Trade Theory and Practice
Trade Theory and Practice PSC2439
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This 6 page One Day of Notes was uploaded by cwalterman on Saturday January 24, 2015. The One Day of Notes belongs to PSC2439 at George Washington University taught by Christopher Mitchell in Fall. Since its upload, it has received 225 views. For similar materials see International Political Economy in Political Science at George Washington University.
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Date Created: 01/24/15
Domestic Base Use of Trade Openness 12015 Adam Smith and David Ricardo Trade is a net good for all states They will be better off than worse off with trade So it would make sense if all states traded all the time but that39s not the case It is regardless of level of development wealth and enables specialization in area of comparative advantage If all states were to trade in everything you39d have an increase in ef ciency and total global output at least net But in order to have trade you need states that are willing Trade requires a coalition supporting trade In a democracy you need support from the majority n authoritarian country it39s based on the leader whether they want to trade Such as in Chile when they open trade despite opposition by the people Trade produces winners and losers If winners have more in uence than osers D trade If losers have more in uence l protectionism We need a model of domestic groups and their position on trade openness Economy consists of three broad groups Capital K Labor L and LandAgriculture A Everyone is either a holder of capital raw materials or liquid labor selling your labor or being a worker and farmers mines forestry Hinges on the idea of scarcity Trade will increase return to abundant factors and hurts scarce factors Ex if you have relatively scarce labor because of underpopulation then there will be fewer workers for every potential job And what if there are more jobs than workers So wages will go up Open trade to take advantage of global domestic pu instead ofjust domestic Now there will be more workers than jobs and wages will decrease Or if everyone leaves then there will be more jobs than workers which will increase wages This can also happen with capital and land How to classify countries and move accordingly Capital can either be abundant or scarce To limit the amount of cases you assume the country either has a high or low population density Class con icts capital and land is abundnat but scarce labor Or you can have scarce capital and scarce land but abundant labor UrbanRural con ict both capital and labor want trade but agricultural sector that prevents trade Or both capital and labor favor protectionism but agriculture wants to trade No richland abundant country In NW Europe there is abundant capital and labor so the urban interests want to engage in trade but the rural interests favor protectionism procolonialism If you go out and engage the rest of the world then capital and labor can go abroad to take advantage of economic opportunities In Southern Europe there is less wealth but abundant labor and scarce land They are antitrade and only labor wants trade Southern Europe isn39t interested in trade or colonialism because it would not bene t the majority Colonies plantation economies where there is scarce capital and scarce labor but abundant amount of land So they trade to get labor to work without paying ie slavery serfdom in Russia in quotperipheryquot The NW European countries with the most labor and capital engaged in colonialism In the New World it becomes plantation economies and same with places in Russia The Central European states didn39t engage in trade NW Europe still abundant labor and capital so the cities want to engage in liberalization and trade It becomes a political struggle because agriculture interests between liberalism v radicalism especially in Britain The two most abundant groups worked together while aristocracy agriculture group worked against the capital and labor groups Rest of Europe there is a different dynamic where labor wants to engage in trade while the old aristocracy whom owns the land and the industrialists don39t want to trade This leads to the quotIron and Rye Coalitionquot industrialists vs old aristocracy Otto Von Bismarck created the Iron amp Rye Coalition to work together He was the rst leader of a united Germany until he lost the First World War William Jennings Bryan created the Prairie Populist He was one of the most successful in terms of starting a mass movement but Ieast successful in winning the presidency He was the spokesperson of midwest America between the UrbanRural Con ict Abundant Land Scarce Labor and Capital Need to pay high wages for farm work or force labor to work for free slavery US in the mid19th century primarily exported cotton and Northern industry is importcompeting The cotton industry supported the south so there is a dynamic where the North is hostile on trade and South supports trade This gets the slavery issue involved The UrbanRural con ict becomes a North vs South con ict Labor always abolitionist and Labor amp Capital make common cause against Land Northern labor wanted to keep the free slaves in the South so that it reduces competition for jobs in the North while having to not compete with open trade as well