Regional Economic Integration and Economic Cooperation
The Asian region is among the leading international economic powerhouses due to its economic potential and size with countries such as China and Singapore dominating the region. Nonetheless, the capacity constraints in various Asian nations and the diversity of the continent complicate the efforts to create a unified market in the Far East. Achieving success in Asia’s regional economic integration requires high commitment levels among the member countries in addition to the effective implementation of various initiatives to facilitate economic cooperation (Rillo & Cruz, 2016). I consider China and Singapore as significant players in the global and Asian economies due to their volumes of traded goods and investments in their local and foreign markets. For instance, China leads in the Asian continent, and its economy is the second largest in the world based on its nominal gross domestic product as an indicator of market performance. On the other hand, Singapore’s highly developed economy is among the most rapidly growing in the world, and this has allowed the country from a third-world nation into a developed country in about five decades. I also observe that variations scope and breadth exist in regional economic integration, and the economic integration in the East Asia region initially assumed a market-oriented cooperation process before transforming into an economic integration drive.
My understanding is that a trade bloc refers to a form of an agreement between different governments that reduce or eliminate trade barriers to increase trade volumes among the member states. I have also learned that the trade blocs can exist as independent agreements between specific countries or form components of regional organizations. The trade blocs can further be categorized as monetary and economic unions, common markets, customs unions, free trade areas, and preferential trading areas. In Asia, the intergovernmental agreements have resulted in some regional trade agreements as well as the formation of the ASEAN trading bloc. I noted that China and Singapore are currently members of the Association of South-East Nations trading block alongside eight other countries in Southeast Asia. The primary objectives of ASEAN include the facilitation of sociocultural, educational, military, political, and economic integration as well as promoting intergovernmental cooperation in the region (Berman & Haque, 2015). The first stated aim of ASEAN is enhancing the competitiveness of the region in the international market as a production base by eliminating non-tariff and tariff barriers within the member states. The second aim of ASEAN is increasing the volume of FDI’s to the Southeast Asia nations.
I believe that being member states of regional trading bloc has several advantages to the participating countries. One of the advantages that China and Singapore derive from joining the ASEAN trade bloc is the enhanced economies of scale that result in significant reductions in the costs of manufacturing and production. It occurs because the agreements between the member states facilitate mass production of various goods in addition to increasing the availability of affordable labour (Trigwell-Jones, 2015). Another important benefit from joining the trade bloc is that it has led to an increase in foreign direct investment into the two economies and expansion of their local markets. Furthermore, the foreign direct investments help in reducing the local manufacturing costs. Singapore and China also benefit from the trade blocs due to the increased competition as a result of the increased proximity of manufacturers from different countries. I believe that the enhanced competition is important because it encourages increased efficiencies in local business organizations and encourages the exchange of best practices between various firms. The elimination of tariffs due to multilateral agreements in the trade blocs helps in reducing the importation costs and lowering the costs of goods. The trade effects of joining the trade blocs allow the business organizations that use efficient production as a competitive advantage to flourish, and this helps in improving the local production standards in the long run. Lastly, I believe that a reduction in the costs of production and goods helps in stimulating consumption by consumers and enhancing market efficiency by reducing deadweight losses.
However, joining a trading bloc also has several disadvantages to the participating countries. I consider one of the disadvantages of the trading blocs is to be that they may lead to the loss of sovereignty to the member countries in situations where political interests couple with the economic agreements such as in the European Union. The increased interdependence between participating countries may also disrupt regional trade in case of disasters or political instabilities in some of the members (Trigwell-Jones, 2015). Some of the advantages that Canada can derive from a customs union with Mexico and USA include increased volumes in exports and imports, reduction in prices of the imported commodities, and exchange in various technologies. The main disadvantage in joining such a union would be the creation of common trade policies that would affect Canada’s critical institutions such as the banking sector, agriculture, and telecommunications among others.
The free trade agreements and economic unions share several similarities in the internal structures that facilitate trade among member nations, and one of the emphases in the two is the reduction or elimination of trade barriers. However, the main difference that exists between FTA and economic unions lies in how they approach non-treaty countries. The free trade area allows its member states to determine their tariff rates to non-member countries during importation while the economic unions require all its member states to adopt identical external tariffs when trading with non-treaty countries. Thus, Canada’s association with NAFTA will aid me in selling my products to Singapore and China by giving me the freedom to negotiate for favourable rates rather than being limited by the tariffs set by other countries. NAFTA will also benefit my company to import various goods from Singapore and China at reduced prices.
