The Economic Resilience of the Movies

In 2008 when much of the economy was in decline and unemployment was on the rise, the movie industry had a happier story to tell.

In during the great recession in 2007 and 2008, instead of seeing a sharp decline in movie ticket purchases there was instead there was minimal change. Movie ticket sales and the health of our economy are not correlated and therefore box office performance is not a good indicator of the state of our economy.

The box offices’ struggles are not aligned with the rest of the economy. In away they are immune from traditional market down turns.

At first glance, the film industry doing well doing a recession seems counterintuitive. Entertainment is generally seen as an extra budget item that would be cut when money is tighter. However, the movies are like an escape from the real world. When times are tough people can take refuge in the world of the movies. Therefore, the film industry instead of experiencing a slump during the recession it continued to succeed.

The top grossing films of 2007 and 2008 were Spider-Man 3 and The Dark Knight respectively. Both films provide an element of fantasy and heroism. They have the ability to transport the viewer to a different world, one that isn’t their economically dim reality. They gave an escape people craved.

Box office sales did not take a major hit during the great recession, however, they have been hit with a subtle decline in recent history. According to The Numbers, the peak of movie ticket sales was 2002 when approximately 1.5 billion tickets were sold. That is almost 200 million more tickets sold than in 2016.

The decline in box office sales could be a reflection of the changing economy of how we watch movies. There has been a trend towards watching movies at home rather than in theaters. A 2006 Pew Research study found that 75% of Americans would rather watch a movie at home than in a theater up from 67% in 1995. The Pew study is supported by a 2015 CBS News poll which found that a majority of Americans preferred watching movies at home and 84% of Americans watch more movies at home than in theaters

One of the factors in declining movie theater ticket sales is online streaming, with Netflix being the biggest player in the streaming field. In the same time period where movie ticket sales have been declining Netflix has been expanding its subscriber base. Netflix has gone from almost 7.5million subscribers in 2007 to almost 100 million domestic and international subscribers, according to Business Insider and Statista.

The movie industry has been for the most part immune to the ups and downs of the economy. Box office sales are not the key to unlocking the health of the economy, rather they tell us something about the psyche of the nation. Even when times are tough we crave the escapism that the movies provide. Through the ups and downs of the economy, the movies have proved to be resilient.

 

Sources: 

The Numbers 

Business Insider 

Fortune 

Pew Research

CBS News

Old Banknotes Can’t Be Swept Out Easily in India; Neither Can Old Problems

On Nov. 8, the Narendra Modi government surprised India with a declaration banning 500- and 1,000-rupee notes (Rs500 and Rs1, 000) to tackle black money and corruption. The demonetization policy may be well intentioned, but it has brought up unintended consequences over the domestic economy in India.

Rs500 and Rs1, 000 were India’s two biggest notes that and accounted for 86 percent of the money in circulation by value. According to the announcement, all citizens will have until Dec. 30, 2016 to exchange the old banknotes at bank branches. People seeking to replace more than Rs250,000 (about $3,650) must explain why they hold the cash. Those who fail to do so must pay a penalty.

Due to the large number of notes and the short replacement period, Indian banks and ATMs have long queues as people rush to exchange old notes for new ones. The government can’t print enough new notes to fulfill the demand. Till Dec. 10, the banks have received Rs12.4 trillion as deposits but only released Rs4 trillion back into the system as of 5 December.

People queue as they wait to exchange or deposit their old high denomination banknotes in Jammu, India. Photograph: Mukesh Gupta/Reuters

As a normal economy influence, the lack of cash led to a soft inflation on the market. Food inflation in November softened to 2.11 percent from 3.32 percent a month ago, according to data released by the Central Statistics Office. Retail inflation also decreased from 4.2 percent a month ago to 3.63 percent.

However, the demonetization of high-value currency notes has had a negative impact on the Indian economy. The lack of electronic bank accessibility and wireless payment in India has magnified the effect of insufficient cash on the business activities of investors and consumers. The overall industrial output decreased by 1.9 percent compared to before demonetization, according to the industrial production data.

