GOVT 328 Exam 1

ITS two

- 1934: reciprocal trade agreement act (RTAA): bilateral negotiation of tariff reduction - 1944: established international monetary fund (IMF) and world bank (called bretton woods system; to prevent future depressions and establish free trade) - 1947: general agreement on tariffs and trade (GATT) convened to hammer out international trade rules (eventually called WTO) - second its has more active government role: promote growth, limit unemployment, establish safety nets; more insulation between domestic and international economies

Testing the gravity theory

- A = wto founding members, B = late admits, C = non-wto members - comparing levels of trade b/w wto and non-wto members - findings: wto membership only matters a little bit; it's mainly the gravity forces - rose has gone too far, but he has a point: factors other than membership in large trade agreements matter too - wto still important because it enables cooperation

why such strong anti-G sentiments all over except asia / china?

- G means loss of government control over economy (in case of democracy, means loss of public control over government), which shakes foundation of democracy - G means global welfare up, but distribution of enhanced welfare uneven (esp in DCs: *gini wealth inequality coefficient* increasing in US and in some EU nations, and in China as well - but don't forget that in asia, poverty down, living conditions improved, cell phone for almost every household) - feeling of injustice pervasive: AI and fear of losing job, lack of social mobility, tax less progressive; because of these reasons, we tend to want to recoil and wish to be more insulated from global forces - bhagwat: anti-G because we conflate globalization with anti-capitalism and anti-americanism

GATT and WTO courts

- GATT's DSM: no timetable, no guarantee for panel, reports easily blocked, not efficient or functional - WTO's dispute settlement mechanism (DSM): encourages govts involved in disputes to try and resolve conflict through direct consultations, and if these are unsuccessful, DSB creates formal panel to investigate complaint; govts can appeal the panel's decision - dispute settlement body (DSB) - problems with WTO appellate court: us is said to be boycotting (blocking re-appointment of one of the judges), appointing appellate body members requires consensus among wto members (members must formally object to block an appointment) - appellate body: issue rulings in 90 days, permanent body of 7 judges, currently 3 vacancies

World trade organization (WTO)

- GATT: 1947-1994, fulfilled the role now played by WTO - WTO: 1995-present, hub of int'l political system under which governments negotiate, enforce, and revise rules to govern their trade policies --> 164 countries belong --> budget of $200 million --> set of principles and rules, intergovernmental bargaining process, administers agreements, dispute settlement mechanism (DSM) --> core principles: market liberalism (open and liberal trade system) and nondiscrimination (each member has equal opportunity)

Regional trade agreements (RTAs)

- RTA: trade agreement b/w two or more countries, usually located in same region, in which each country offers preferential market access to the other - free trade agreements (FTAs): trade barriers dismantled among members, trade increased among members, each member has independent external tariffs with non-members (ex: NAFTA) - customs union: FTA + the same external tariffs with non-members - allowed in WTO because: they do not reduce trade with other WTO, just increase trade with non-members; creating more trade rather than diverting it

Intergovernmental bargaining

- WTO's primary decision-making process - involves negotiating agreements that liberalize trade and indirectly support that goal (esp. eliminating restrictive barriers to free trade) - bargaining organized in rounds, each with definite starting and target ending date - ministerial conference: beginning of each round, high level government officials establish agenda for focus of negotiation; after negotiations have produced an agreement, this conference meets again to conclude the round

Dependencia school

- a subset of the marxist school - world is divided into three chunks: the core (developed markets in north), the semi-periphery (emerging markets), and the periphery (underdeveloped markets in south) - south-south mutual help is the only way out of the exploitation by the north

Endogeneity problem

- accidental reverse causation - thinking the dependent variable caused the independent variable

Modern mercantilism (neo-mercantilism)

- after the rise of liberalism - wealth critical to national power - trade is valuable, but beware of economic security if trade is disrupted - some types of economic activity are more valuable than others (tech > finance) - not a zero-sum game, but beware of relative gains and losses

United states trade representative (USTR)

- agency responsible for recommending trade policy to us president, conducting trade negotiations, and coordinating trade policy within government - catalogued china's foul play against the us: 1. massively and persistently supported state-owned enterprises 2. using hidden trade barriers 3. forcing technology transfer 4. ignoring intellectual property rights 5. deferring market opening in three sectors: finance, telecommunication, information

Gravity theory

- andrew rose (creator) - do gatt/wto contribute to trade expansion? - membership: wto vs. non-wto; measured by pre-wto and post-wto entry statistics (not very different) - geography and history: proximity, informational routes, culture, colonial, existing systems explain much of the trade patterns - example: western and eastern eu trade was booming long before they had trade pacts, and declined after initiation of trade agreements - however, according to theory, we should see lots of trade b/w india and pakistan, israel and palestine, etc - social network: mitigates informational barriers - trade typically thrives among allies, but not political opponents

