Almeida 1
Mike Almeida
Dr. Sidhu
Econ 100
7/3/2022
Content Question 8
While the debate as to “whether free international trade or protection from foreign
competition is better for a country, most economists believe that free trade promotes prosperity
for all countries while protection reduces the potential gains from trade” (Bade and Parkin, Ch.
18, pg. 475). National security although very important, can be an argument taken into extreme
measures. “The national security argument is that a country must protect industries that produce
defense equipment and armaments and those on which the defense industries rely for their raw
materials and other intermediate inputs” (Textbook, Ch. 18, pg. 475). It is important to note that
there are some industries in the economy that should be sheltered from foreign companies as
they are important for production. Examples of these can be military equipment, oil industries,
etc. Being dependent on another foreign companies can lead to injurious effects, these industries
should be more self-sustaining in this example. Because of this, barriers on foreign companies
pose businesses to stop growing in domestic market. “The infant-industry argument is that it is
necessary to protect a new industry to enable it to grow into a mature industry that can compete
in world markets” (Textbook, Ch. 18, pg. 475). There are lots of new industries that are born
everyday. Lets look at hoverboards for example. If the U.S. has got a hold of hoverboards in
2000 and 5 years later India gets a hold of them (2005). The U.S. has a 5 year advantage in
developing and gaining their domestic market. As opposed to India; its market is an infant
compared to the U.S. as they are just beginning to develop their product (hoverboards). Because
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of this, in order to protect India firms from growing, there must be trade barriers to protect India
from the U.S. market. “Dumping occurs when a foreign firm sells its exports at a lower price
than its cost of production” (Textbook, Ch. 18, pg. 476). In this situation, foreign markets put on
sale their merchandise at lower cost in the global market as opposed to domestic prices in
attempt to obtain customers and max benefits.
(Textbook, Ch. 18, pg. 476
“The foreign exchange market is the market in which the currency of one country is
exchanged for the currency of another” (Bade and Parkin, Ch.19, 493). The quantity of U.S.
dollars that traders plan to buy in the foreign exchange market in a given period of time depends
on many factors. One factor is the increase in interest rates in the U.S and other countries. An
increase in interest rate dissimilar in the foreign exchange market indicates that U.S. bonds offer
greater interest rates as opposed to others. This is turn, grabs the attention of investors in other
nations and causes the demand for dollars to surge as people now want to purchase these bonds
which in turn appreciate the dollar at odds with other currencies in the foreign exchange market.
(Textbook, Ch. 19, pg. 493).