There are worries about the money liquidity problem. “The Reserve Bank of India is likely to outline measures to manage the systemic liquidity, which would be of interest to the banks, and provide some timeframe by which cash liquidity would increase, that would be of significance to the public,” said Naresh Takkar, managing director at ICRA Ltd., the local unit of Moody’s Investors Service.

The original goal for the government’s demonetization policy is to tackle black money — cash that is not declared to avoid taxation or that is obtained via corrupt practices. But according to the New York Times, the vast majority of black money in India isn’t money at all. It’s held in gold and silver, real estate and overseas bank accounts. The requirement also stimulated a new black market where people can break old notes into smaller ones by illegal couriers.

Demonetization alone can’t tackle the issues of black money and corruption. More actions toward improving policies for administration transparency, tax regulation and the modern online bank tracing system are needed.

Work Cited:

India pulled 86% of its cash out of circulation. It’s not going well.

http://www.vox.com/world/2016/11/29/13763070/india-modi-cash-demonetization-protests

Cash-Crisis India Looks Likely to Cut Rates

https://www.bloomberg.com/news/articles/2016-12-06/india-decision-day-guide-seeking-clarity-on-the-cash-clampdown

In India, Black Money Makes for Bad Policy

http://www.nytimes.com/2016/11/27/opinion/in-india-black-money-makes-for-bad-policy.html

How India’s Cash Chaos Is Shaking Everyone From Families to Banks

https://www.bloomberg.com/news/articles/2016-11-21/india-s-cash-chaos-by-the-numbers-guide-to-banknote-revamp

New note ban rules and regulations as of 14 December

http://www.livemint.com/Politics/p1VV2avZvT2hWIrc07PBfJ/New-note-ban-rules-and-regulations-as-of-14-December.html

Economic Implications of Normalizing Relations Between the U.S. and Cuba

In 1961 the U.S. severed diplomatic ties with Cuba. As of December 2014, the U.S. and Cuba started to restore formal diplomatic relations for the first time in more than half a century. The U.S. moved to relax restrictions on trade, commerce and financial transactions with Cuba, though the comprehensive trade embargo for years is unlikely to be lifted at once.

Since the 1960s, the U.S. administrations have maintained the policy of economic sanctions of Cuba. Cuba depends primarily on three suppliers to meet its import needs. In 2014, Venezuela was the leading supplier of Cuban imports, with 35 percent share. The EU supplied 23 percent of total Cuban imports, while China accounted for 11 percent. Venezuela, the EU, and China together accounted for 69 percent of total Cuban imports in 2014. By contrast, before initiating trade restrictions, the United States alone accounted for 70 percent of Cuba’s total imports in 1958. In 2014, the U.S. share was just 3 percent.

As the political relation normalized in 2014, the trade advancement is still feeble to see. The total amount of Cuba imports from the U.S. in 2015 was $180 million, down 40% ($119 million) from 2014 and down 51% from 2005. The top export categories in 2015 were meat, food waste, grain and chemical products. The agricultural products importing from the U.S. totaled $150 million, which is the leading import category.

Compared to Cuba’s import, there was no goods export to the U.S. in 2015. The EU still remains the leading partner of Cuba’s export destination.

But after the Cuba policy changes announced by the President in December 2014, the U.S. government made some regulatory changes to allow the importation of certain goods and services produced by independent Cuban entrepreneurs. The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) and the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) have made five sets of amendments to their respective Cuba sanctions regulations. OFAC introduced a provision in January 2015 authorizing the importation of certain goods and services produced by independent Cuban entrepreneurs.

Other changes are expected to benefit the economy in both countries. American banks can now do business with Cuban customers without brokering through a third nation. It means Cuban Americans can send money to family members in back in Cuba easier than before. In 2015, Annual funds sent from the U.S. back to Cuba nearly doubled to $1.4 billion.

