European Economics Review: What is the Common Economic Policy?Does it play a role in international trade?
Introduction Review of European Economics: What is the Common Economic Policy?Does it play a role in international trade?In fact, there have been 11 exchange rate adjustments within the EMU, mainly the appreciation of the West German mark, because of differences in price movements among member states.These adjustments were often untimely and had a limited effect on the balance of inflation rate differentials, but the exchange rate mechanism’s other effects were largely satisfactory.Therefore, there is little compulsion for member states to coordinate their economic policies.The objective of stabilizing the exchange rate was given greater weight than that of stabilizing the price level, since there were no clear provisions for ensuring internal economic stability.It is too early to make a final judgment on European monetary union in terms of achieving internal and external stability.The implementation of fixed exchange rate and the coordination of economic policies by governments are the preconditions for resolving the conflicts between domestic and foreign goals and giving full play to the advantages of European integration.Are the priorities of the Countries of the European Community the same?Comparisons show that they are quite different in their efforts to achieve price level stability. These differences are due to the fact that some countries give priority to higher GNP growth rates and are willing to tolerate losses in price stability.The differences in priority objectives are mainly caused by objective conditions, not entirely by differences of subjective opinion.The objective conditions are mainly the different regional and sectoral structures of ec countries.The following are some explanations for the common economic policy: 1. Countries with low levels of productivity and strong regional and sectoral efficiency imbalances (such as the United Kingdom, Italy and Ireland) prefer to adopt inflationary growth policies in order to balance these differences and overcome unemployment.They are often reluctant to adopt demand-suppressing policies for fear of exacerbating structural unemployment.This greatly undermines the objective of price stability.The mobility of capital and Labour may also exacerbate regional structural differences, as they flow to areas where productivity is already highly developed.In order to smooth out regional differences, the European Community has established a fund from common funds to finance industrial schemes, Labour activities and infrastructure investment in areas where it is most needed, mainly in Britain and Italy.2. Shifts in the structure of employment are also very different across larger economic sectors, such as agriculture and forestry, productive industries and service industries.The agricultural sector is still high in France and Italy, while the industrial sector is much higher in Federal Germany than in other countries.Accordingly, some countries have had to create more jobs in the industrial sector.In this regard, structural policy is caught in a conflict between ensuring employment on the one hand and restructuring, reducing employment in certain areas and enhancing international competitiveness on the other.3. If trade unions focus on the parallel development of wages in all sectors, the greater the difference in productivity growth in each sector, the higher the potential for inflation in the national economy.In this context, differences in the rates of inflation in the EC countries are also the result of differences in the intensity of the distributional struggle within each country.These reflections show that the reduction of regional and sectoral differences in economic structure is a fundamental prerequisite for the achievement of European economic and monetary union.The European Community does not yet have a common, negotiated industrial policy.There are currently only a few common activities for specific sectors.These activities range from maintaining the characteristics of old sectors (e.g., steel, shipbuilding) to supporting new sectors (e.g., aviation and spacecraft manufacturing, research and technology policy).It is difficult to evaluate the reality of European integration.The following quotation illustrates what needs to be worked on at present: “In the future, as transport costs in the broad sense continue to fall and restrictive factors such as tariffs cease to be effective in many areas, the economic preconditions for the active development of the division of Labour and the expansion of cross-border trade are likely to improve.But whether this trend works in the face of increasing interdependence and integration depends fundamentally on the behaviour of countries.Whether the states will resist this trend of integration while adhering to the agreement, whether the European Community will develop into a federated area in the coming decades, rendering the traditional state meaningless, or whether it will be used by states as a tool to improve their national defense and strengthen their independence, is a clear question from the very beginning of its establishment.It is difficult to draw a conclusion to this problem in such a short time today.(Miiller, H. Europaeische Gemeischafte, Vol. 2, Stuttgart, 1980) Reasons for determining foreign trade The division of Labour is a characteristic not only of a national economy but also of international economic relations.Each country has to specialize in producing certain products in exchange for those of other countries.Why and for what reasons should international trade be conducted? These questions should be answered by international trade theory.Here, too, as in other areas of economics, there is a variety of theoretical insights that both compete with and partly complement each other.We cannot give an in-depth account of the theoretical debates, but only a brief introduction to the views that dominate theoretical and empirical studies of international trade concerning the determinants of foreign trade.First of all, it should be pointed out that, generally speaking, there are always a variety of reasons to international trade work together, and the various reasons that determine a country’s foreign trade may change in different periods.In the following introduction, these factors will be separated and analyzed separately.A schematic illustration of the determinants of foreign trade.The following reasons play a major role in establishing international economic ties: 1. Lack of disposable power for certain products;2. There are absolute and relative price differences between domestic and foreign countries;3. There are product quality differences when domestic and foreign suppliers’ markets overlap.Traditional international trade theory studies international trade based on price difference.When will domestic consumers buy foreign goods?Buy, of course, only when they are cheaper than comparable products in China.The first is the price that determines whether a commodity is imported or exported, even though it is available both at home and abroad.Price is determined by supply and demand, and the difference in international price can also be traced back to the difference in supply structure and demand structure in various countries.If there is more demand for a commodity in one country than in another, the relative price of that commodity may be high, leading to international trade.Different demand structures are due to different preference structures, which are affected by per capita income, income distribution, climate, customs and natural conditions.The behavior of suppliers can also cause price differences.The main factor at work here is cost.If one country has an absolute cost advantage over other countries in producing one or more commodities at a lower price, there will obviously be international exchange.Conclusion Well, if a country can produce all its goods at a lower cost, that is, if it has an absolute cost advantage over other countries in the production of all its goods, will it not completely abandon international trade and produce all its own goods?Classical economics has dealt with this question.British economist David Ricardo (1772-1823) pointed out that under certain conditions it was more advantageous for a country to trade with other countries.Ricardo believed that in addition to absolute cost advantage, comparative cost advantage is of great significance to international trade.