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Y376 International Political Economy
January 25, 2012
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
Graphical Version of Ricardian Theory
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
Let’s Play the Trade Ruler Game!
• http://nobelprize.org/educational_games/economics/trade/game/ruler.html
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
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1821 1841 1861 1881 1901 1921 1941 1961 1981
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.
Figure 3-1. Average U.S. Tariff Rates on Dutiable Imports, 1821-2000, in Percentages
Overall Tariff Levels and Trade/GNP, 1850-1990
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
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/.
Interregional Trade Flows, 1990
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 thevalue of imported goods.
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.
Main Issues in the Tokyo Round
• Tariffs
• Conflict resolution; dispute settlement
• Nontariff barriers:– subsidies– government procurement– standards– custom valuation– licensing
Example of a Subsidies Dispute: Airbus vs. Boeing
This isa Boeing777
This is an Airbus 300
Latest WTO ruling (video)
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.
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 outon Doha Round in 2006
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
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