US citizens are now able to use their credit cards in Cuba. They can also take home up to $100 in alcohol and tobacco from the island. Still, most US travelers to Cuba will continue to be family members, academics, journalists, cultural ambassadors, and medical professionals. But US citizens don’t need to obtain permission from the US government as previous required. About 150 thousand Americans traveled to Cuba in 2015, up from 91 thousand the year before.

Though two countries has made progress toward trade and commerce, the future remains ambiguous. Fidel Castro, Cuba’s communist leader who had been in power for five decades, died on Nov. 25, 2016. Two days later, the U.S. President-elect Donald J. Trump warned that“If Cuba is unwilling to make a better deal for the Cuban people, the Cuban/American people and the U.S. as a whole, I will terminate deal.”

Black Friday 2016 Fall’s Short with Consumer Spending

After smothered in gravy and filled with, Americans across the nation begin to plot their plans of attack for the Black Friday sales. Since 1952 Americans have kicked off their Christmas shopping season at major retailers on the Friday following Thanksgiving.

The fact that Black Friday also takes place on a Friday – duh – every year is perfect for retailers looking to drive long weekend sale deals because Americans traditionally have not had to return to work the Friday after Thanksgiving. The commercial holiday is a long way from becoming outdated.   In 2015, 90% of all Americans reported that they intended to shop on the commercial holiday.  However, with the increasingly popularity and convenience of e-commerce as well as the advent of “Cyber Monday”, which made its debut back in 2005, has possibly had a negative impact on companies’ sales revenues.

Reports from 2016’s Black Friday have rolled in and while more Americans went shopping this year in stores and online than in any other year in the Black Friday weekend’s 64-year-old history, American consumers spent considerably less.

Special offers! 10 percent off! Mega Deals! Are all familiar gimmicks that attempt to grab the attention of unsuspecting bargain-loving buyers. Price discrimination is a tactic frequently used by stores around the holidays. It involves the selling of the exact same product at various prices based on different buyers willingness to pay.

There are three degrees of price discrimination. The first, which is alternatively known as perfect price discrimination, occurs when firms charge different rates for every unit consumed enabling them to capture all available consumer surplus. The second-degree involves charging different prices for different quantities, including quantity discounts for bulk purchases. An example of second-degree is when a movie theater offers discounts or deals on snack bundles as a way of getting moviegoers to spend more at the snack bar. The third-degree means charging a different price to different consumer groups like cheaper bus tickets for children and seniors or negotiated gym memberships.

According to this year’s National Retail Federation survey – released the Sunday after Black Friday – approximately 154 million Americans went shopping over the Thanksgiving weekend. An estimated 108.5 million consumers shopped online alone. The numbers indicate a considerable increase, up from the 151 million shoppers that contributed to sales revenue in 2015. Average spending per person dipped slightly from the previous year’s $299.60 to $289.19. The fall in spending is somewhat surprising when taking into consideration wage gains, continued employment growth and a rise in consumer confidence as 2016 comes to its close.

The Friday deals are not necessarily the best offered throughout the year. The day is not geared towards the benefit of the consumers, but rather a device utilized by retailers to clear end of year inventories with artificial deals and storewide discounts.   Professional shopper and Black Friday Veteran Dan de Grandpre explained it best in an interview with the New York Times: “Black Friday is about cheap stuff at cheap prices, and I mean cheap in every connotation of the word.”

 

 

Sources:

http://www.economist.com/blogs/economist-explains/2015/12/economist-explains

http://www.forbes.com/sites/tompopomaronis/2016/12/01/black-friday-and-cyber-monday-2016-lets-just-say-there-were-scary-moments/#a89dfa157517

http://www.theatlantic.com/business/archive/2014/11/11-economic-lessons-to-make-you-a-smarter-shopper-for-black-friday/383236/

http://fortune.com/2016/11/27/black-friday-nrf-shopping/

http://www.economicsonline.co.uk/Business_economics/Price_discrimination.html

Holy Moly Guacamole! Why are Avocados So Expensive?

