International Trade Outline

 
Abebe International Trade Law Outline Spring 2013
 
Basics
Goals:
·         Economic and political impact on various stakeholders – who wins, who loses
o   Public welfare analysis
o   Public choice analysis – who are politicians likely to favor, etc.
·         Why do countries trade, why restrict trade, why sign trade agreements, etc.
Economic Theories of Trade:
·         Mercantilism: positive balance of payments; exports over imports
·         Free Trade and Adam Smith – maximize wealth by limited trade barriers – specialization;
§  Absolute advantage: produce goods that you produce better than any other country; – what you can produce most cheaply
·         Comparative Advantage and David Ricardo:
§  Comparative advantage produce the goods that they are best at producing relative to other states; or produce the goods that you are least bad at producing
§  Makes everyone wealthier by specializing provided that efficiency advantage is greater in some commodity than in others
·         Trade increases world surplus by allowing more of every good to be made
How do you figure out comparative advantage?
·         Different factor endowments: land, labor, capital, technology, human capital (education)
·         What makes for differences in comparative costs?
§  1)   Different goods require different factor inputs
§  2)   Different countries have different factor endowments
§  3)   Specialization in Labor (historical accident)
·         Heckler-Ohlin Model – comparative advantage in the good whose production is intensive in factors are abundantly available in that country 
Economic Justifications of trade restrictions:
·         Support of strategic sectors: Laura Tyson – granting tax credits and subsidies to high tech firms
§  Advantages: Positive externalities
§  Critique: how do you pick the sectors / corporations, etc. and is the government even good at it?
·         Infant Industry argument: set up tariffs to protect industries while they grow; problem: hard to stop once you start – welfare reducing
·         Trade and Job protections: displacement of workers in import competing industries
§  but workers will shift to export industries
ú  But workers and capital aren’t transferable
·         National Security – don’t want to be dependent on a different country for our own security
Problems with justifications:
·         Distortions: two losers (consumers and exporters) instead of just one loser through taxing and spending
·         Private equity markets – if we think gov’t could choose the big industry, private investors can probably see this as well – no need for gov’t loans when we have a private markets – especially if we think they are better than a gov’t politician that has diff incentives
Arguments against free trade:
·         Domestic deficit
·         Lack of concern with human rights – delinked trade and human rights
·         Increase in material things but not more impt. things – environmental standards, etc.
·         Distributional consequences of trade (Rodrick) –
§  trade cause of increasing inequality in US and world
§  and biased against developing countries  
Arguments against Trade Restrictions:
Sykes: Comparative Advantage and the Normative Economics of International Trade Policy:
·            Trade and Jobs: free trade won’t cause a loss of jobs – won’t have much effect on real wages on average; workers on import side will have lower wages but export side will have higher wages
·            National Security and Self-Sufficiency: to really have an issue with security need to
§  Import dependence to exist at reduced levels of domestic consumption
§  Likelihood of imports becoming unavailable
§  Domestic capacity cannot be restored with reasonable dispatch
§  No stockpiling during peace time is available
Trade Restrictions to address Domestic Distortion: Deardorff and Stern: Current Issues in US Trade Policies: An Overview
·            Tariffs (trade intervention) are second best: distort both producer and consumer behavior while externality only concerns one of the groups
·            Production subsidies only distort on one side so would be better – first best policies are better b/c deal directly w/ the distortion
Globalization Critiques
Distributional Considerations: Rodrik: Has Globalization gone too far
§  Reduced barriers to trade and investment accentuate the asymmetry between groups that can cross int’l borders and those that cannot
§  Globalization and international trade opens the door for differences in varying environments – creates redistributive consequences
§  Welfare state is correlated with exposure to foreign trade – creating serious problems
§  Governments can’t handle the consequences of globalization and this is leading to a large set of new class divisions
Stiglitz: Making Globalization Work
o   Globalization helped countries increase GDP but did not help the people in the countries – rich countries w/ poor people
o   Those w/ issues of economic globalization raise concerns:
§  Rules of game designed to benefit advanced industrial countries
§  Advances material values over other values
§  Taken away developing countries’ sovereignty – undermined democracy
§  Many losers in globalization
§  Globalization has basically created an Americanization of economic policy and culture
Lawrence: The Globalization Paradox: more trade less inequality
o   No evidence that trade has led to the decline in real wage growth
§  US imports are actually very sophisticated and produced in the US by relatively skilled workers – competition by unskilled, doesn’t not change the wage inequality
§  Specialization is more advanced, so importing things only helps consumers, not hurts the workers
Public Choice Theory and its Implications