Heckscher-ohlin (H-O) model

- argues that comparative advantage arises from differences in factor endowments; a country will have a comparative advantage in goods produced using a lot of their abundant factor and a comparative disadvantage in goods produced using a lot of their scarce factor - two factors of production: capital (K) and labor (L) - us more endowed with K relative to L - china relatively more endowed with L - if us and china trade, both gain: us receives more shirts, china receives more computers; ppf expands for each country - reason this does not always work: most countries would rather produce computers than shirts; and countries don't like being locked into producing certain products

State-centered approach to trade

- argues that under certain circumstances, trade protection can raise social welfare - under specific circumstances, governments are relatively unconstrained by interest group demands

Thomas Piketty

- author of "capital in the 21st century" (analysis of inequality) - obsessed with distributive justice, but not a marxist - influenced by marxists who abhor the thesis of class struggle and one party dictatorship - proposed 80% global tax on wealth (tobin tax: tax on conversions of one currency into another) - equal economy infeasible without powerful world government

Factor model

- based on stopler-samuelson (SS) theory, which is based on H-O model - trade politics are driven by competition b/w labor and capital - factors assumed to be mobile and un-tied within national borders in this model - countries will base trade off of their scarce and abundant factors - assuming five 2's: 2 nations, 2 goods, 2 factors (capital and labor), 2 intensities (capital and labor intensive), 2 relative endowments (relatively endowed with capital or labor) - in us, capital is strong factor --> so less labor-intensive goods produced --> textile / garment factories hurt --> owners divested --> workers already in computer industry face competition and workers laid off --> released capital easily absorbed elsewhere; some workers absorbed but not all can translate across sectors --> relative abundance factor benefits from trade, relative scarce factor suffers (first part of SS theorem: inequality of factors) - in long run, factor-price equalization: in us, price for labor down and price for capital up (opposite in china) (second part of SS theorem: price convergence) - suggests that trade policy is a conflict over distribution of income b/w labor and business - evidence model is not the best: labor and capital not homogeneous skill levels

Classical mercantilism

- before the rise of liberalism - national power and wealth are tightly connected - maximize exports and minimize imports - some types of economic activity are more valuable than others (manufacturing > agriculture) - zero-sum game (one state's gain is another's loss) - emphasizes state power

International trade system (ITS) one

- began in 19th century (1814 or 1846) - driven by tech change + industrial revolution + political structure - free trade unilaterally adopted by the uk - open liberal wts supported by gold-standard system: nat'l currencies linked to gold, gold flows freely externally, currency exchanged freely internally, no questions asked - trade expanded rapidly: faster than production, 3.5 times more rapid than previous three centuries, higher dependency ratios (x+im / gdp), capital and labor flows (out of eu and into us, canada, aus, etc.) - 1846: uk corn laws repealed (central eu and americans able to export agricultural goods to uk, and thus able to buy uk industrial goods) - 1860: first int'l trade agreement, cobden-chevalier treaty (removed barriers between france and uk, sparked other eu agreements) - odd men out: us maintained high tariffs until 1934 thanks to ideas of hamilton; germany late to join int'l trade system thanks to friedrich list

Doha round

- began in 2001, ongoing presently - contentious from the beginning - pursuit of tariff reductions and agricultural trade liberalization (us and eu were at first unwilling to meet DCs agricultural demands, then finally accepted these) - increased protectionism has made talks more difficult - failed in 2015 when WTO realized no agreement would be reached

Aircraft industry with S/T (france, uk, eu vs. us)

- boeing (us) vs. airbus (ue) duopoly - boeing already monopolized the market, airbus entered later with huge government subsidy - A sets yearly production target by anticipating B (and vice versa) - if A sets higher than B anticipates, A signals it will play hardball (venturing into new market or cutting into B's) - B may set production higher, profits may drop for both sides; thus A needs to be wary of how much to challenge, and B needs to calculate how much to punish - eventually market share will stabilize - enter govt, currently subsidizing A (A can set higher production goal, boosting output + reducing unit cost; lowering cost of learning + developing new model) - in due course, A becomes leader (set output target first, let B adjust, set pace for R + D and acquire first mover's advantage, deterring potential new rivals from entry)

Ronald rogowski model

- both models relevant, and third factor (land) should be added on - three factors of production: land, labor, capital - two types of political divide over trade policy exist: --> rural-urban conflict: capital + workers vs. landowners; pre 1860; urban for protectionism and rural for free trade --> class conflict: landowners + industrial capitalists vs. workers; two post-wwii decades and present

