BG 14 471.23 Fall 2015. World Trade 0 5 10 15 20 0% 25% 50% 75% 100% 196019701980199020002010...

BG

14

471.23

Fall 2015

World Trade

0

5

10

15

20

0%

25%

50%

75%

100%

1960 1970 1980 1990 2000 2010

exports(as % of GDP)

Canada

exports(trillions US$)

Politics & International Trade

Baron ch 17

Trade Theory

2 countries• X

• Y

each has 12 units of labour

each produce 2 goods• A

• B citizens like to have both

Trade Theory

2 countries• Xanadu

• Yalta

12 people each• each works 1 person-year

each produce 2 goods• Apples

• Bananas everybody likes to have both apples & bananas

X$1 = 1 apple = 1 banana

X$ = Y$Y$1 = 1 apple = 1 banana

Xanaduzians1 Apple: 2 person-years1 Banana: 1 person-year

Yaltans1 Apple: 1 person-year1 Banana: 2 person-year

No Trade

goods

Apples Bananas

countries

Xanadu

Yalta

Xanaduzians1 Apple: 2 person-years1 Banana: 1 person-year

Yaltans1 Apple: 1 person-year1 Banana: 2 person-year

6(12 person

-years)

6(12 person

-years)

12(12 person

-years)

12(12 person

-years)

No Trade

goods

Apples Bananas

countries

Xanadu

Yalta

Xanaduzians1 Apple: 2 person-years1 Banana: 1 person-year

Yaltans1 Apple: 1 person-year1 Banana: 2 person-year

6(6 person -

years)

6(6 person -

years)

3(6 person -

years)

3(6 person -

years)

No Trade

goods

A B

countries

X

Y

X1 A: 2 ul (units of labour)1 B: 1 ul (units of labour)

Y1 A: 1 ul (units of labour)1 B: 2 ul (units of labour)

6

6 ul

6

6 ul

3

6 ul

3

6 ul

mix

2/1

1/2

wealth

9

9

Trade

goods

A B

countries

X

Y

X1 A: 2 ul (units of labour)1 B: 1 ul (units of labour)

Y1 A: 1 ul (units of labour)1 B: 2 ul (units of labour)

6

6

3

3

mix

2/1

1/2

wealth

9

9

12

12

6

6

6

6

1/1

1/1

12

12

Disadvantaged Y

goods

A B

countries

X

Y

X1 A: 2 ul (units of labour)1 B: 1 ul (units of labour)

Y1 A: 3 ul (units of labour)1 B: 4 ul (units of labour)

mix

1/.75

1/2

wealth

3.5

9

No Trade

2

6 ul

6

6 ul

1.5

6 ul

3

6 ul

Disadvantaged Y

goods

A B

countries

X

Y

X1 A: 2 ul (units of labour)1 B: 1 ul (units of labour)

Y1 A: 3 ul (units of labour)1 B: 4 ul (units of labour)

2

6

1.5

3

mix

1/.75

1/2

wealth

3.5

9

4

8

2

6

2

2

1/1.5

1/1

10

4

Trade

2

Why?

If free trade is better for everyone,

why do so many people object?

• economic model = unrealistic assumptions everybody has the same amount of power everybody has same info

» accurate & complete consumers & producers accept price

» given & fixed goods undifferentiated

» identical transaction costs

Why?

If free trade is better for everyone,

why do so many people object?

• economic model = unrealistic assumptions no economy of scale no cost of entry or exit no learning curve

Why?

If free trade is better for everyone,

why do so many people object?

• economic model: human beings are “logical”

• doesn’t account accurately for short-term benefits domestic concerns preference for local benefits & harms differently dispersed

US Trade Policy

4 arenas cabinet departments regulatory agencies Congress President

Trade Policy “Process”

Final exam

requests: Brooks & Stritch, ch. 7: Business Organization and

Lobbying Taylor, et al., ch. 10: The Current State of Business-

Government Relations Taylor, et al., ch. 13: Government Dealing With

Business (2 requests) Baron, ch. 7: Formulating Nonmarket Strategies for

Government Arenas Baron, ch. 11: Environmental Protection: Economics,

Politics and Management (2 requests)

US Trade Laws & Treaties

1922 Fordney-McCumber Act

1930 Tariff Act• Smoot-Hawley

1934 Reciprocal Trade Agreements Act

1946 Bretton Woods

1947 GATT established

1947-61 GATT rounds 1-5

1962 US Trade Expansion Act

1964-67 GATT round 6: Kennedy Round

1974 Trade Act

1986-94 GATT: Uruguay Round: 23,000 pages

2001- GATT: Doha Round

http://www.wto.org/english/thewto_e/minist_e/min98_e/slide_e/slide002.htm

US Trade Laws

provisions temporary safeguards

• temporary relief for domestic industries seriously injured by increased imports

• no unfair trade practice is required

Presidential retaliation• against countries that restrict imports of US goods

or subsidize exports to US

US Trade Laws

provisions antidumping

• LTFV

• imposition of duties

countervailing duties• duties against countries that subsidize domestic

industries

US Trade Laws

provisions intellectual property

• retaliation against countries violating US patents copyrights protected trade secrets

Trade Adjustment Assistance• assistance for those injured by imports

WTO

World Trade Organization

153 member countries

WTO

WTO

WTO

WTO

agreements GATT GATS TRIPS

Dispute settlement Trade policy reviews Agricultural Agreement Agreement on government

procurement

WTO

roles system of agreements

• help trade move more freely

forum for trade negotiations

dispute settlement mechanism

• resolve trade disputes in a timely manner

WTO

principles MFN

Most-Favored Nation

• all members treated as well as best trading partner

national treatment• domestic & foreign goods equal

WTO

GATT General Agreement on Tariffs & Trade signed after World War II

• modified in “rounds”

push down trade barriers• tariffs

• quotas

• non-tariff barriers

WTO

GATS General Agreement on Trade in Services MFN & national treatment

• in services

transparency• regulations

• conditions of service

WTO

TRIPS Trade-Related Intellectual Property Rights MFN & national treatment

• lots of exemptions

even more controversy• copyright

• drug patents

• transitional economies

Other Trade Agreements

NAFTA ASEAN Asia-Pacific Economic Cooperation EC of Central African States Gulf Cooperation Council Open Skies EU

Other Trade Agreements

EU• within EU

reduced tariffs harmonize rules

• from outside tariffs quotas