Select A Developed Country That Has Implemented A Tariff

Select A Developed Country That Has Implemented A Tariff And A Develo

Select a developed country that has implemented a tariff, and a developing country that manufactures products that are impacted by that same tariff. The current US and China tariff “war” cannot be used since these are the two largest economies in the world. Investigate the impact of the trade barrier on the developing country’s business sector and quantify the impact, if possible. Would you recommend that the developed country eliminate the tariff? Explain your reasoning. Embed course material concepts, principles, and theories, which require supporting citations along with at least one scholarly, peer-reviewed reference in supporting your answer unless the discussion calls for more. Keep in mind that these scholarly references can be found in the Saudi Digital Library by conducting an advanced search specific to scholarly references. Use Saudi Electronic University academic writing standards and APA style guidelines.

Paper For Above instruction

Introduction

Trade policies and tariffs are vital instruments that governments use to protect domestic industries, influence trade flows, and achieve strategic economic objectives. While tariffs may benefit the importing country by shielding local producers from foreign competition, they often produce adverse effects on exporting nations, especially developing countries, which are heavily dependent on trade. This paper examines the impact of a specific tariff implemented by a developed country, South Korea, on a developing country—Vietnam—focusing on the textile manufacturing sector. The analysis explores the economic repercussions, the rationale behind public and governmental attitudes toward tariffs, and evaluates whether tariff removal would be beneficial from an economic standpoint.

Context of South Korea’s Tariff Policies

South Korea, as an advanced, export-oriented economy, has historically implemented tariffs strategically to protect emerging industries and to foster the development of key sectors like technology and manufacturing. According to Kim and Lee (2020), South Korea's trade policy has undergone significant liberalization since the 1990s, yet it retains certain protective tariffs on specific industrial inputs and finished products. For example, South Korea imposed tariffs on imported textiles and apparel to support its domestic production in earlier stages of economic development, though many of these tariffs have been progressively reduced. Notably, however, South Korea has maintained tariffs on fossil fuels and certain agricultural products, which indirectly affect developing countries reliant on exporting raw materials or intermediate goods.

The Case of Vietnam’s Textile Industry

Vietnam, as a major developing country, has a burgeoning textile and apparel sector that heavily depends on exports to South Korea and other developed markets. According to Nguyen (2019), the textiles sector accounts for a substantial portion of Vietnam’s manufacturing export volume, fueling economic growth and employment. However, South Korea’s tariffs on textiles and intermediate materials have affected Vietnamese exporters' competitiveness by increasing costs, reducing profit margins, and constraining market access.

Quantitatively, the impact of tariffs manifests as increased unit costs for Vietnamese manufacturers. For instance, a South Korean tariff of 10% on imported textile machinery raises acquisition costs for Vietnamese firms that rely on imports of machinery or raw materials from South Korea. As a result, Vietnamese textile exports to South Korea declined by approximately 12% in 2022, based on trade data from the International Trade Centre (ITC, 2023). This decline translates into substantial income loss, employment adjustment costs, and reduced capacity for reinvestment in the Vietnamese textile sector.

Impact of Tariffs on the Developing Country’s Business Sector

The imposition of tariffs introduces several challenges for developing countries like Vietnam. These include increased production costs, decreased export competitiveness, and potential trade diversion. As tariffs elevate the price of intermediate goods sourced from South Korea, Vietnamese manufacturers face a squeeze on profit margins, leading to possible layoffs, reduced investments, or business closures. Moreover, the tariffs may cause Vietnamese exporters to lose market share to competitors from countries not subjected to the same tariffs, thus harming overall industry growth and economic stability (Bhattacharya & Lee, 2021).

Quantifying these impacts, Nguyen (2019) employed an econometric model to estimate that a 10% tariff increase on textiles results in a 3% decline in Vietnamese textile exports to South Korea, translating to approximately $50 million in lost revenue annually. Such figures exemplify the tangible economic harm that tariffs pose to developing nations dependent on exports—particularly in sectors with narrow profit margins and high labor intensity.

Economic and Policy Implications

From an economic perspective, tariffs serve as protectionist tools that may safeguard domestic industries temporarily but ultimately hinder global competitiveness and economic efficiency. The theory of comparative advantage suggests that removing barriers like tariffs allows countries to specialize and allocate resources more efficiently, leading to mutual gains (Krugman, 2018). Therefore, extending this principle, tariffs imposed by South Korea on textiles arguably distort market signals and impede Vietnam's integration into the global supply chain.

Furthermore, according to the optimal tariff theory, South Korea might have strategic motives to distort trade for domestic gain; however, when such tariffs adversely affect developing countries significantly, the overall benefit diminishes. The World Trade Organization (WTO) advocates for the reduction or elimination of tariffs to foster global economic growth, emphasizing that free trade benefits all parties in the long term (World Trade Organization, 2022).

Should South Korea Remove the Tariffs?

Considering the economic evidence, I recommend that South Korea eliminate or substantially reduce tariffs on Vietnamese textiles and intermediate imports. The removal would enable Vietnamese manufacturers to lower costs, boost exports, and expand employment opportunities, thus contributing to regional economic integration and development. This stance aligns with international trade principles favoring liberalization, which posits that free trade promotes efficiency, innovation, and equitable growth (Bhattacharya & Lee, 2021).

However, this recommendation also requires attention to short-term adjustment costs. Policymakers may implement transitional support measures like technical assistance, capacity building, and trade facilitation initiatives to mitigate negative impacts and capitalize on the long-term benefits of open trade.

Conclusion

Tariffs serve as significant trade barriers that can temporarily shield domestic industries but often at the expense of exporting partners, particularly developing countries. South Korea’s tariffs on textiles have adversely affected Vietnam’s manufacturing sector, leading to reduced export revenues and economic instability. Based on economic theories and empirical evidence, removing such tariffs would foster a more efficient distribution of resources, enhance competitiveness, and promote sustainable growth for both countries. Therefore, I advocate for tariff elimination, complemented by measures to facilitate smooth industry transitions and integration into global markets.

References

• Bhattacharya, D., & Lee, J. (2021). The impact of trade liberalization on developing countries: Evidence from Southeast Asia. Journal of International Economics, 124, 103-122.
• International Trade Centre (ITC). (2023). Trade statistics for Vietnam and South Korea. Retrieved from https://www.intracen.org
• Kim, S., & Lee, H. (2020). South Korea’s trade policies and protectionism: An overview. Korean Journal of International Trade, 56(2), 45-67.
• Krugman, P. R. (2018). International Economics: Theory and Policy. Pearson Education.
• Nguyen, T. (2019). Vietnam’s textile industry and its export challenges. Asian Economic Review, 41(3), 200-220.
• World Trade Organization. (2022). The benefits of trade liberalization. WTO Publications.