International Trade: Rodamia

Week Four’s International Trade Simulation is set in the country of Rodamia. As a Trade Representative of Rodamia, one will evaluate what products need to be produced in the country and what products should be imported or exported. Further, the Trade Representative will determine when to impose trade restrictions and negotiate trade agreements. The objective of this paper to discuss the advantages and limitations of international trade, highlight four key points in the simulation as they relate to assigned reading, and apply the simulation to the workplace.

Advantages and Limitations of International Trade

In January 2004 of the simulation, the President has asked the Trade Representative to determine whether or not there are trade opportunities with neighboring countries, and if so, determine the composition of said trades. To fulfill the President’s request, the Trade Representative recommended giving export incentives to cheese and DVD players, as Rodamia has a comparative advantage; and the importing of corn from Uthania and Watches from Suntize. No recommendation for trade with Alfazia is made at this time.

In July of 2004, President Jacobs requests the Trade Representative determine whether or not to levy an anti-dumping tariff or to impose a quota restriction on imports from Suntize due to a recently discovered dumping margin of 25% to equal the price or watches. In response, the Trade Representative decided to levy a tariff at $40.00 per unit. This is equal to 25% of the export price, equaling the dumpling margin. The down side of this decision is that Rodamia’s domestic industry can be harmed.

In response to a “corn boom” in January of 2005, President Jacobs makes another request of his Trade Representative: access whether or not a brief tariff should be imposed on imported corn from Alfazia and Uthania. If a tariff is to be imposed, the President needs to know at what level the tariff will be imposed. In reply, the Trade Representative decides not to levy a tariff, as this decision will be to the benefit of both Uthania and Alfazia. Further, these countries will not be inclined to impose tariffs on cheese imported from Rodamia. The disadvantage of this decision is that the domestic corn industry is left open to be damaged by cheaper imports.

Finally in January of 2006, policy makers in Rodamia are leaning toward lowering trade barriers and negotiating free trade agreements (FTA) with one or more neighboring countries. In evaluating the Rodamia’s options, the Trade Representative determines that entering into a FTA with Alfazia would be most beneficial. This disadvantage of entering into such an agreement is that countries outside of the FTA will not be able to complete due to higher tariffs.

Four Key Points Emphasized in Simulation

Key points emphasized in the simulation are: Comparative advantage, free trade policy, trade restrictions, and Production Possibility Frontier (PPF). Comparative advantage is described in our text as “the ability to be better suited to the production of one good than to the production of another good.” (Economics by Colander, 5th ed., pg. 29). In this week’s simulation, Rodamia has the comparative advantage in the production of cheese and DVD players.

Governments practice free trade policies make a concerted effort not ton interfere with international trade efforts through imposing of tariffs, import quotas and currency restrictions. In the simulation Rodamia enters a free trade agreement with Alfazia. This agreement between the two countries lowered trade barriers, increased trade volumes, encourages producers to explore different markets and opens up a wider range of products to consumers.

Trade restrictions refer to government imposed quotas, tariffs or barriers designed to control specific aspects of its economy. An example of a trade restriction is that of the $40.00 per unit anti-dumping tariff imposed to equate the export price of watches in Rodamia.

The Production Possibility Frontier (PPF) is described at