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Ipe05

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  • 1. Y376 International Political Economy January 25, 2011
  • 2. Pioneers of Trade Theory <ul><li>Adam Smith, The Wealth of Nations (1776) – first defense of free market policies </li></ul><ul><li>David Ricardo, Principals of Political Economy and Taxation (1817) - introduced theory of comparative advantage </li></ul>
  • 3. Graphical Version of Ricardian Theory
  • 4. Heckscher-Ohlin Model <ul><li>Basic model: two countries, two goods, two factors of production (Ricardo only had one) </li></ul><ul><li>Differences in factor endowments lead to “gains from trade” </li></ul><ul><li>Both countries will be better off if they specialize in producing goods which require a relatively abundant factor and then trade with another country </li></ul><ul><li>For maximum benefit, the other country should have a very different factor endowment </li></ul>
  • 5. Let’s Play the Trade Ruler Game! <ul><li>http://nobelprize.org/educational_games/economics/trade/game/ruler.html </li></ul>
  • 6. History of U.S. Trade Policy <ul><li>Smoot-Hawley Tariff of 1930 </li></ul><ul><li>Depression High Tariffs </li></ul><ul><li>FDR (espec. Cordell Hull ) favors free trade for post WW2 period </li></ul><ul><li>1947 -- Congress rejects International Trade Organization treaty proposed initially at Bretton Woods </li></ul><ul><li>The GATT becomes the main trade regime </li></ul>
  • 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 <ul><li>Nondiscrimination among members of the GATT </li></ul><ul><ul><li>most favored nation (MFN) principle </li></ul></ul><ul><ul><li>tariffs must be adjusted to reflect MFN levels </li></ul></ul><ul><li>Participation in multilateral trade negotiations to lower tariffs and nontariff barriers </li></ul>A tariff is a tax that is charged on the value of imported goods.
  • 13. Multilateral Trade Negotiations <ul><li>1947 Geneva </li></ul><ul><li>1949 Annecy </li></ul><ul><li>1950 Torquay </li></ul><ul><li>1956 Geneva </li></ul><ul><li>1960-61 Dillon </li></ul><ul><li>1962-67 Kennedy </li></ul><ul><li>1973-79 Tokyo </li></ul><ul><li>1986-93 Uruguay </li></ul><ul><li>2000- Doha </li></ul>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 <ul><li>Tariffs </li></ul><ul><li>Conflict resolution; dispute settlement </li></ul><ul><li>Nontariff barriers: </li></ul><ul><ul><li>subsidies </li></ul></ul><ul><ul><li>government procurement </li></ul></ul><ul><ul><li>standards </li></ul></ul><ul><ul><li>custom valuation </li></ul></ul><ul><ul><li>licensing </li></ul></ul>
  • 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 <ul><li>Agriculture (mainly subsidies) </li></ul><ul><li>Trade in Services </li></ul><ul><li>Trade-related Intellectual Property (TRIPs) </li></ul><ul><li>Trade-related Investment Measures (TRIMs) </li></ul>French farmers protesting the Maastricht Treaty inEurope.
  • 17. Multilateral Trade Negotiations: The Doha Round <ul><li>Begun in early 2000 </li></ul><ul><li>Major conferences so far: </li></ul><ul><ul><li>2001 Doha (Qatar) </li></ul></ul><ul><ul><li>2003 Cancun </li></ul></ul><ul><ul><li>2004 Geneva </li></ul></ul><ul><ul><li>2005 Hong Kong </li></ul></ul><ul><ul><li>2006 Geneva </li></ul></ul><ul><ul><li>2007 Potsdam </li></ul></ul><ul><ul><li>2008 Geneva </li></ul></ul>Pascal Lamy calls time out on Doha Round in 2006
  • 18. Main Issues in the Doha Round <ul><li>Timing of implementation of Uruguay Round agreements, espec. Agriculture, services, regional agreements, TRIPs/TRIMs </li></ul><ul><li>Reductions in agricultural subsidies and textile/apparel tariffs in the rich industrialized countries </li></ul>
  • 19. Main Issues in the Doha Round <ul><li>Timing of implementation of Uruguay Round agreements, espec. Agriculture, services, regional agreements, TRIPs/TRIMs </li></ul><ul><li>Reductions in agricultural subsidies and textile/apparel tariffs in the rich industrialized countries </li></ul>

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