Model essay (b): trade deals or competitiveness?

What this lesson teaches

• I can weigh the benefits and costs of free trade and open flows for consumers, producers and governments.

  Syllabus 9570, 3.3.1(c). Globalisation, International Trade and Economic Co-operation: Benefits and costs of free trade and flows of capital and labour on:; Consumers - Prices, choice and variety of goods and services; Producers - Size of markets, degree of competition, cost of production and innovation; Government - Macroeconomic objectives (and policy choice)

• I can explain why a government may sign trade agreements or protect its industries to meet its aims.

  Syllabus 9570, 3.3.1(e). Globalisation, International Trade and Economic Co-operation: Governments may decide to engage in economic co-operation and trade agreements between countries or impose protectionist measures to achieve macroeconomic aims

Make a guess

Large economies raise tariffs on many imports. Should Singapore raise tariffs on their goods in return?

1. No. Retaliation would raise Singapore's own costs and prices.
2. No. Singapore should cut its own tariffs further to win them back.
3. Yes. Retaliation would force the others to back down.

The answer to part (b)

Introduction

A free trade agreement (FTA) is an agreement between countries to remove most tariffs and other barriers on trade among themselves. Rising protectionism threatens Singapore more than most economies, because its total trade is more than three times its GDP. Other responses include raising productivity, helping firms and workers adjust, and building secure supplies of essentials. This essay argues that FTAs are Singapore's best external response, but that competitiveness at home matters more when protection is broad. The judgement depends on how widespread the protection is and on the time frame.

Paragraph 2: FTAs open new markets

FTAs help Singapore find new buyers when old markets close. When a partner cuts its tariffs, Singapore's goods and services become cheaper there, so exports rise. Since exports are a large part of Singapore's AD, AD shifts right from AD0 to AD1 in Figure 2. Exporters hire more workers, who spend their incomes, so the multiplier raises real output from Y0 to Y1. FTAs also spread risk. If one large market raises tariffs, firms can sell more to others. Singapore's agreements, such as the CPTPP and RCEP, cover many economies in Asia and beyond, so they widen the choice of markets.

Paragraph 3: FTAs attract investment and cut costs

FTAs also attract foreign direct investment. A multinational can locate in Singapore and sell from here to every FTA partner on better terms, so Singapore becomes a base for the region. This raises investment, which adds to AD now and to productive capacity later. FTAs lower tariffs on imported inputs too. Since many Singapore exports contain imported parts, cheaper inputs lower firms' costs and make their exports more competitive, offsetting part of the harm from tariffs elsewhere.

Paragraph 4: what FTAs cannot replace

However, FTAs cannot fully replace access to the largest markets. If the United States taxes imports from almost every country, no agreement with smaller economies can replace all that lost demand. Singapore is also hit indirectly. Many of its exports are parts that go into goods assembled in China and sold to the United States. So a US tariff on China cuts China's demand for Singapore's parts. FTAs are also slow. They take years to negotiate, and firms, especially small ones, must meet rules of origin before they qualify for lower tariffs. Many do not use the agreements fully.

Paragraph 5: the alternatives at home

Policies at home can do what FTAs cannot. Raising productivity through training, automation grants and research helps firms compete on quality and new products, not just price. Such goods are harder for buyers to replace, so a tariff cuts their sales less. Helping displaced workers retrain and move to growing industries reduces unemployment caused by lost exports. Retaliating with tariffs, by contrast, would backfire. Singapore imports most of its food, energy and inputs, so tariffs would raise its own costs. A small economy also has little power to change a large one's policies.

Paragraph 6: evaluation

Which approach matters more depends first on the scale of protection. If tariffs target a few goods or countries, FTAs let Singapore's firms redirect sales, so they offset much of the harm. If the largest economies tax almost all imports, FTAs can offset only part, and competitiveness at home matters more. It depends second on the time frame. In the short run, firms need help to find new buyers and workers need support. In the long run, FTAs and higher productivity work together, because new markets reward only firms that can compete. Since Singapore's home market is too small to grow on, FTAs are necessary, but they are not enough alone.

Conclusion

Against targeted tariffs, widening Singapore's FTAs matters more, because it keeps markets open and spreads risk. Against broad tariffs by the largest economies, competitive firms matter more, because no agreement can replace that lost demand. Since Singapore's home market is too small to grow on, it needs both: FTAs open the doors, and competitive firms make use of them.

Margin notes: how each paragraph scores

Introduction

Defines an FTA, explains why the issue matters for Singapore, lists the alternatives, and gives a stand with two criteria.

Paragraph 2

L3 analysis: the chain from lower partner tariffs to exports, AD, the multiplier and output, shown on Figure 2. Real agreements give context.

Paragraph 3

A second, different channel (FDI and input costs), linked to Singapore's role as a regional base and its imported-content exports.

Paragraph 4

The counter-argument is specific: lost demand from the largest market, the indirect supply-chain effect and the practical limits. It is not a generic 'FTAs have problems'.

Paragraph 5

Explains how competitiveness at home works and why retaliation suits Singapore poorly. Comparing the two approaches sets up the 'which matters more' judgement.

Paragraph 6

E3: two well-explained judgements on the scale of protection and the time frame, then a deciding point from Singapore's small home market.

Conclusion

Answers 'which matters more' directly, for each kind of protection, and recommends a combination with a reason.

Overall: L3 and E3, 13 to 15 marks

Two-sided, with a diagram, Singapore context and weighed alternatives. Listing FTAs' benefits without the limits would keep the analysis at L2 and evaluation at E1.

Worked example: A 4-minute plan

Fix the stand and criteria, then sort the arguments.

1. Stand: FTAs matter more against targeted tariffs, competitiveness against broad ones. Criteria: scale of protection, time frame.
2. For: new markets, exports, AD right (Figure 2); FDI and cheaper inputs.
3. Against: cannot replace the largest markets; supply chains hit indirectly; slow, rules of origin. Alternatives: productivity, worker support.
4. Judge: targeted protection, FTAs work well; broad protection by the biggest economies, competitiveness matters more. Mix.

Watch out for this

Singapore should respond to foreign tariffs by putting tariffs on their goods too.

Retaliation hurts Singapore most. It imports most of its food, energy and inputs, so tariffs raise its own costs and prices. A tiny economy also has little power to change a large one's policy.

Check your understanding

Which judgement best fits the evaluation in this essay?

1. FTAs lower tariffs among members, so Singapore's exports become cheaper in those markets.
2. FTAs offset targeted tariffs well, but broad tariffs by big economies need wider responses.
3. Singapore has signed many FTAs, including the CPTPP and RCEP, with partners around the world.