Factor and sector models

- capital and labor; what about land and technology? - three connotations of sector: --> chunks of an economy: primary (raw materials), secondary (manufacturing), tertiary (service) --> aggregation of specific sectors: export-oriented, import-competing, non-tradable goods --> harmonized system (HS) code: 4 digit codes for classification (separated into textiles, food, computer, auto, etc.) - models agree that trade policy has redistributive and welfare consequences - models differ on predicting how income consequences divide society

Hegemonic stability theory

- charles kindleberger (creator), stephen krasner (key supporter) - used to explain why wts shifts b/w liberal and protectionist periods - hegemonic state (H): great power with large share of world output and trade, and with tech leadership - H capable and incentivized to craft open wts by providing int'l community with public good (to surpass free riding problem that wto and other int'l institutions face) - H can benefit most from system it creates, and can absorb financial costs of creating it - if H willing to lead, wts will strengthen and expand - if H declining, then wts will contract (since no one will be bearing costs to provide the public good) - if H vacuum (no H exists), wts will collapse

Now is most critical time to study ipe

- current populist backlash against G; manifested through trade wars - 2018 was the tenth anniversary of the 2008 crisis (L vs. V shaped economy depends on possible tech breakouts) - technology race

Toughest challenges to WTO

- declining rule-making capacity - rise of mega RTAs to eventually replace WTO - revival of economic nationalism (trade wars = most blatant expression)

RTAs as biggest challenge to ITS and WTO

- departure from non-discrimination principle - RTAs spreading since the low performance of the doha round - three mega RTAs: regional comprehensive economic partnership (RCEP), trans-pacific partnership (TPP), transatlantic trade and investment partnership (TTIP) - GATT article 24: RTAs are fine as long as level of protection against nonmembers is no higher than previous levels (to ensure non-discrimination against wto members) - jacob viner's theory: not correct, but still interesting - introducing rules to regulate RTAs for this century - reasons for RTA proliferation: country's desire to gain more secure access to the market of an important trading partner, govt's need to signal strong commitment to economic reform, increase bargaining power in multilateral trade negotiations, alternative to wto and doha round impasse

Collective action problem

- difficulty in organizing large groups because of the tendency of some individuals to freeload or slack off - helps us understand why producers rather than consumers dominate trade politics - suggests trade politics will exhibit bias toward protectionism - helps us understand why governments rarely liberalize trade unilaterally, but have been willing to do so through agreements

ITS one shattered

- during wwi, gold standard abandoned to finance war and prevent enemies from gaining gold - postwar attempt to revive its and gold standard failed - power shift: uk to us and germany (uk unable to lead, us unwilling; us retreated to isolationism, insisting eu govts to repay war debts and hiking tariffs; led to eu unable to recover quickly) - world drifted into great depression: 30% production loss, 25% us unemployment rate, financial sector meltdown (led to protectionism of home markets) - 1930: smoot-hawley tariff act (us raised tariffs) - 1933: imperial preference system (uk insulation from trade: bought from home producers first, empire / bloc producers second, foreign producers last) - world became fragmented into exclusive trading blocs - competitive devaluation / beggar-thy-neighbor policies: make home-produced goods cheaper and imported goods more pricey - soon, wwii begins

Jacob Viner's heterogeneous vs. homogeneous theory

- economically heterogeneous trade agreements (like NAFTA) will lead to trade diversion effects - homogeneous trade agreements will lead to trade creation effects - however, difficult to tell which RTAs are diverting vs. creating (time will tell) - theory not correct, but still interesting

Enforcing trade agreements

- enforcement problem: governments cannot be certain that other governments will comply with the trade agreements that they conclude; makes govts reluctant to enter into trade agreements (afriad to be a sucker) - prisoner's dilemma (PD): left side of pair is row player, right side for column player; preference order same for both players (but best and worst position is reversed) - dominant strategy is to protect; worst strategy is to liberalize - cheating not easily caught or punished - current levels of protection: status quo - pareto suboptimal: possible to improve one w/o making other worse off - pareto optimal: can't improve w/o hurting the other - nash equilibrium: outcome at which neither player has incentive to change strategies unilaterally - ways out of PD: iteration (meeting periodically), tit-for-tat, low discount rate for future payoff (lower rate more likely to be honored; likely means you will be partners for a long time) - wto meets first two methods: iteration talks, verifying information (no more secrets), dsm (no more cheating) - contract curve: set of mutually beneficial agreements that exhaust available joint gains - patience: both parties to the negotiation would prefer to settle today rather than tomorrow; can be used to get a better negotiation or reach a better deal that maximizes gains for one country - outside option: government's next best alternative to an agreement - essentially, govts liberalize trade via agreements because they are unwilling to do so unilaterally - PD illustrates that even when all countries would clearly benefit from trade liberalization, political dynamics trap govts into a protectionist world

