MGT282.
International Business
Assignment
Essay Questions
The objective of this assignment is to have you take the theory you
learned through the textbook and slides and apply it to real world
international business issues facing us today. In providing your answers
to the essay questions, you must demonstrate that you have read the
text and are using the principles covered in it to formulate your
answer.
IMPORTANT NOTE: Most of your responses should draw upon your
mastery of the assigned textbook. You are encouraged to supplement
the textbook material with Internet sources, but do not use these
sources without attribution. If you do, you will be committing
plagiarism. If you employ Internet sources, supply the source URLs.
Don’t copy and paste the words from the sources. Put the material into
your own words.
Question 1
One of the oldest debates in international economics focuses on
the merits and deficiencies of free trade. The debate was quite spirited
in England in the 19th century. At that time, England was an imperial
power, with colonies scattered through all corners of the globe. Its
trade policy was based on mercantilism. With mercantilism, England
would use its colonies to supply it with raw materials, which would be
converted into finished goods (through industrial process) back in
England, and then the goods would be sold to the colonies. All the
colonial powers (France, Portugal, Spain) pursued similar policies.
The early economists of the 19th century argued that England –
and the world at large – would be better off abandoning mercantilistic
policies and adopting free trade policies, where barriers to trade
among countries would be removed. David Ricardo’s famous law of
comparative advantage even suggested how both national and global
output would increase dramatically if countries focused on producing
goods where they had a comparative advantage.
Over the years, governments throughout the world have been
nervous about implementing free trade policies, largely because they
feel compelled to protect national industries that could not withstand
the competition that free trade would create. With the global economic
crisis of the 1920s and 1930s, government throughout the world
pursued strongly protectionist policies. In fact, many experts believe
that passage of the Smoot-Hawley tariffs in the United States in 1930
was a major contributor to the onset of global depression.
1. 1. Describe how free trade works (ideally). In the discussion,
be sure to address barriers to free trade associated with
protectionist policies. (1-2 pages, single spaced)
2. 2. What are the principal arguments supporting free trade? (1
page, single spaced)
3. 3. What are the principal arguments against free trade? (1
page, single spaced)
4. 4. What regimes exist to promote free trade globally? (1
page, single spaced)
5. 5. The law of comparative advantage holds that countries
should concentrate on producing goods and services where they
have a comparative advantage, rather than producing all the things
they are good at producing. Since the 1960s, America’s
comparative advantage has been in high tech products and
advanced services. Because it does not have a comparative
advantage in basic manufacturing (although it has always been
good at manufacturing), it has ceded manufacturing efforts to
developing countries, such as China, India, Taiwan, and Malaysia
and has focused on strengthening its high tech and service sectors.
The economic crisis of 2008-2009 has caused many thoughtful
economists to re-think this long-standing policy. Why are they now
beginning to question the US’s abandonment of basic
manufacturing capabilities? (1-2 pages, single spaced)
6. 6. It is generally agreed that China has done everything
possible to avoid pursuing free-trade policies. Briefly explain. How
do they get away with it? (1 page, single spaced)
Question 2
The economies of countries that depend heavily on international
trade often rise or fall in accordance with their currencies’ exchange
rates, as well as the currency exchange rates of their trading partners.
The questions below will enable you to show your understanding of
how currency rates are established, how they are incorporated into
national economic policies, and how they can help or hurt national
economies.
1. 1. How are currency exchange rates established? (1 page,
single spaced)
2. 2. In the light of your response to question 1, explain what
steps a national government (e.g, Japan today) takes to strengthen
or weaken the exchange rate of its currency (1 page, single spaced)
3. 3. Japan’s economic miracle of the 1950s through 1980s was
rooted in pursuing an export-driven economy. In the 1970s, the
fabled Four Dragons followed the Japanese export-oriented blueprint
to spur economic growth (Four Dragons: Taiwan, South Korea,
Singapore, Hong Kong). What role was played by the currency
exchange rates of these countries to stimulate exports? (1-2 pages,
single spaced)
4. 4. Recently, a number of studies have concluded that the
single greatest source of China’s fantastic economic trade
performance has been the government’s policy to keep the national
currency (the Renminbi [RMB], also called the Yuan) artificially
cheap. Within China these days, there is a major debate raging
among policy makers regarding this policy. A cheap currency is a
mixed blessing, and while it can help some national industries, it
can hurt others. Explain how a cheap RMB both helps and hurts
China’s economic prospects. (2 pages, single spaced. This is a
significant policy question that gets to the heart of exchange rate
policies -- no one page answer here! No copy pasting from the
Internet!)
5. 5. Since World War II, the dollar has served as the backbone
of the international monetary system. (Prior to WW II, the English
pound sterling served this role.) For the Almighty Dollar to reign in
the global financial system, it was important to keep the dollar
strong (i.e., relatively high exchange rate in respect to other
currencies). Why did the US government pursue a strong dollar
policy for so many decades? Since the economic crisis of 2008-
2009, the dollar has weakened considerably against other key
currencies, yet the Federal Reserve and Treasury Department have
not taken steps to strengthen it. Why not? (1-2 pages, single
spaced)
6. 6. The Euro as a currency was introduced into circulation in
the Eurozone in 2002. The idea of the Euro was to establish a single
currency for the European Union in order to strengthen the overall
economic performance of EU countries. While there are clear
advantages to having a single currency (e.g., the US uses the dollar
throughout the fifty states), the 2010 financial crisis of the European
PIGS (Portugal, Ireland, Greece, and Spain) highlighted the perils of
having one currency employed a great diversity of countries. There
has even been speculation whether the Euro can survive in the long
run. Briefly explain how the economic problems experienced by the
PIGS in 2008 through 2010 surfaced significant weaknesses of
implementing a one currency policy across Europe. (1-2 pages,
single spaced)