Explain the possible impacts of export bans on both the countries that implement them and the countries that rely on those imports.
In recent times, numerous countries have imposed export restrictions on food items like grains and meat. Such export bans can lead to sharp increases in prices, posing potential threats to Singapore’s economy.
a. Explain the possible impacts of export bans on both the countries that implement them and the countries that rely on those imports. [10]
Introduction
In recent times, a growing number of countries have imposed export bans on essential food items such as grains, meat, and eggs, particularly in response to rising domestic prices or fears of shortages. While these measures are often intended to stabilise domestic supply and prices in the short run, they can create significant disruptions in global markets. Small, open economies like Singapore—which rely heavily on food imports—are particularly vulnerable. The imposition of such export restrictions can have wide-ranging consequences for both the countries that implement them and the countries that depend on these imports.
Impact of export bans on importing countries
For importing countries, the most immediate impact of export bans is a reduction in available global supply. As shown in a standard demand and supply diagram, prior to the export ban, the importing country benefits from access to a large global supply of the good at the world price (Pw), with domestic consumption at Q1d and domestic supply at Q1s. The difference between Q1d and Q1s is met through imports.
Once an export ban is imposed by a major supplying country, the global supply of the good effectively shrinks. This leads to a leftward shift in the import supply curve. The market now faces only domestic supply plus whatever reduced imports remain, which results in a shortage at the original price level Pw. This shortage puts upward pressure on prices, leading to a new, higher equilibrium price (Pq). At this higher price, domestic producers may respond by increasing output from Q1s to Q2s, while overall consumption contracts from Q1d to Q2d due to the higher prices, thus reducing consumer welfare.
The implications go beyond just higher food prices. If the banned exports include raw materials such as grain or animal feed, this can lead to a rise in the cost of production for downstream industries such as food processing or animal farming. This increase in production costs causes the short-run aggregate supply (SRAS) curve to shift leftward, from AS0 to AS1, resulting in higher general price levels from P0 to P1—classic cost-push inflation. In an economy like Singapore's, which imports over 90% of its food, such disruptions can significantly erode purchasing power and lower the real standard of living, especially for lower-income households who spend a larger proportion of their income on food.
Moreover, a persistent rise in prices of key imports could also worsen the country’s current account balance, particularly if the volume of imports remains steady but at a higher price.
Impact of export bans on exporting countries
While export bans are often implemented with the goal of stabilising domestic prices, they can also result in negative repercussions for the countries that impose them. One key effect is a contraction in market demand. When exports are prohibited, the total market for the good shrinks, as the foreign component of demand is removed. This leads to a leftward shift in the demand curve for the good from DD0 to DD1, which can cause domestic prices to fall from P0 to P1—especially if the country produces more than what the domestic market can absorb.
This was evident in Malaysia’s case when it temporarily banned the export of fresh chicken to stabilise domestic prices. While this policy helped maintain local supply in the short term, it significantly reduced revenues for poultry farms that relied on overseas markets like Singapore. In the absence of viable alternative demand, several producers were forced to scale back operations or shut down entirely.
From a macroeconomic standpoint, the fall in export revenues leads to a decrease in the net export component (X-M) of aggregate demand (AD). This results in a leftward shift of the AD curve, reducing real national income (NY) and economic growth. Firms facing lower demand reduce their use of factor inputs, including labour, which causes cyclical unemployment to rise. Additionally, a persistent fall in exports worsens the balance of trade (BOT) and can negatively affect the overall balance of payments (BOP), especially in countries that are heavily dependent on primary exports for foreign exchange earnings.
Therefore, while the policy may offer short-term domestic price relief, it undermines long-term export competitiveness, reduces business confidence, and may harm sectors that are geared towards international markets.
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