Dispute settlement mechanism

- ensures that governments comply with the rules that WTO establishes - provides independent quasi-judicial tribunal, who investigates facts and relevant WTO rules when a dispute is initiated, then reaches a finding

Institutions

- establish rules that govern the political process to reach and enforce collective decisions, by specifying who can participate and in what manners - on int'l level, rules conditioned by bargaining power and not always enforceable

Elephant graph

- global inequality has declined sharply - left section is poor countries, middle section is developing, right portion is developed nations - richest nations had 60-70% income growth rate - poorest nations had only 15% growth - middle-high nations had almost 0% growth rate - middle nations, esp. china, have had great growth (between 40% and 80%)

Reasons to study ipe

- globalization affects us: consumption, employment, cost of living, interest rates - globalization has accelerated in recent years

Interests

- goals or policy objectives that central actors in the political system and economy want to achieve - material interests: wealth, state, power - shape policy preference - where one works pretty much determines ones interests

Society-centered approach to trade

- government's trade policy objectives are shaped by politician's responses to interest group's demands - emphasizes interplay between organized interests and political institutions - social interests' income consequences --> associations coalescing --> politicians responding - two models: factor and sector model

Stiglitz reading

- growing discontent with globalization (G): contributing to inequality, financial crises, growth of MNCs and thus environmental destruction, diminishing power of society - G was oversold and costs under-anticipated; but protectionism not the way to go - trade does not always create jobs (jobs created in export sectors will not offset those lost from import sectors), less growth + more unemployment + more risk than promised, exchange rate impact - negatives of G: investment, fiscal paradises (allows corps avoid taxes), intellectual property rights (citizens may suffer), immigration (resentments arise when migrants take jobs from citizens) - failure to make G work: the right opposed aiding those hurt by G (had to raise taxes to do so), the left failed to defend working class and put devices in place to manage G (for political reasons) - growth of protectionism (P) comes from opportunity inequality and middle class struggles - why new P will fail: seen as zero sum game (but it isn't), glory days of manufacturing are over, global power now dispersed, trade deficit driven by macroeconomic (not trade policy) - strategies to counter P: diversify trade, new trade agreements w/o us, grow via internal demand - reforming G: G is not an end in itself, global rules are necessary, governance matters, large and small economies are different, LDCs are different from DCs, any change results in winners and losers, social dimensions of G

Preachers of infant industry policy

- hamilton and list - persuasive among late industrializing nations; aside from uk, all other nations were at one point latecomers - japan + france + us: never ending debate on whether industrial policy works, and whether us has had this policy in disguise (aircraft, computer, solar energy industries)

Testing hegemonic stability theory

- independent variable: H (coded by volume of X, GDP, tech leadership, patent rights) - dependent variable: trade system strengthening or weakening (coded by trade volume, monetary velocity, trade dependency ratios) - 1846-1890: uk ascends as an H, wts opens up under pax britannica (period of peace b/w big powers) - 1890-1914: uk declines, superseded by us and germany (wts should have thus weakened, but it did not) - 1919-1930: hegemonic vacuum, system collapsed (uk tried, us unwilling) - 1945-1970: us emerges as H, system rebuilt - 1980s: us in relative decline, protectionism on the rise, but wts remained strong (theory does not hold) - either re-test, refine, or dump the theory, since it does not hold in two instances

More manageable challenges to WTO

- influx of less developed countries (LDCs) into WTO: creates N problem in negotiation, too many countries with differing views, agenda-setting for doha round aborted since DCs wanted high-tech and service, while LDCs wanted labor intensive sector talk - NGOs like to have a voice in decision-making: esp. with respect to health, labor standard, and environmental issues - WTO managing these challenges well: NGOs have no seat at the table, and LDCs and DCs coming to agreements better recently

Industrial policy for infant industries

- instruments used by the government to channel resources away from some industries and direct them toward those industries the state wishes to promote - most economists preference order: capital market > subsidies > protection - policy makers: order reversed - *picking the winner*: sunrise industry, designating some industries that a state will nurture for a certain period of time - *conferring tax benefits*: extend tax exemptions or reduced rates - *priority procurement*: government procures local goods and output first - *cartel or national champion policy*: designate a few players to nurture into "champion" industries - *gate-keeping* (monitoring) technology flows - issues w/ these policies: promotion is rarely temporary; easy to confer, hard to phase out; sunset clause must be built in policy package

Things we study in ipe

- interaction b/w politics and economy on both the national and international levels - political variables: eu, gfc, uswa, citac

