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  • 1. Y376 International Political Economy January 25, 2012
  • 2. Pioneers of Trade Theory
    • Adam Smith, The Wealth of Nations (1776) – first defense of free market policies
    • David Ricardo, Principals of Political Economy and Taxation (1817) - introduced theory of comparative advantage
  • 3. Graphical Version of Ricardian Theory
  • 4. Heckscher-Ohlin Model
    • Basic model: two countries, two goods, two factors of production (Ricardo only had one)
    • Differences in factor endowments lead to “gains from trade”
    • Both countries will be better off if they specialize in producing goods which require a relatively abundant factor and then trade with another country
    • For maximum benefit, the other country should have a very different factor endowment
  • 5. Let’s Play the Trade Ruler Game!
    • http://nobelprize.org/educational_games/economics/trade/game/ruler.html
  • 6. History of U.S. Trade Policy
    • Smoot-Hawley Tariff of 1930
    • Depression High Tariffs
    • FDR (espec. Cordell Hull ) favors free trade for post WW2 period
    • 1947 -- Congress rejects International Trade Organization treaty proposed initially at Bretton Woods
    • The GATT becomes the main trade regime
  • 7. Figure 3-1. Average U.S. Tariff Rates on Dutiable Imports, 1821-2000, in Percentages Source: U.S. International Trade Commission; U.S. Department of Commerce, Bureau of the Census, Historical Statistics of the United States ; and Statistical Abstract of the United States , various years.
  • 8. Overall Tariff Levels and Trade/GNP, 1850-1990
  • 9. Figure 3-2. Growth in World Exports, 1958-2006, in Billions of Current Dollars Source: International Monetary Fund, Direction of Trade Statistics Yearbook (various years).
  • 10. Figure 3-3. Trade/GDP in the US, Britain, Germany, France, and Japan, 1960-2006, in Percentages Sources: World Bank, World Development Indicators 2001 CD-ROM (Washington, D.C.: World Bank, 2001): OECD.Stat, http://stats.oecd.org/ .
  • 11. Interregional Trade Flows, 1990
  • 12. Main Rules of the GATT
    • Nondiscrimination among members of the GATT
      • most favored nation (MFN) principle
      • tariffs must be adjusted to reflect MFN levels
    • Participation in multilateral trade negotiations to lower tariffs and nontariff barriers
    A tariff is a tax that is charged on the value of imported goods.
  • 13. Multilateral Trade Negotiations
    • 1947 Geneva
    • 1949 Annecy
    • 1950 Torquay
    • 1956 Geneva
    • 1960-61 Dillon
    • 1962-67 Kennedy
    • 1973-79 Tokyo
    • 1986-93 Uruguay
    • 2000- Doha
    Biggest tariff reductions occurred in the Kennedy Round. Tokyo Round began discussions of non-tariff barriers. Uruguay Round established the basis for the World Trade Organization.
  • 14. Main Issues in the Tokyo Round
    • Tariffs
    • Conflict resolution; dispute settlement
    • Nontariff barriers:
      • subsidies
      • government procurement
      • standards
      • custom valuation
      • licensing
  • 15. Example of a Subsidies Dispute: Airbus vs. Boeing This is a Boeing 777 This is an Airbus 300 Latest WTO ruling (video)
  • 16. Main Issues in the Uruguay Round
    • Agriculture (mainly subsidies)
    • Trade in Services
    • Trade-related Intellectual Property (TRIPs)
    • Trade-related Investment Measures (TRIMs)
    French farmers protesting the Maastricht Treaty inEurope.
  • 17. Multilateral Trade Negotiations: The Doha Round
    • Begun in early 2000
    • Major conferences so far:
      • 2001 Doha (Qatar)
      • 2003 Cancun
      • 2004 Geneva
      • 2005 Hong Kong
      • 2006 Geneva
      • 2007 Potsdam
      • 2008 Geneva
    Pascal Lamy calls time out on Doha Round in 2006
  • 18. Main Issues in the Doha Round
    • Timing of implementation of Uruguay Round agreements, espec. Agriculture, services, regional agreements, TRIPs/TRIMs
    • Reductions in agricultural subsidies and textile/apparel tariffs in the rich industrialized countries
  • 19. Main Issues in the Doha Round
    • Timing of implementation of Uruguay Round agreements, espec. Agriculture, services, regional agreements, TRIPs/TRIMs
    • Reductions in agricultural subsidies and textile/apparel tariffs in the rich industrialized countries