Case Study – Global Economic and Financial Environment

Case 1:
Recently in response to a dispute with both the United States and the EU’s possible action
toward imposing tariffs on cheap textile products from China, China took counter-measures
to exclude those products from the existing export tariffs to ward off damages to its
economy. To resolve the issue, in June 2005, the EU signed an agreement with China
imposing new quotas on 10 categories of textile goods, limiting growth in those categories
to between 8 and 12.5 percent a year. The agreement was in hope of providing the EU’s
domestic manufacturers time to adjust to a world of unfettered competition. However, for
most retailers in Europe, which had already placed orders for mountains of new goods from
China, it turned out to be a disaster since tens of millions of garments piled up in
warehouses and customs check points, when Chinese textile manufacturers exceeded their
quotas right after the restriction. As a matter of fact, less than a month after the
agreement, men’s trousers hit their import quota, followed rapidly by blouses, then bras, T-
shirts, and flax yarn. It is estimated that France lost about a third of its jobs in the sector.
Nevertheless, it is not clear as to how the quota on Chinese goods would help domestic
producers, especially when there are so many low-cost firms in low-wage countries such as
Bangladesh and Costa Rica waiting to take up any Chinese slack. According to an EU official,
the action against China was designed to help workers in those very countries in that “The
EU also considered the effect the Chinese market share was having on other developing
countries that have historically been dependent on our market. Who will protect jobs in
Tunisia and Morocco?”

1. Do you think the EU textile war with China will eventually save their domestic
businesses?
2. Should the United States follow the EU to impose textile quota on Chinese imports to
protect domestic businesses? Why or why not?

Case 2:
In 2015, Greece’s debt had reached 323 billion euro—the highest in modern history. With
debt amounting to 177 percent of its GDP, Greece’s rating was downgraded. Not only
Greece but other highly indebted countries such as Ireland, Portugal, and Spain were under
scrutiny. Since then, the EU’s economy has gone into crisis. The EU and IMF agreed to
bailout packages for Greece, Ireland, and Portugal. In February 2011, euro-zone finance
ministers set up a permanent bailout fund, called the European Stability Mechanism. Inmid-
2011, talk abounds that Greece would be forced to be the first country leaving the euro
zone although this speculation was denied. The EU’s private sector shrank for the first time
in 2 years; the euro continued to fall against the U.S. dollar; and the euro was seen as a
“burning building with no exits.” Some economists and politicians have forecast the demise
of the euro. The Greek crisis has exposed fault lines in the single currency project since its
introduction in 1999.
1. Do you think the advantages of the single currency decision outweigh the
disadvantages to the area’s economy? Why or why not?
2. What are your suggestions to overcome crises such as experienced by the euro zone?