ASSIGNMENT 3 – Individual Assignment Theory question tariff in a small country

ASSIGNMENT 3 – Individual Assignment
Subject Code

ECON1269

Subject Name
Campus

International Trade
Saigon South Campus

Student Name

Vo Thanh Dat

ID

S3915261

Lecturer’s Name

Daniel Borer

Word count

1966


1. Theory question: tariff in a small country
a.
From the start of 2017 to the end of 2021, Vietnam was the leading exporter of footwear, clothes,

nuclear reactors, hardware, and gaiters. Electrical equipment, personal computers, plastics,
optics, and iron are the top five imports concurrently. The United States, China, Japan, Korea,
and Hong Kong are Vietnam's key commodities and import partners with 14.35 million tons in
2018 to 24.15 million tons respectively. By 2020, commerce will achieve true success at a rate of
131 percent. Prior to the 'Doi Moi,' car ownership in Vietnam was severely restricted, with the
few available automobiles imported from Third World countries with a more pro-government
political orientation. In 1995, the first car assembly lines employing thump down packs were
developed to make automobiles for Mitsubishi, Toyota, and Isuzu. Between 2003 and 2006, the
automotive transaction tax was increased from 5% to 50%, resulting in a decline in vehicle sales
(OEC n.d). Despite its little size, the Vietnamese car market is Southeast Asia's fastest
expanding. The Vietnamese Vehicle Manufacturers' Association (a non-governmental
organizations) represents the bulk of the country's automobile manufacturers (VAMA).
According to General Statistics Office, Thailand, Korea and Indonesian are the most common car
imports partners from 2018 to 2020. Meanwhile, the number of cars imported by Vietnam was
165.6 thousand unit in 2018 and 270.8 thousand unit in 2020 in that order

Figure 1: Vietnam Exports of iron and steel
Source: Trade Economics n.d
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Figure 2: Imports of vehicles to Vietnam 2015-2020
Source: General Satistics Office n.d
b.
Allowing for the possibility that Vietnam has not imposed any taxes on the entry of vehicles It is
visible in the figures below that the production potential curves for autos and iron and steel in
Vietnam are both flat, demonstrating that the country benefits from free trade.

Figure 3: Vietnam’s PPF at free trade situation
c.

Consider the scenario in which Vietnam implements a 65 percent import tariff on automobiles
for the sake of argument. As a result of this condition, the utility curve changes to the left.
Because of this, overall satisfaction tends to deteriorate with time. Furthermore, as a result of
this, the welfare of consumers will be harmed.

Figure 4: PFF after applying 65% tariff
d.
When the welfare of consumers decreases as a result of the imposition of tariffs, the balancedtrade line can be used to do further research. This will be the driving force behind the growth in
product prices in the future. Furthermore, the customer will suffer a loss as a result of this, whilst
the manufacturer and the government would benefit from it.


Figure 5: Welfare Implications
e.
Although it is theoretically conceivable for the value of Vietnamese Dong appreciates towards
world currencies to rise, doing so would result in reduced import charges and greater export
expenses, as opposed to the opposite. Price increases for items and services manufactured in
Vietnam will occur as a result of the strengthening of the Vietnamese currency. A drop in the
demand for products and services will follow as a result of this. As a result of this decision,
exports will also suffer as a result.
Due to the fact that Vietnam is a small open economy, any gain or depreciation in the value of
the VND would have only a little influence on the worldwide prices of goods. As long as global
demand for iron and steel remains completely inelastic, the appreciation of the Vietnamese dong
(VND) will have no influence on the amount of iron and steel that is demanded in the nation, and
vice versa.


Figure 6: PPF when VND appreciates towards the world currencies

2. Inequality and poverty reduction through international trade
a.
In 2018, South Africa remained Vietnam's most important African commercial partner, with
bilateral trade totalling US$1.1 billion, an increase of 11.7 percent over 2017 levels and
accounting for 16 percent of total bilateral trade in the country (Trading Economics 2019). Last
year, Vietnam exported items to South Africa worth US$724.3 million, a 3.7 percent decline
from the previous year, while imports jumped by 59.5 percent to US$386.4 million, a 59.5
percent rise from the previous year. Vietnamese footwear exports to South Africa were valued
US$108.8 million and US$96.2 million, respectively, in 2017, and computer and electronic
equipment exports were for US$96.2 million in 2017. It's worth highlighting that the value of
coffee exports increased by 108.4 percent last year, reaching US$17.3 million in total.. Pepper,
on the other hand, suffered a 37% drop in income to US$9.2 million. Vietnamese imports from


South Africa increased considerably in recent years, with fruit and vegetables climbing 46.9
percent and timber and wood products increasing 35.5 percent, among other categories.
While this was happening, metal imports decreased by 3.3 percent to US$89.7 million,
accounting for the vast majority of Vietnamese imports from South Africa. In recent years,
purchases of metals, machinery-tools, and steel have dropped dramatically in Vietnam, by 88.2
percent and 40 percent, respectively.
During the year 2000, the governments of Vietnam and South Africa signed a trade agreement
with the goal of increasing bilateral trade and economic cooperation while adhering to their
respective domestic laws as well as the obligations imposed by international treaties,
conventions, and agreements to which they may be parties.

