring In Viet Nam. [online] Remoteresources.com.

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Dantri/SSVN, 2020, 'Samsung Chuyển Dây Chuyền Sản Xuất Màn Hình Từ Trung Quốc Về Việt Nam', VietNamNet.

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ECON1269 International Trade - Research report



Stephanie Overby, 2016, 'Why Vietnam Is An Attractive IT Offshoring Destination', CIO.

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Lin, Faqin, and Fu, Dahai, "Trade, Institution Quality and Income Inequality." World Development 77 (2016): 129-42.

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Dumont, Michel, Rayp, Glenn, Thas, Olivier, and Willemé, Peter, "Correcting Standard Errors in Two‐stage Estimation Procedures with Generated Regressands." Oxford Bulletin of Economics and Statistics 67.3 (2005): 421-33.

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