Foreign Exchange and International Money Markets
Different countries boast of unique resources such as minerals, precious metals, timber, and fossil fuel that allow them to engage in international trade. I believe that importing and exporting activities are essential economic activities because they assist national economies in growing in addition to expanding the international markets. The economic growth and performance of any country depend on its ability to increase its exports and reduce the import volumes. According to Stewarts (2010), increasing exports and reducing imports helps countries in maintaining healthy economies as well as reducing their reliance on foreign countries for essential commodities. I believe that importation offers several benefits to individual consumers and local businesses. For example, importation helps in increasing the variety of products available to local consumers and reducing the prices of various commodities through the increased availability of goods. This occurs because most of the imported goods are cheaper in international markets. Additionally, importation helps in improving the quality of local products through the incorporation of the imported components of high quality. Importation also helps in reducing the deficits that could occur due to inadequate manufacturing activities in a country. On the other hand, exportation is also important because it increases foreign exchange earnings and increases employment opportunities in the country.
However, importation and exportation also have several drawbacks that could have far-reaching consequences on the local economies. I believe that one disadvantage associated with importing is that it may increase the rates of unemployment due to the reduction in manufacturing and value-addition activities. The low prices of imported goods could also increase the rates of inflation and discourage local manufacturing due to the increased production costs. The inflation in import-dependent countries occurs because such countries spend much of their monies on buying goods from foreign nations. Such countries could be forced to print more money to increase local circulation thus losing the values of their currencies in the global financial markets. However, a weak currency is beneficial to the exporters because it makes the prices of the exported goods cheaper in the international markets. The weaker currencies also have the potential of increasing the volume of individuals visiting the affected countries thus benefiting the tourism sector.
Another drawback of importation is that it may lead to the failure of local industries due to the substitution of domestically produced goods with imported products. I believe that a major disadvantage of exportation is that it results in the depletion of finite or non-renewable resources such as minerals, ores, and crude oil. My research on the importation and exportation activities reveals that the countries that depend on the exportation of such resources for the sustenance of their economies usually encounter financial hardships in the future. Inadequate value addition of raw materials for export also results in low earnings from foreign exchange and increased deficits during the importation of processed products.
I understand the balance of trade as the difference in monetary value between the total imports and exports in a country over a specified duration. I believe that the countries that export more than they import from international markets record positive balance or trade surpluses while the countries that import more than they export report negative balances or trade deficits. Furthermore, I believe that long-term trade deficits have detrimental impacts on the economy because they increase the rates of unemployment and reduce the prices of commodities. As such, the manufacturing companies experience the worst effects of the trade deficits due to the competition that results from the imported goods and the inability to record sustained profits.
The high exportation implies that Canada received a lot of US dollars in its local market during the period characterized by the inflation in the USA. As such, the weakening of the US dollar would affect the Canadian economy due to the amount of reserves in US dollars held by the country. I believe that the Canadian central bank and government would be under pressure to weaken the local currency to improve the competitiveness of local products pricewise. Additionally, The Canadian interest rates would also result because of the increased preference by the lenders to issue Canadian dollars and borrowers to seek US dollars. The exportation of USA’s inflation to Canada would also occur if Canada ran on monetary policy and the weakening of the US dollar reduced the prices of US manufactured goods in the Canadian market. Nwankwo (2017) argues that importation increases the prices of domestic products in situations where the source countries of the imported goods experience high inflation rates. Thus, I believe that the price reduction would make Canada manufactured products less desirable to the consumers due to their prices, and this would prevent the Canadian firms from competing with US imports. Additionally, the export sector would be adversely affected due to the perceived high costs of the Canadian manufactured products in the US market.
From the provided graph, I consider the country with a harder currency between 1960 and 2005 was Canada as implied by the high export rates and sustained growth in its gross domestic product. The country that recorded the higher inflation rates during the same period was Brazil because its gross domestic product growth was relatively stagnated. Brazil’s stagflation resulted from its low exports that indicated slow economic growth and low earnings of foreign exchange. I believe that the Canadian company should use the spot market in getting the currency because the value of the Brazilian currency would increase in the future and this would reduce the number of goods the company could receive from the transaction by waiting. If the payments were to be completed using the US$, then the Canadian company should consider using the future market because the value of the Brazilian currency would continue to weaken due to the country’s increasing inflation rates.
International Monetary Systems
Diversifying operations to foreign markets creates some risks to my business. However, entering the Chinese and Singaporean markets poses significant challenges due to the level of government control on foreign firms. My chosen countries have strong economic stability that is supported through the governments’ efforts. Singapore remains one of the most attractive destinations to foreign investors due to its consistency in registering surpluses, high government revenue, and no foreign debt. The country’s infrastructure is also well established with one of the busiest cargo seaports in the world and robust financial services sector. The Singaporeans also have high spending powers due to the high income per capita recorded in the country. The country’s strong economic performance prevented it from experiencing significant effects of the recent economic recessions. China’s stability arises from the central government’s efforts to retain the country’s global competitiveness against countries such as America and Canada. The country has advanced transport and communication infrastructures that ensure that my business will not encounter logistical problems. However, the trade wars between the country and the U.S. threatens its long-term economic stability.