The scarce factor becomes very politically powerful because now that trade has collapsed whatever the scarce factors are they are able to command more economic and political power Abundant capital and land and scarce labor such as America Australia and New Zealand The New Deal and policy shifts left Scarce capital and labor and abundant land like in Latin America started populist movements begin The abundant labor and capital and scarce land is found in Northern Europe where it gains at expense of K and L but with fascism struggles Both the labor movement and capital both want trade and therefore oppose the fascists Therefore fascists39 movements fail such as in Britain and France The scarce capital and land but abundant labor is found in S and E Europe where labor loses ground to K and A and fascism rises Successful fascism in S and E Europe like in Italy and Germany Class con ict with successful eastern European fascism Mussolini and Hitler Largely the same countries in each box but back to the world where trade is more feasible In places like N America and Australia there is still class con ict and buyOoff or suppression of labor Guarantees of high wages Europe and Japan have the quotend of ideologyquot with capitalist vs communist because labor wants the same thing that capital wants so there is no point in ghting In Latin America resurgent Radicals displace Capital and Labor but agriculture becomes more radical and replace the populists There is still a class struggle in S and E Europe and Asia Communist revolutions appear with labor militancy Abundant land and capital and labor no con ict trade Abundant capital scarce land and labor Scandinavian RedGreen coalitions Scarce capital and abundant land and labor Stalin39s dictatorship of state capital Holders of capital will have very different interests than the rest of society as a whole Once Stalin established his dictatorship he was now the holder of capital within the USSR Interest of the communist party of those with capital opposed to the interests of the rest of society ironic They39re a dictatorship Scarce capital land and labor No con ict no trade Assumes that if you39re labor you can do any laborjob If you39re capital you can do any capital job etc But reality is much more complicated than that Labor can39t just take any job especially with skilled labor you39re limited in what you do Capital may be hard to move especially with direct investment factories supplies etc Con ict not between factors but between industries Ex The American Automobile Industry The workers and owners of the AAI want the same thing There may be con ict because when the factories open because each one share the same pro ts So it39s not because of different opinions on trade but different opinions on money Export industries favor trade Importcompeting industries favor protectionism Heavy industry Factorspeci c capital Skilled but specialized labor Competing with lowercost foreign labor Anti trade both on capital and labor side Hnance Not factorspeci c so highly adaptable Skilled labor abundant capital bene t from trade Protrade Agriculture Highly factor speci c Land Unskilled Labor not speci c but compete on cost Competing with abundant foreign Land and Labor AntiTrade both on capital and land TechnologyRampD Highly factorspeci c capital and labor Primarily exporting rather than importing Protrade because trade means they39re selling stuff abroad Light manufacturing agriculture Labor generally lowskill but low specialization and can rapidly adapt to different tasks Likely to attract foreign capital Especially designed for export Protrade resisting Northern protectionism Importcompeting industries Heavy manufacturing and skilled labor lE if you wanted a car in Brazil you would buy an American car Once the industry in Brazil was created they still wanted a trade barrier because people would rather buy an American car instead of Brazilian car Domestic banking Generally antitrade proprotectionism 55 is very broad but it shows an overall trend historically It puts countries into groups based on their abundancy or scarcity RV is very speci c to industries and is useful to understand a particular country and what they bene t from or don39t bene t from However it doesn39t explain the long term since each industry may improve or lose money within decades All models are lies and breaking down the complexities to make it more simplistic The simpler you make it the more likely you39ll be wrong with speci c stories Both models also do not take into account social issues and why consumers buy certain products based on social situations instead of economic reasons You miss a lot of details about the politics and social issues in the 505 and how it compares today Loss of depth Is there an alternate model to tell the story such as the Communism story to explain trade You can switch between an 55 world and an RV one depending on what you are looking at speci cally Mobility vs speci city Stolper Samuelson US GOP the party of A Democrats the party of L Both competing for K EU Germany dominated by KS Europe by L DCs abundant L A but scarce K Favoring trade but limiting capital mobility Rica rdoViner Capital divided portfolio investment very mobile but not manufacturing capital Labor divided immobile skilled labor vs unskilled and more abundant exible labor