Main topics

- introduction to ipe - wto and its - int'l trade cooperation, trade politics, anti-globalization

Ladewig reading

- level of factor mobility defines which coalitions will form, which will lead to different constituent influences on congressional trade policy voting patterns - SS and H-O assume factor mobility (FM) - sector model assumes factor immobility or stickiness - models should not assume FM, it should be viewed as a variable - FM takes time to form and is slow to change, but has profound impact on economy - findings: low in 60s-70s, rose in 80s-90s, coming down again today (why we have increasing protectionism) - MOBILITY = G - IMMOBILITY = P

Other solutions for unequal economy

- leverage corporate tax benefits to boost wages: companies can enjoy tax deductions only after they raise wages - wages be set by collective bargaining (nordic approach) - state adjudication (singapore approach) - corporate economy, coops, and trust funds (islamic approach) - guaranteed income for every household (finland + netherlands attempted)

Electoral systems and trade policy

- majoritarian systems: single member districts and first-past-the-post representation (likely to have sectoral conflict over trade policy for no reason) - proportional representation systems (PR): multi-member districts to distribute legislative representation in proportion to the share of the popular vote each party attracts (factor model works better) - shape how groups organize to pursue trade policy objectives - electoral systems affect level of protection adopted by governments in the two systems (PR less protectionism, majoritarian more) - reason for this ^: electoral district magnitude and size (in presidential elections), larger the district size, less vulnerable it will be to protectionist thought

Ideas

- mental models that provide a coherent set of beliefs about cause-and-effect relationships - affect how interests are defined, and can redefine interests if strong enough

Two nondiscrimination policies in WTO

- most-favored nation (MFN): prohibits governments from using trade policies to provide advantages to some countries and not to others (everyone in WTO has MFN) --> does not apply to regional trade agreements (RTA) --> does not apply to generalized system of preferences (GSP): allows for lower tariffs on imports from developing countries - national treatment: prohibits governments from using taxes, regulations, and other domestic policies to provide an advantage to domestic firms at the expense of foreign firms

Short run

- one contract period - long run: anything beyond one contract period

Specific factor (ricardo-viner) model

- one factor of production is specific (immobile) to a certain industry, other is free - model is designed to demonstrate the effects of trade in an economy in which one factor of production is specific to an industry - fits between an immobile factor model and the H-O model

Constitutional setup, veto players, and trade policy

- parliamentary (fusion of power) vs. presidential (division of power) - number of chambers in legislature - number of parties (many have to form coalitions) - veto player: political actor whose agreement is necessary in order to enact policy - more veto players makes changing policy from status quo more difficult - protectionism might rise during recessions and fall during booms more dramatically in countries with fewer veto players - us, most la, and some ea nations are presidential and SMD electoral - most continental eu and israel are parliamentary + PR electoral - uk and commonwealth nations have parliamentary + SMD electoral - many hybrids: semi-presidential, mixed electoral

State-centered approach to trade politics

- policymakers can use industrial policy to improve social welfare (I/I and S/T approaches) - policymakers don't step in the economy without prodding from social groups - intervention may enhance aggregate social welfare - no pure liberal; neo-mercantilism can be persuasive - frederick list (germany) and hamilton (us): intervention to promote infant industries - james brander: "we are world consumers, but we vote nationally" (no world government, so our well being is contingent upon our own nation) - seems more fun producing cars, but toys are also profitable - H-O model has never been popular in developing nations

Mixed evidence for infant industry

- politics: state autonomy + capacity, strong vs. weak state (degree to which policymakers are insulated from domestic interest pressures, centralized vs. decentralized coordination - japan: many grew up, few did not; some industries grew without assistance (toyata and honda) (strong state) - france: hard to assess (diff. economic system) (strong state) - south korea + taiwan: most successful in the past - argentina-brazil-chile: checkered record in the past - us: gop stresses displacement effects (takes funding away from private sector), democrats praise spillover effects (onto private sectors) (weak state)

Goods

- private good: exclusive and rival - club good: exclusive and non rival - public good: non-exclusive and non-rival --> free riding: individuals rely on others to pay for a public good - common-pool resources: non-exclusive and rival

Economies of scale

- production cost varies according to output volume - more total output, lower total cost - cannot achieve E/S in open economy (state must protect industry) - the idea that larger firms have an advantage over smaller ones