It’s no secret that American’s love avocados.

Restaurant’s have quickly figured out that their customers crave the juicy fruit. Nowadays you can find avocados on almost any menu across the country whether it is on your toast, burger, or even as ice cream!

According to the Hass Avocado Board, American’s consumption of avocados has been increasing rapidly over the past 15 years. Furthermore, Hass avocado’s account for 95% of all consumed in the United States, reaching nearly 4.25 billion avocados in 2014.

screen-shot-2016-11-28-at-9-14-37-pm

The growth in popularity for avocados over the last two decades is due largely in part to trade restrictions between the US and Mexico that were lowered in the late 1990s. Before this, fruits (avocados) were prohibited from being shipped to the US, which meant that all of the avocados in America had to come from California. However, the state’s climate was not able to support year round production of the fruit and therefore only specific areas of the country were able to receive the product at certain times of the year. This meant that only supermarkets in close proximity to producers could sell avocados due to their short shelf life.

By lowering the restrictions in the 1990s, the avocado market in the US was revolutionized. As seen in the graph below, by 2000, 40% of all avocados sold in the US were produced out of the country and that number has now risen to over 80%.

 

screen-shot-2016-11-28-at-9-29-39-pm

So what’s happening now?

There are two forces that are contributing to the sharp increase in avocado prices that have been seen and made headlines over the past year: environmental change and US consumers’ increased appetite.

In the wake of California’s dramatic drought in 2015, avocado prices have almost doubled in the past year.

In early October, a Santa Ana-based Ingardia Bros. Produce. Inc. claimed that avocado prices reached $76 a case, which was the highest the company had seen in three decades.

Another contributing factor is the decreased number of avocado’s being shipped to the US from Mexico. The reason for this is unclear, although according to Ingardia produce buyer Cruz Sandoval, he argues that, “Mexican growers are holding out for more money because the California season is running dry, and there’s no other sources.”

For retailers, they are feeling the pressure immensely, as the Hass Avocado Board reports that the average unit price of avocados has gone up nearly 20 cents since December 2015.

It is also important to consider how the increase in prices will affect the fruits two key consumer groups: shoppers and restaurants.

For consumers going into the grocery store, they are more likely to notice the change in price and can make an instinctive decision on whether or not to buy more expensive avocados. For restaurants, however, the decision is more challenging as their customers still expect to have the ingredient on their menus despite the higher costs. Restaurants must then decide whether or not they will take the loss or increase prices for valuable customers.

SOURCES:

http://www.theatlantic.com/business/archive/2016/10/avocado-shortage-price-hike/504383/

https://www.washingtonpost.com/news/wonk/wp/2015/01/22/the-sudden-rise-of-the-avocado-americas-new-favorite-fruit/

http://www.ocregister.com/articles/prices-731700-mexico-avocados.html

http://www.forbes.com/sites/geoffwilliams/2016/10/31/how-the-avocado-shortage-is-affecting-chipotle-grocers-and-you/#7257eeb969f1

The Appeal of Spirit Airlines

For some Americans, low airfare carriers such as Spirit Airlines is the difference between reuniting with loved ones for the holidays and sacrificing family to save a few bucks. The inevitable scramble for airline tickets is upon us, which forces us to evaluate our options. The appeal of Spirit Airlines is obvious: how can you say no to a cheap flight when life in America becomes increasingly unaffordable? However, the unfortunate reality is Spirit Airlines completely takes advantage of their promise to provide low airfare costs.

According to Andrew Schmertz from the Huffington Post, Spirit has some of the worst customer service reviews out there. Small, uncomfortable seating along with a barrage of baggage fees. Free carry on? No such thing. Any bag over 40lbs will cost you $30, up to $100 for larger bags. Free drinks or peanuts are nonexistent, and delays are commonplace. Nonetheless, the worst offense of all is the treatment of their workers. Back in 2015, there were reports of a multitude of delayed flights due to “bad weather” reports that did not even exist. The theory was that pilot and crew strikes were the real reason for the delays, but this was never confirmed. This is not surprising as the employee reviews are far from flattering. Low wages and poor management are common complaints, as Spirit has the worst customer service known to mankind.

