Posts tagged south

Free Trade vs. Protectionism

Satirical View of Protectionism

There are strong arguments from both opinions. However, I do think that an industry needs a protectionism in order to build up its capability to compete with international industries. There are many real world examples that support this idea of protectionism. Of course, it could be unfair for some of the countries that are trying to get in to the market, however, the country with inefficient, lack of technology on specific area will never get better just by initiating free trade with other countries, completely making the weak industry vulnerable to international siege of cheap… products.

There are many industries in East Asia that have benefited from protectionism. One of the most famous example would be South Korea. The country had set a quota, tariff and all methods of protectionism possible to grow one of the important industries. For example, the electronics industries have heavily benefited from the protectionism. From 1970-1990’s, the electronic companies such as Samsung or LG have had significant growth due to the protectionism. Thus, expanding economic growth within the country and lifting the standards of living of the South Korean people. If Korea did not use any kind of protectionism to bolster its core industries, they might be still suffering from poverty and low standards of living. This also includes Japanese, Taiwanese and other nation’s industries. These countries became wealthy by overcoming the lack of resources by protecting the important, lucrative industries.

It would be completely immoral for developed countries to impose and bully undeveloped countries to sign up for WTO and initiate free trade. These undeveloped countries will never have the chance to grow and develop their own industry and technology. It would be forcing a poor country to stay poor and never giving them a chance to have develop their own industry and raise the standards of living.

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Pollution in Kobe, Japan – Taxation, Subsidization, and Tradable Permits

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Although Kobe, Japan is not on the list of world’s top 10 polluted cities, southern part of the city is heavily polluted.  Southern part of this city have over 15 factories producing ships, steel, electronics and cars. It is surely a heart of Kobe’s economy and finance, however, it is causing a negative externality of air pollution.

Factories are concentrated on the southern part of Kobe, Japan.

These heavily-industrial factories release unknown chemicals into the air and pollutes the city severely. As a result of pollution, the inhabitants living around the area can suffer from several sever health problems such as respiratory problem, cancer, nausea and etc.

Then, how could we possible solve this problem? There are three solutions to solve the problem. They are taxation, subsidization, and tradable permits.

First solution to Kobe’s pollution is taxation. As you see in the graph, the pollution in Kobe is the negative externality caused by manufacturing of ships, electronics, and so on. Originally, this was not considered as a ‘cost’ to society, so this cost was not reflected. So the supply curve is on MPC initially, however, we can tax the producers to move the quantity supplied back to the optimum point of Q. The supply curve will go up to the curve of MSC which rightfully reflects the social cost of pollution. This way, the government can expect the effect of reduced pollution in the city of Kobe.

However, there is one draw back to this solution. The consumers would have to buy the product at much higher price from P1 to P2 compared to before.

The second solution is to subsidize firms that are employing more environmentally-friendly method of manufacturing their products or the firms that are developing eco-friendly technology. By subsidizing these kind of firms, the level of pollution in Kobe could decrease significantly. As you see in the graph, by subsidizing these firms, the price of these firm’s products will decrease from P to P1, and the quantity demanded will increase from Q to Q optimum. Increased demand of these products will increase the positive externality of reduced pollution in Kobe. However, this method is uncertain because we cannot quantify how much positive externality it will cause.

The last solution is issuing tradable permits. Tradable permits are permits issued by governments allowing how much of pollution firms can create. If a firm exceeds the pollution rate it is suppose to create, the firm much buy a tradable permit from other firms. If a firm succeeds in reducing pollution and they have extra permits, these firms can sell the leftover permits to other firms that exceeded the pollution level. By issuing tradable permits, we can lower the pollution level significantly. Also, it encourages the firms to be efficient and lower the pollution level. If they lower the pollution level, they can sell their extra permits and gain profit. Many countries are told to be using this system to reduce pollution.

In conclusion, taxation, subsidization, and tradable permits are possible solutions to the pollution in Kobe, Japan. The local government should now take action to reduce pollution in Kobe and make it a pollution-free city.

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