PPF, indifference curve, comparative advantage

- production possibility frontier (PPF): measures opportunity costs of a country - opportunity cost: cost of producing; loss of potential gain from other alternatives (slope of straight line) - indifference curve: maximizing consumer utility; curve linking those combinations of quantities which the consumer regards as of equal value - production and consumption will occur where PPF and indifference curves are tangent - trade changes this equilibrium: causes each country to specialize in production of one good; expands consumption in both countries - comparative advantage: every country gains by specializing in goods it produces relatively well and trading them for goods it produces relatively less well; david ricardo's expansion of absolute advantage

Strategic trade theory

- provides justification for industrial policy in high tech industries - reason for '80s industrial decline: overvalued dollar, strong govt, too much government regulation - losing out not just in traditional industrial, but high tech and high value-added industries (oligopolistic) - thesis: high tech or high value industries not always endowed, rather created or nurtured - S/T makes sense under some (not all) circumstances

Fordham reading

- public support for us global activism - correlation coefficients suggest that supporters of global activism: have better access to human capital (education), better access to financial capital (income), stay in x-oriented part of the country - influences on one's stance on internationalism: individual self-interests ($$$), aggregate effects of trade on one's home state also matters (perception of conditions)

Liberalism

- purpose of economic activity to enrich individuals, not national power - trade always beneficial - whatever is produced will be valuable - positive-sum game (economic linkages benefit all in the end) - government should correct market failure, infrastructure, enforce contracts but otherwise stay out - essentially, government stay out of the economy - emphasizes individuals, role of market, and social welfare - people: adam smith and david ricardo

Market liberalization policies in WTO

- reciprocity: mutual concessions - big four: intellectual property rights, standards, trade in services, trade-related investment measures

Aggarwal-keohane-yoffe (AKY) model

- refinement of the sector model - estimates which sectors are prone to collective action and protectionism - 2x2 based on concentration (high = a few producers; low = many producers) and exit barriers (high = difficult to exit industry; low = easy to exit) --> high concentration + high exit barrier: P, CA (auto industry) --> low concentration + low exit barrier: no P, no CA (toy or garment industry) --> low concentration + high exit barrier: more intense preference for P, CA less likely (special steel; politics kicked in) --> high concentration + low exit barrier: less intense preference for P, CA likely (tv manufacturers; CA taken, so they went to govt for protectionism)

Mansfield and mutz reading

- ricardo-viner and H-O models suggest preference for trade is a function of who is helped vs. who is hurt by trade policies - social status, income, values, and education play more important roles in trade preference than the models indicate (sociotropic model is better) - economic mood and anxiety is more important than actual economic performance (our perception of trade more important than actual performance) - survey consumers and producers: consumer confidence index (CCI) and purchasing manager index (PMI) to articulate future preferences OR monitor revenue change of bellwether (vital) companies

Joseph Stiglitz

- see reading later on in notecards

Dumping and non-market status

- selling below costs of production to drive foreign markets out of business - non-market status and "surrogate countries": used in communist countries when capitalism can't drive market prices; "surrogate country" chosen to evaluate how costly a good may be produced in that country; if communist country is found to be selling at a lower price than production, they may be accused of dumping

History of international trade

- silk roads, coastal trade (mediterranean, arabian sea, bay of bengal), colonial trade across oceans - traders were typically limited by technology and needed protection money (for pirates)

Economies of experience

- skills accrued to managers, workers, and suppliers only through learning and production in the industry - new industry is inherently inefficient in its first few years, but becomes more efficient as time goes on - efficiency gains after moving along the learning curve

Reasons for S/T

- state intervention: E/S + E/E (similar to I/I) - imperfect market or oligopoly (different from I/I) - first mover's advantage + zero-sum competition: once you set a standard, others will have to follow; for initial years, you monopolize the competition (zero-sum competition, since you have totality of the market) - hence, capital and labor in latecomer economy would not invest unless their government helps them out in a credible way - essentially, best to use S/T with newer, cutting edge industries

Behind the border issues

- state owned enterprise (SOE) behavior - intellectual property right (IPR) protection - labor and environment regulations - information flow and exchange - standards - FDI rules

Herfindahl-hirschman index (HHI)

- sum of the square of each firm's market share in percentage - percentage not in whole number, but as fraction of number 1 (ranges from to 1/N, where N = number of producers or players) - lower the number, the less concentrated the market - high score is bad for consumers, easier for producers to collude (more concentrated market, fewer producers, monopoly) - high industrial concentration means that N is small, thereby CA problem is easier to overcome than if N is large (if N is small, producers will feel more responsible to do things, and will be more likely to perform CA) - measuring exit barriers: asset specificity and secondary market, union density and labor contract for labor market

Policies that restrict free trade

- tariffs: taxes that governments impose on foreign goods entering the country - non-tariff barriers: health and safety regulations, government purchasing practices, other regulations

