Lecture 6 International Politics Trade

7/29/2019 Lecture 6 International Politics Trade

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International Political Economy #6

The International Politics of Trade

William Kindred Winecoff

Indiana University Bloomington

September 17, 2013

W. K. Winecoff | IPE #6: International Politics of Trade 1/23
http://goforward/http://find/http://goback/


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The Core and Periphery

Path dependence plus agglomeration also implies increasing inequalityover time.

Rich get richer, i.e. capture more of the trade market.

This leads to interesting international trade politics (more later).

Also interesting domestic trade politics.If disadvantaged, encourage immigration.

If disadvantaged, try to subsidize locals.

If disadvantaged, try to protect locals.

Note that in many respects, this trade is anti-economic.

At least in terms of classical economics.

Develop a comparative advantage; dont just rely on endowments.

The importance of technology and catch-up growth.

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Geography

Transaction costs also matter.

Much world trade is with countries close to each other.

U.S. export more to Canada and Mexico than any othercountries. Imports are same, except for China.

Intra-Europe trade is very high as well.

Regional integration efforts have grown, in part for these reasons:

improve efficiency, improve growth.

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Is Independence a Good Thing?

Domestic politics also emerges in response to dependence.

Do we trust others enough to rely on them?

Esp in critical sectors (e.g. food, energy)?

Many citizens seem to want independence (i.e. local control) even if its

less efficient.

Drill baby drill.

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The Trade Network, Visualized

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The Trade Network, Visualized Again

Source: PC-TAS (1996-2000)

ESPON and Project 3.4.1,UMR Gographie-Cits, UMS RIATE, 2006

World trade, 1996-2000

16 %4 %1 % 5.0 %2.0%1.0%0.5%0.2%0.1%

Bilateral international trade flows 1996-2000

(with EU25 aggregated)

Share of world bi lateral trade of each state International flows measured in % of world

bilateral trade

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From Domestic to International

States have preferences over trade policy, and they bargain in the

international arena.States at the core of the trade network have power.

States with large economies have power.

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Constructing Preferences

Remember: trade has diffuse benefits and concentrated costs.

Politicians want to capture the gains, but domestic interest groups lobby

for protection against costs.

Mancur Olson: The Logic of Collective Action

State preferences: open trade in comparatively advantaged goods;

closed trade in comparatively disadvantaged goods.

This can lead to contentious bargaining.

If we think about trade politics between two countries it might resemblea Prisoners Dilemma.

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The Trading Game

Column

RowTrade Protect

Trade2

2

3

0

Protect0

3

1

1

Payoffs are simple rankings: higher = better.

Row player receives the first (bottom-left) payoff.

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The Trading Game

Column

RowTrade Protect

Trade2

2

3

0

Protect 0

3

1

1

Dominant strategy is to defect (esp. during economic downturns).

Nash equilibrium: neither side can improve its payoff by unilaterallyswitching strategies.

Tendency is for protection.

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Assumptions of the Prisoners Dilemma

In this game, there are only two players.

In the real world there are others.

In this game, there is only one issue.

In the real world issues can be linked.

In this game, there is no communication.

In the real world states can bargain openly.

In this game, there is no time.

In the real world there is a shadow of the future.

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Developing a Basic Logic

Despite this, the simple Prisoners Dilemma gives us some insight into

why states might pursue protectionism.

If one state protects, others are likely to reciprocate.

This can lead to a trade war.

That will lead to a loss of the gains from trade.

It can also breed nationalism, and even increase chances of military

conflict.

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The Great (Trade) Depression

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The Great Depression Spiral



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Lessons from the Interwar Years

Peace depends on the stability of the global economy.

Sec. of State Cordell Hull: Free trade dovetails with peace.

Several ways to overcome Prisoners Dilemma Nash equilibrium:

1 Outside intervention by a powerful third party (hierarchy).2 Provide forum for diplomacy, plus commitment mechanisms

(institutions).

3 Build a system of inter-linked economies based on reciprocity

to facilitate trade over time (interconnectedness).

U.S. used its postwar power to push for institutionalization that could

promote interconnectedness.

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The International Trade Organization

Intended to be analogous to IMF.

U.S refuses to ratify, because Congress thought it would be giving up

sovereignty.

(They were right; that was the whole point.)

B/c the U.S. wasnt in, the ITO never came into force.

But there was another option.

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The General Agreement on Tariffs and Trade

Originally negotiated under the auspices of the U.N.

Came into force in 1947. Lasted until 1994 (until replaced by WTO).

23 countries originally signed: essentially U.S. and Western Europe.

Original agreement included 45,000 concessions on tariffs.

Focused on Western interests, esp manufacturing (their comparative

advantage). Much less on labor and agriculture.

Over time, more issues were addressed in subsequent bargaining rounds

and more countries joined.

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Tariffs

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Members



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The Rise of PTAs

Other trade institutions were also formed that were multilateral but not

global.

These are called preferential trade agreements. They are often regional

in scope.

E.g., European Union, NAFTA.

Easier to negotiate, because fewer countries involved.

Do they undermine global efforts?

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The Increase in PTAs

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The Distribution of PTAs

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Summing Up and Looking Forward

The goal was to promote cooperation over conflict.

Manage the system through an agreed-upon, open, multilateral,

consensus-based process.

Build interconnectedness, which would build over time through

reciprocity.

But the U.S. was at the core of the system, and would stay there.

The WTO has become key to this system. Well study that next time.


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Lecture 6 International Politics Trade