b.
According to the General Department of Customs, total import and export revenue between
Vietnam and South Africa would be around 177.4 million USD in June 2020.
With about 30.3 million USD in income, phones and components of all sorts have developed into
Vietnam's largest export group to your nation. On the other hand, fruit and vegetables are a big

import from South Africa to Vietnam.
Vietnam is more suitable to companies such as telecommunications, which require just
specialized workers and a small amount of land, due to a larger labor supply and lower labor
costs. The Ricardian model indicates that the amount of smartphone and component production
in Vietnam has increased in response to South African demand. Because labor expenses have
decreased, the budget constraint has shifted to the right, resulting in a steeper indifference curve
suggesting an increase in degree of ultility (Phung 2020).


c.
South Africa established diplomatic relations with the communist republic of Vietnam in 2010,
and the two nations reinforced their ties in October 2011.
1. Both South Africa and Vietnam have outstanding investment prospects, and the private sector
should be encouraged to join in and explore all conceivable routes of collaboration and trade.
2. Both sides have also committed to continue exchanging views on multilateral issues such as a
just global trade system, banking system reform, development, peace and stability, and climate
change.
3. South Africa's bilateral trade with Vietnam also exceeded one billion dollars in 2012.
4.With bilateral trade increasing from R18,4 billion in 2015 to R20,5 billion in 2016, Vietnam is
South Africa's second largest ASEAN trading partner.
5. By awarding scholarships to South Africa in the Maritime Economy at the Hanoi Maritime
University, the Vietnamese government demonstrated its appreciation for Vietnam's support to
South Africa's talents and progress.


6. Since 2012, South Africa has reduce the Business Tax with Vietnam from 34.55% to 28%
(KPMG n.d).
2010
Vietnam

2012

39.3

35.6

South Africa 63.4

63

2014
34.8

2016
35.3

2018

35.7

The average annual income of family members from impoverished rural regions is less than
2,400,000 Vietnamese ng (VND) per capita (equal to $150 US dollars). According to the local
administration, families in the city with an annual average income of less than VND 3,120,000
(US$195) per capita are deemed to be poor.
According to the three cost of living indicators, food poverty was expected to be R624 per month
in April 2021, lower-bound poverty was assessed to be R890 per month, and upper-bound
poverty was estimated to be R1335 per month in April 2021.

d.
According to the Stolper-Samuelson theorem, eliminating tariffs on labor-intensive goods will

reduce salaries more than prices, disproportionately harming the working class even while total
welfare rises. The justification for this theorem is based on interactions across industries with
varied labor intensity. South Africa, for example, has a stronger economy with higher wages,
which can be divided into two sectors: vegetables (land consumption) and smartphone
manufacture, which is a labor-intensive industry with tax benefits [import smartphone]. In
Africa, the price of cellphones and components has reduced after [tax] protection was removed.
As a result, the industry will be compelled to [reduce its size], lay off employees, and vacate the
premises. As a result, wages and land rents will be squeezed. As a result of the newly available
land and people, vegetable farmers will expand production. This trend will continue until the cost
of producing smartphones reaches the level of the tax cut, allowing the sector to compete with
duty-free imports. Vietnam's annual surge in smartphone exports to South Africa confirms this.
International business has benefited the poor in Vietnam as new sectors such as cellphones and
autos have developed. South African demand has aided the sector's growth. This produces new
positions and demands a competent labor force; it has resulted in the resignation of a group of
employees, making place for additional unskilled people. From an agrarian country, agriculture
currently contributes for just 17% of Vietnam's GDP, followed by industry at 39% and services at
44%. (Alexander 2020). This change happened when Vietnam transitioned to a market economy
and opened its borders to more commerce. Additionally, because the majority of sectors are
based in affluent nations, employees will benefit from higher wages as a result of the currency
strength mismatch.

3. Industry Talk


The Regional Comprehensive Economic Partnership (RCEP) is a free trade agreement that
brings together 15 nations with a combined population of 2.2 billion people and a combined
GDP of $26.2 trillion, or 30% of the world's population. This approach is based on the
convergence of standards and regulations, the removal of trade barriers, the expansion of market
access, and the streamlining of procedures. When it comes to economic progress, China is
undoubtedly the winner, having benefited from the US-China trade war, geopolitical

developments, and the pandemic-induced global slowdown. China exports have expanded
significantly in recent years, representing for 4.4% of total UK exports and 6.8% of total UK
imports. China, of course, is a major potential market for the United Kingdom. On the other
hand, industry sources indicate that the UK is supporting the CPTPP because of its more
autonomous trade policy; yet the UK stands to benefit from participation in this trading
organization. Given that the great majority of CPTPP countries that trade with the UK are also
members of the Regional Comprehensive Economic Partnership (RCEP), the UK stands to
benefit considerably from a backdoor into RCEP. By incorporating the deal into its trade policy,
the UK will be able to spur economic growth by lowering trade barriers between the UK and
other countries. Reduced tariffs and taxes will result in higher spending and lower income.
Because it would remove impediments to international business, such as taxes and fees, it would
foster more international trade with other countries. Additionally, it will promote foreign direct
investment (FDI). Foreign nations will gain from the promotion of home industries. Shipments
will increase as a result of the reduction in the export tax. Additionally, it will pave the path for
future market access. Physical travel around the world will be easier for natural persons, SMEs,
economic and technical cooperation, competition rules, intellectual property protection, financial
services, e-commerce, government procurement, and dispute resolution. Additionally, as a result
of its alliances, it will be able to bolster the nation's security in the face of threats. As a result, the
United Kingdom should become a member of the Regional Comprehensive Economic
Partnership (RCEP) in order to reap these benefits while also enhancing economic growth and
development.

Reference
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