BG Fall 2015

World Trade % 25% 50% 75% 100% exports (as % of GDP) Canada exports (trillions US$)

Politics & International Trade Baron ch 17

Trade Theory 2 countries X Y  each has 12 units of labour  each produce 2 goods A B  citizens like to have both

Trade Theory 2 countries Xanadu Yalta  12 people each each works 1 person-year  each produce 2 goods Apples Bananas  everybody likes to have both apples & bananas X$1 = 1 apple = 1 banana X$ = Y$ Y$1 = 1 apple = 1 banana Xanaduzians 1 Apple:2 person-years 1 Banana:1 person-year Yaltans 1 Apple:1 person-year 1 Banana:2 person-year

No Trade goods ApplesBananas countries Xanadu Yalta Xanaduzians 1 Apple:2 person-years 1 Banana:1 person-year Yaltans 1 Apple:1 person-year 1 Banana:2 person-year 6 (12 person -years) 6 (12 person -years) 12 (12 person -years) 12 (12 person -years)

No Trade goods ApplesBananas countries Xanadu Yalta Xanaduzians 1 Apple:2 person-years 1 Banana:1 person-year Yaltans 1 Apple:1 person-year 1 Banana:2 person-year 6 (6 person - years) 6 (6 person - years) 3 (6 person - years) 3 (6 person - years)

No Trade goods AB countries X Y X 1 A:2 u l ( units of labour) 1 B:1 u l (units of labour) Y 1 A:1 u l (units of labour) 1 B: 2 u l (units of labour) 6 6 u l 6 6 u l 3 6 u l 3 6 u l mix 2/1 1/2 wealth 9 9

Trade goods AB countries X Y X 1 A:2 u l ( units of labour) 1 B:1 u l (units of labour) Y 1 A:1 u l (units of labour) 1 B: 2 u l (units of labour) mix 2/1 1/2 wealth /1 12

Disadvantaged Y goods AB countries X Y X 1 A:2 u l ( units of labour) 1 B:1 u l (units of labour) Y 1 A:3 u l (units of labour) 1 B: 4 u l (units of labour) mix 1/.75 1/2 wealth No Trade 2 6 u l 6 6 u l u l 3 6 u l

Disadvantaged Y goods AB countries X Y X 1 A:2 u l ( units of labour) 1 B:1 u l (units of labour) Y 1 A:3 u l (units of labour) 1 B: 4 u l (units of labour) mix 1/.75 1/2 wealth /1.5 1/ Trade 2

Why? If free trade is better for everyone, why do so many people object? economic model = unrealistic assumptions  everybody has the same amount of power  everybody has same info »accurate & complete  consumers & producers accept price »given & fixed  goods undifferentiated »identical transaction costs

Why? If free trade is better for everyone, why do so many people object? economic model = unrealistic assumptions  no economy of scale  no cost of entry or exit  no learning curve

Why? If free trade is better for everyone, why do so many people object? economic model: human beings are “logical” doesn’t account accurately for  short-term benefits  domestic concerns  preference for local  benefits & harms differently dispersed

US Trade Policy 4 arenas  cabinet departments  regulatory agencies  Congress  President

Trade Policy “Process”

Final exam requests:  Brooks & Stritch, ch. 7: Business Organization and Lobbying  Taylor, et al., ch. 10: The Current State of Business- Government Relations  Taylor, et al., ch. 13: Government Dealing With Business (2 requests)  Baron, ch. 7: Formulating Nonmarket Strategies for Government Arenas  Baron, ch. 11: Environmental Protection: Economics, Politics and Management (2 requests)

US Trade Laws & Treaties 1922Fordney-McCumber Act 1930Tariff Act Smoot-Hawley 1934Reciprocal Trade Agreements Act 1946Bretton Woods 1947GATT established GATT rounds US Trade Expansion Act GATT round 6: Kennedy Round 1974Trade Act GATT: Uruguay Round: 23,000 pages 2001-GATT: Doha Round hewto_e/minist_e/min98_e/s lide_e/slide002.htm

US Trade Laws provisions  temporary safeguards temporary relief for domestic industries seriously injured by increased imports no unfair trade practice is required  Presidential retaliation against countries that restrict imports of US goods or subsidize exports to US

US Trade Laws provisions  antidumping LTFV imposition of duties  countervailing duties duties against countries that subsidize domestic industries

US Trade Laws provisions  intellectual property retaliation against countries violating US  patents  copyrights  protected trade secrets  Trade Adjustment Assistance assistance for those injured by imports

WTO World Trade Organization 153 member countries

WTO

agreements  GATT  GATS  TRIPS  Dispute settlement  Trade policy reviews  Agricultural Agreement  Agreement on government procurement

WTO roles  system of agreements help trade move more freely  forum for trade negotiations  dispute settlement mechanism resolve trade disputes in a timely manner

WTO principles  MFN  Most-Favored Nation all members treated as well as best trading partner  national treatment domestic & foreign goods equal

WTO GATT  General Agreement on Tariffs & Trade  signed after World War II modified in “rounds”  push down trade barriers tariffs quotas non-tariff barriers

WTO GATS  General Agreement on Trade in Services  MFN & national treatment in services  transparency regulations conditions of service

WTO TRIPS  Trade-Related Intellectual Property Rights  MFN & national treatment lots of exemptions  even more controversy copyright drug patents transitional economies

Other Trade Agreements  NAFTA  ASEAN  Asia-Pacific Economic Cooperation  EC of Central African States  Gulf Cooperation Council  Open Skies  EU

Other Trade Agreements  EU within EU  reduced tariffs  harmonize rules from outside  tariffs  quotas