Infant industry or industrial policy argument

- there are cases in which newly created firms will not be efficient initially but could be in the long run if they are given time to mature - rationale: economies of scale + experience cause new industries to be inefficient; protected market or captured customers would allow infant industries to become grown ups; government oversees the process; - social return in SR, but + in LR

New landscape of wts

- three basic factors that re-shaped world trade: rise of emerging markets, advancement of information technology, emergence of long global supply + value chains (GVC, GSP, long saga of a product) - new features: production divided in many steps across nations, services and goods increasingly blended, new innovations (methods of shipping, e-commerce, etc.), more trade in tasks than in goods, factors of production multiplying (personnel, knowhow, capital) - needed: new trade related rules (int'l economic partners must harmonize market rules across nations, include fdi rules in trade agreement, negotiate trade agreements to cover behind-the-border issues as well)

On the border issues

- trade in goods and services - FDI entry

Sector model

- trade politics are driven by competition b/w industries - factor specificity: factors are tied to the sector in which they are currently employed - factor mobility: ease with which labor and capital can move from one industry to another (immobile in this model) - two broad sectors: export-oriented and import-competing - suggests that trade politics pits import-competing industries (support protectionism) vs. export-oriented industries (support globalization)

Other players and industries with S/T

- traditional industries: automobile (volve + daimler) and high speed railways (two SOEs vs. siemens-fujitsu) - china 2025 plan to leap beyond us - tech frontier industries: telecommunications (5G), satellite (load and reusable vehicles), green tech sector, AI, fin-tech, biotech (gene editing) - fourth industrial revolution: artificial intelligence; wireless communication (internet of everything, 3-d, robotics, satellite, etc.) (see table on blackboard)

Trump, economic nationalism, fate of wto

- trump's america first policy rationale: john ruggie's embedded liberalism (focusing on internal economy is better for the country), richard haass (hard power brings about soft power), every nation is doing it (esp. china) - opportunity costs: ceding rule-making power, alienating allies and partners, retreating from global leadership, fast-forwarding power transition - the right approach (schott reading): rejoin tpp, bilateralism not effective (time and resource consuming and perceived as exploitation), easier to reshape GVCs within multilateral agreements than with spokes and hub system (bilateral)

Schott reading

- trump's first action in office was to withdraw from TPP - thesis: large pact like TPP is far more likely to yield gains than trump's bilateral treaties - w/o TPP, foreign access to us market is same, but us firms lose new opportunities in foreign markets - us "paid" twice by TPP partners: first in reciprocal concessions, then with bonus favorable rules - bilateral options less favorable: why would countries concede more to the us when they already have good access to our market - fixes for TPP: commitments to avoid currency manipulation should be incorporated into TPP policy, revise ISDS (investor-state dispute settlement; TPP's court system) or drop it entirely

How we study ipe

- understand ideas, institutions, and interests (ideas most important) - supply creates its own demand - topics to discuss: int'l trade system, economic development, int'l monetary system - effects: welfare effect (influence on well-being), distributional effect (influence on income distribution) - research: explanatory (answer the "why"), evaluative (making judgements)

Semiconductor industry with S/T (japan vs. us)

- us had a head start, thanks to defense spending in '60s (accidentally practiced S/T) - japan pursued S/T policies in '70s, and by late '80s, they surpassed us (stopped sending people to las vegas, stopped learning from us) - japanese policies: financial assistance to semiconductor firms; protection + restricted market entry + procurement policy (restricted and protected their semiconductor firms from foreign markets) - japanese subcontracting link: firms promised to purchase goods + services from other firms, and they worked hard to produce their goods for one another (all had shared goals and profits) - us strenuous negotiation to remove japan's market impediments - 2 decades ago: sony and hitachi - today: apple and google (however, japan is still successful; many of the patents were from sony and hitachi)

