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/eco
nomics/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
Figure 3-1. Average U.S. Tariff Rates on Dutiable
Imports, 1821-2000, in Percentages
70
60
50
40
30
20
10
0
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.
Overall Tariff Levels and
Trade/GNP, 1850-1990
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).
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 the
value 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 is
a Boeing
777
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 out
on 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