I notice that the currency of the two countries is also stable and the inflation rates low. The stability of the Singapore dollar lies in the country’s strong economic performance and well-managed government. The value of the Singapore dollar continues to gain vain against the U.S. dollar. Nonetheless, Jegarajah (2018) suggests that the Chinese government intends to allow its currency to weaken to increase its exports following the trade disagreements that the company has with the U.S. My assessments indicate that political uncertainties and nationalism are not significant problems in China and Singapore due to the stable governments in the two countries as well as the presence of well-organized political systems. I also noticed that the two countries also actively welcome foreign investments. The stability in the government and politics ensures that no disruptions occur during electioneering periods and the business interests of foreign firms remain safe during political transitions. The two countries also show high levels of accounting practices and the rates of corruption remain extremely low due to the harsh punishment issued against individuals who engage in economic or financial malpractices.
I believe that Singapore and China are some of the technologically advanced countries with some of the outstanding infrastructural and technical innovations in the world. People in the two countries also embrace multiculturalism because of the number of expatriates and multinational companies operating in China and Singapore. However, the Chinese government has instituted several stringent regulations that control the local and international organizations operating in the country. My assessment of previous cases on companies operating in the country reveals that the enforcement of these laws occurs disproportionately against foreign companies in China. For example, China the multinational companies to organizations in sectors in the country and some of these companies are chosen by the Chinese government. Consequently, I consider the government’s influence in the operations of foreign companies a hindrance to my ability to invest in the country. Similar concerns do not exist in the Singaporean market due to its government’s acceptance of the role of foreign companies in facilitating the local economy.
I consider another significant challenge in the Chinese market to arise from the inconsistencies in interpreting the available regulations and rules on important issues such as transfer pricing and tax laws. Moreover, some detailed implementation frameworks on the tax law laws remain undefined although the local authorities continue to implement the regulations. I believe that this creates room for corruption and harassment of foreign-based companies operating in China. Another problem identified in the country is the powers assumed by the local officials in interpreting various regulations and laws because this results in increased inconsistencies in interpretation of similar laws in different jurisdictions. However, I consider the greatest difficulty faced by multinational firms operating in China is the increased risk of theft of intellectual property. China has frequently been accused of violating the copyright laws of leading companies in various parts of the world, and this makes investments in the country a significant challenge.
The current module has enabled me to expand my understanding of monetary systems and international finance, and I consider this critical in preparing me adequately for my future career. The module was interesting because it gave me the opportunity to study two of the most important economies in Asia-Pacific due to their sizes and rate of growth. For example, China’s economy is currently among the largest in the world in terms of GDP and the country has made significant investments abroad while Singapore has a very strong economy despite its considerably small size. I realized that the commendable economic performance of the two countries has largely resulted from the governments’ policies on economic affairs. Thus, the module has assisted me in understanding the critical roles of governments in economic growth and this has motivated me to study ways through which I could contribute to my local economy as a policymaker in the future.
Moreover, I have learned about the influence of joining trading blocs and economic unions on local economies as well as the challenges associated with such partnerships. While joining the trading blocs and economic unions help in increasing trade and foreign direct investments, I noted that such agreements expose domestic manufacturers to serious price fluctuations and diminished profit margins that could lead to their closure. This has cascading adverse effects on the economy and could lead to problems such as increased unemployment rates, reductions in remunerations, and copyright infringements among others. I consider my instructors and classmates important in completing this current work because their contributions helped in ensuring that I did not deviate from the right line of thinking throughout the project. Additionally, I consider the module important because it provided me with the opportunity to evaluate business environments in foreign countries and their impacts on foreign investors. I chose China and Singapore because of their strong economic performance and recognition in the global markets. Lastly, the assignment has been critical to me because it has assisted me in improving my analytical and decision-making skills.
Berman, E., & Haque, M. S. (2015). Asian leadership in policy and governance. Bingley, UK: Emerald.
Jegarajah, S. (2018). China isn’t likely to let the yuan weaken much further, a survey of experts shows. Retrieved from https://www.cnbc.com/2018/09/07/china-isnot-likely-to-let-the-yuan-depreciate-much-further-experts.html
Nwankwo, A. E. (2017). Inflation and the structure of the aggregate output. Kensington: Adonis & Abbey Publishers.
Rillo, A. D. & Cruz, V. D. (2016). Monitoring regional economic integration in Asia. Retrieved from https://pdfs.semanticscholar.org/90d1/dcddc16cf6e94468cba00aa20e83a3c165bc.pdf
Stewart, M. A. (2010). Peterson’s Master the Ged 2011. Arco Pub.
Trigwell-Jones, M. (2015). Cambridge O level commerce coursebook. Cambridge, UK: Cambridge University Press.