Despite all this, Spirit Airlines still remains a go to low airfare carrier. At the end of the day, Schmertz believes “economy over convenience” is the driving force of Spirit’s success.

The real question is, are they making as much money as they could be? With all those extra charges, is their net income any better? According to Yahoo Finance, the share price is at a stable $53.11. Compared to other airlines like Southwest with a market cap of $29.5 billion, their market cap is quite small at $3.68 billion. Spirit’s quarterly report revealed their net income was $61.9 million in the first quarter of this year, $73.1 million in the second quarter, and $81.4 million by the third quarter. Overall, they seem to be doing pretty well. Their expenses are not as high as other airlines as they do not fly to as many locations. It seems that Spirit Airlines, which puts pressure on other airlines to lower airfares. However, this will lead to lower profits overall for airlines like Southwest or United as they spend more on their flights than Spirit does. Time will tell how long Spirit will remain a competitor in the airline industry, but for now, terrible customer service and endless fees are worth it to hard working Americans.

Market Inefficiencies in the NBA

When the “Moneyball” revolution occurred in baseball the ideas it posited spread rapidly to other sports. You could see a revolution of numbers-based analytical analysis and other financial-market principles dictating the actions of a team taking place in just about every American sport. In the NBA it manifested itself quickly in both the growth of analytics and a more market-based approach to team building strategy. Michael Lewis, author of Moneyball, even wrote an article for the New York Times focusing on the unseen value of NBA player Shane Battier.

battier

Among the many ideas that Billy Beane’s A’s teams popularized was finding market inefficiencies in the league that you could identify though statistical analysis, and then exploit those insights for your team’s benefit. Basically, you want to find an aspect of team building that no one else is seeing, or is seeing incorrectly, and then you’re gonna make a move that counters the logic everyone else is working under. In a league like the NBA, where everyone works under the restraints of the salary cap, these small advantages of thinking make a massive difference in terms of results.

beane

Photo Credit: Phelan M. Ebenhack

One way that teams find these advantages is through identifying “undervalued assets” or players that many teams in the league do not want because they see them as ineffective, but the astute manager sees how these players can be developed and utilized in the proper role to succeed for their teams.

I spoke to a friend who works in asset management for a private hedge fund. He told me that he was struggling with the challenges of the work. He told me that the most difficult part to figure out was that everyone in the industry is working off the same pool of information, or that’s how it’s “supposed” to be anyway, and that he had to figure out what everyone else was thinking, and then find a different angle of investment in order to make money. In a competitive environment where everyone’s jobs are dictated by the returns they create the stress this causes is palpable, even when you’re just talking to someone about it.

The same principles apply to personnel professionals in the NBA. Everyone has access to the same information, or at least they should in theory, on the players available to sign, trade or draft, and it’s these people are judged based on their returns i.e. win totals and in-game attendance. As everyone has become more attuned to league-wide trends, it becomes more difficult to find the asset that other teams are undervaluing, and thus the market becomes more competitive. As Patrick Minton of Sportsstudies.net says, It’s one thing to have a ton of data. It is entirely another thing to know what to do with it.”

The San Antonio Spurs, under head coach Gregg Popovich and general manager RC Buford, have operated successfully this way for years. They brought many players in from Europe and South America to play for them, when many other teams had decided most players from abroad could not thrive in the NBA. The Spurs exploited the rest of the league’s lack of knowledge of these talent pools. That combined with superstar Tim Duncan helped them win five NBA championships and win the most games of any NBA team since 1996.

pop-chart-narrow

Source: Sports Illustrated

Daryl Morey, the GM of the Rockets and one of the biggest proponents of NBA “moneyball” principles, popularized the idea of amassing assets to package in trades for star players. A risky move because the trade may never come, and players don’t often appreciate being treated like a stock in your portfolio, but it worked when he attained superstar James Harden in a trade with the Oklahoma City Thunder.