US trade policy case study

- us institutions more vulnerable to protectionism; divided govt makes this even worse - size of constituency: smaller = more vulnerable to P (house, then senate, then president) - smoot-hawley: raised tariffs on imported goods; congressional logrolling (trading favors) power - move to RTAA possible because: us faced retaliation + congress realized its sin, new dem majority in congress who supported free trade, congress learned the act of reciprocity, RTAA deflects protectionist pressures from constituencies (congress delegates) --> congress delegates to agency (USTR) in order to blame them and deflect pressure from themselves --> dealing with agency issues: police patrol (agency to supervise the agency) vs. fire alarm (individuals warn congress of any wrongdoings), change agents (create new replacement agency), re-charter or set new terms - even with RTAA, protectionism still exists, just in diff ways --> cope with import competition, firms went for market solutions: upgrade, divest (selling assets), relocate (cheaper labor, more competitive prices) --> non-market solutions: *counter-veiling duty petition* (petition depts - USITC and commerce - to get tariffs imposed on foreign subsidized goods that cause problems for us firms), *anti-dumping petition* (petitions depts to stop foreign dumping and impose high tariffs; most popular device; ITC determines if material injury to us firm; commerce determines whether there was dumping; *byrd amendment of 2002* - anti-dumping duty goes to plaintiff, not treasury dept., so it pays to sue and makes this method more attractive) --> *article 19 in GATT*: invoke when us firm cannot keep up with foreign companies that are playing fairly (essentially a request for a timeout from free trade; known as escape clause; on 4 conditions: escape is temporary, injury due to concessions made earlier during trade lib talks, not targeted at particular sources, applied to all imports; affected countries be compensated), never been used because firms too proud to admit defeat --> *tariff barriers*: go to see congressmen about needed tariff barriers --> *q restrictions*: asking USTR to limit quantity of goods that certain countries can export; called *voluntary export restraint or VER*; very bad type of protectionism (rent went to exporting countries - lower supply and same demand, higher prices, extra profit, went to foreign companies; induced exporters to go to higher end markets - upgraded product, raised prices, got most out of export that they could; ran into n+1 issues - always one add'l country causing problems; encouraged cheating - very hard to enforce VERs and easy to avoid quotas); main us protectionist device from '60s-early '00s (easy to craft, flexible- could be product or country specific); outlawed by GATT/WTO in 1995

Cheng and chow reading

- us pivot-to-asia initiative (cooperation with china on global issues and pushing back against china's challenges to int'l norms) and trans-pacific partnership (TPP; trade agreement among many leading countries besides china) are two major steps to restore us security and economic leadership in asia pacific - thesis: us should combine pivot and TPP enterprises; TPP is extremely important for execution of the pivot - neo-mercantilism: security and prosperity interdependent - managing intra-alliance relationships: alleviating entrapment problem (with pivot) and abandonment problem (with TPP) - TPP became effective first day of 2019, without us signing

JQ wilson's cost-benefit matrix

- with CA, preferences are more likely to be translated into political pressure for trade policy - CONCENTRATED COSTS/BENEFITS LIKELY TO LEAD TO CA - n-factor: number of players (producers > consumers) - either concentrated benefits for producers + diffused costs for consumers OR concentrated costs for producers + diffused benefits for consumers (strong bias for protectionism under most conditions) - unilateral liberalization is rare; liberalization via bilateral and multilateral negotiation easier (permits organizing concentrated beneficiaries to counter concentrated losers) --> beauty of RTAA of 1934: collectivized large and diverse free trade groups - 2x2 table: based on possible impacts of policy action (concentrated or diffused benefit vs. concentrated or diffused cost) --> concentrated benefits + concentrated costs: CA vs. CA; pitt vs. detroit; cars vs. railway --> concentrated benefits + diffused costs: CA for P; garment makers vs. consumers --> diffused benefits + concentrated costs: CA against trade lib; garment makers vs. ustr --> diffused benefits + diffused costs: no CA for P; against trade lib; shoe and toy industry

Marxism

- workers revolution inevitable: natural tendency toward capital concentration (monopoly capitalists), overinvestment leading to falling profit rates (hence workers paid even less), overproduction and underconsumption, rich-poor gap widening, class struggle would lead to class revolution - emphasizes class, large corporations, and equal distribution

Thomas Friedman

- wrote "the world is flat" (encourages countries to stay in the global market system, where everyone is equal; proponent of G) - individual countries must sacrifice some of their sovereignty to global institutions (ex: MNCs)

Advent of mega-ftas

- wto did not step up to the plate - bilateral and regional ftas proliferate: spaghetti bowl (countries and networked in a chaotic way, each with different rules) - tpp taking the lead: not just economic leadership, but also general leadership - rcep coming up to tpp - ttip far behind (due to brexit and america first issues)

Lessons learned from interwar period

- wwii caused in part by failure to restore stable global economy after wwi - us learned that they alone harnessed sufficient power to establish stable global economy; encouraged us to embrace internationalist position

Piketty and stiglitz: increasing income inequality

B = K/Y --> K = capital; Y = income --> two world wars and depression equalized everyone --> but, beta higher in last few decades; return to pre-war higher inequality levels a = r * B --> share of capital incomes (a) is equal to rate of return of capital assets (r) times beta r > g --> rate of return of capital is greater than economic growth rate (gdp) - tobin tax - progressive income tax rate (80%) - powerful world government

Market failure

a situation in which a market left on its own fails to allocate resources efficiently

Rent

extra money or payment made over and above the amount expected by its owner

Material interests

the physical goals of state officials as they set foreign and domestic policy