Gradipe03

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Y669 International Political Economy, lecture #3, dealing mainly with theories of international trade.

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Gradipe03

  1. 1. Y669 International Political Economy September 14, 2010
  2. 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. 3. Graphical Version of Ricardian Theory
  4. 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. 5. Let’s Play the Trade Ruler Game! • http://nobelprize.org/educational_games/economi
  6. 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. 7. Overall Tariff Levels and Trade/GNP, 1850-1990
  8. 8. Source: International Monetary Fund, Direction of Trade Statistics Yearbook (various years). Figure 3-2. Growth in World Exports, 1958-2006, in Billions of Current Dollars
  9. 9. 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/.
  10. 10. 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.
  11. 11. 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.
  12. 12. Main Issues in the Tokyo Round • Tariffs • Conflict resolution; dispute settlement • Nontariff barriers: – subsidies – government procurement – standards – custom valuation – licensing
  13. 13. Example of a Subsidies Dispute: Airbus vs. Boeing This is a Boeing 777 This is an Airbus 300 Latest WTO ruling (video)
  14. 14. 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.
  15. 15. 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 – 2008-9 Geneva Pascal Lamy calls time out on Doha Round in 2006
  16. 16. 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

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