These strategies show the value in having the intuitive ability to see the landscape of conventional thinking, but then have the courage to make the counter-intuitive move in order to exploit it. Much like in the financial markets if you go with the conventional logic, then you limit the margin on the returns you can generate. These assets are not easy to identify, and with the increasing amount of information at team’s disposal it’s becoming more difficult by the day.

 

 

 

Costs of Climate Change – Thanks Trump

trump

Scientists have researched climate change for over three decades, gathering information about how the human population and our actions have affected the global temperature. At this point, there is little scientific dispute about climate change, but the United States’ newest president-elect seems to have other ideas. Donald Trump has called climate change a hoax, and he has already appointed some skeptics to his energy and environmental transition team, including Myron Ebell of the Competitive Enterprise Institute. On November 21, 2016, Trump released a YouTube video detailing some of his plans for his first 100 days in office, and unsurprisingly, one of his goals is to end restrictions on energy production. Overall, the situation is not looking great for the status of our environment, so it may be important to look at what costs this will bring us in the future.

smog

One important note about climate change is that it is essentially irrevocable and has a foreseeable time limit. The more we ignore this problem, the greater the problem becomes. This means that it continuously gets more expensive as a result. In 2015, Citigroup estimated that if we do not act, the cost will be up to $44 trillion by 2060. In this scenario, everyone continues living the way they have been, and we maintain the level of progress that has been made. Trump’s desire to lift energy regulations actually sets us backwards on the scale, and it is hard to imagine what the costs would be then. Last week, senior scientists said that if Trump carries through with all of his promises from his campaign, it might as well be “game over” for the environment.

Climate change is not a zero sum game. There are costs to acting and not acting, but it is important to weigh the difference. Many argue that low oil prices have lowered motivation to look for alternative sources of energy. While it may be less attractive to invest time and money into renewables, it could also be argued that because oil is so cheap, there is more space to spend money on energy efficiency without halting the global economy.

For Trump, this future catastrophe is not a huge deal because it most likely will not happen in his lifetime. For today’s millennials, climate change is yet another cost that they will have to incur. Millennials are already dealing with low incomes, high debt, and the heavy weight of social security and healthcare. This is especially detrimental to low-income, vulnerable populations because these groups are always hit the hardest in economic declines.

sandy

All of the monetary costs aside, climate change itself can and will do its own damage to the planet. There will be more frequent and extreme weather cases, disease, and deteriorating farm yields. Additionally, there will be an increase in climate-related disturbances including soil change, drought, and flooding. We are already seeing some uncharacteristically dangerous hurricanes and storms that cause severe destruction, such as Hurricane Sandy on the east coast of the US. The young people of today will have to deal with all this in a few years, and it is unclear whether or not this is even possible.

Demonetization of Indian Currency

On the 8th of November 2016, along with the US, even India, one of the fastest economies in the world, was also going through a turning point in the history of its country. India’s recently elected prime minister demonetized a large proportion of its currency by ceasing the usage of all 500 and 100 rupee notes as legal tender and replacing with them with new currency notes. Also, limitations have been placed on cash transactions, and laws have been passed for large and unusual bank deposits to be under extensive tax scrutiny.

 

This major step is aimed at combating several serious issues that the country is facing, like black money, corruption, the inflow of fake currency from neighboring countries like to fund terrorism and even the problem of smuggling.

 

Through the implementation of this revolutionary policy, any drastic increases in income of people that do not seem consistent with their past earning patterns are much easier to question and examine under tax assessment, because all the cash will now be discernible by banks and the government. To escape these tax assessments and pay fines for tax evasion and having huge sums of money accounted for, many businesses have completely wiped out their cash. There have been numerous reports of people burning down or throwing away their black money because it now has no monetary value. An expected number of one trillion rupees are to be not exchanged.

 

Also, to strengthen this step taken towards tax evasion is the imposing of more than a 200% penalty for those making deposits of cash worth more than 250,000 rupees that cannot be accounted for.

 

However, in addition to the affects on taxation and corruption, this de monetization has also had an interesting macroeconomic effect. In India, there are major industries that entirely thrive on a parallel economy run by black money. Demonetization will bar these industries and businesses and that significantly lower India’s GDP for the last quarter of 2016. However, this would only be a short-term impact that would be a small price to pay for the increasing the GDP and the overall health of the economy of the country. Additionally, as banks will experience a major influx of deposits, interest rates are likely to fall, and lower lending rates might help boost the economy. Also, the value of the rupee might enhance in the foreign exchange market because of the major decrease in circulation of currency notes in the economy.

 

As of the business forefront of the situation, investing in the real estate, luxury and jewelry industries might not be prudent as of now. This is because housing finance companies will not be willing to give real estate companies loans to companies and individuals that might be currently facing a liquidity crisis. Also owning luxury goods, especially luxury cars or jewelry is often a representation of high earnings and extra wealth, and hence the luxury industry might be adversely impacted because people might refrain from displaying their income levels by involving in such forms of indulgence. Hence investments and stock markets will definitely see volatility.

 

Comprehensively, the Modi administration has made a very forward-looking, unique and distinctive step towards counterfeiting this parallel black money economy, corruption and the circulation of fake currency. As of now, the demonetization has been having a three-fold effect on interest rates, taxation and the stock market. Nevertheless, the increasing magnitude of these impacts, volatility and destabilization to be caused by it is yet to be seen.

 

 

Should Anti-Dumping Laws be Dumped?

Should Anti-Dumping laws be dumped?

Anti dumping refers to the process by which governments levy extra costs and taxes to imports to protect domestic manufacturers. Dumping is the process by which foreign exporters enter into an international market by providing goods at significantly lower prices. Foreign exporters are both willing to do so can do it because of several reasons.

Firstly, foreign competitors might have comparative advantage over local manufacturers. Comparative advantage gives foreign importers the chance to produce the same goods more effectively because of better natural resource availability, better climate, productive skills, cheaper labor and other conditions that might provide a better environment for the same product to be made faster. Secondly, exporting to other countries is both accessible and profitable for many companies. Also, many companies are often able to find a huge demand for their product outside of their home country.

However, when these countries enter foreign markets, they have a huge impact on the foreign country and provide competition for domestic producers. Governments hence create anti dumping laws, trade barriers, and other legal restrictions towards foreign imports to improve their trade deficit, to safeguard niche and newly developing industries, and to give these companies a chance to grow and be ready to become competitive.

International trade dumping is often occurred at the cost of domestic workers and domestic companies loosing market share. However, trade barriers can also be detrimental to the overall efficiency of the economy. Trade barriers can also affect developing nations differently, because if developed nations have trade barriers, this would lead to them over producing and then dumping their products in developing nations for cheaper prices. Also, because the more richer and developed nations set the fundamental trade policies, developing nations face high barriers from these countries and cannot export from these countries to improve their own trade deficit.

Anti dumping laws and trade barriers and weather they should be implemented have always been a subject of controversy. Anti-dumping laws can sometimes be a barrier to innovation and progress, because if new advanced products are not allowed to enter the market, then domestic producers might not have the incentive to research and develop their products because of lack of competition. Also, providing more choice and higher quality to consumers is also crucial for the economy. Trade restrictions also however improve the current account balance of a country, by improving trade deficit and net exports.

The debate on weather anti-dumping laws and trade barriers should be encouraged or dumped is not one that can be resolved easily, and this debate falls under the umbrella of the debate of Keynesian versus classical economics. However a balanced argument that considers arguments of both sides would convey that government intervention and trade barriers are required to an extent, because free markets would only work in an ideal world of perfect competition, where demand and supply would purely control the market. However, in the real world, some degree of government involvement and laws are required to ensure fair competition and balance of trade across nations.