Society-Centered Approach to
Trade Politics
International Political Economy
Prof. Tyson Roberts
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Lecture goals
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Factor model
Sector model
Collective action problem
Economic & political predictions
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Puzzle
• Comparative advantage: free trade good for
all nations, in aggregate
– More nuanced view: depends on size of economy,
state capacity, positive & negative externalities,
etc.
• Then why do governments pursue
protectionist policies?
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Some possible answers
• Trade isn’t always good
• “Wrong ideas”
– Mercantilism, Dependency Theory, Structuralism, etc.
• Infant industry protection (Next Week)
• Collective action problems (Lecture 6 & 7)
– Producers of tradeables have more political power than
consumers, favor protection of own markets
• Relative factor endowment politics (Today – Lecture 6)
– Scarce factors oppose free trade to protect income
• Sector orientation politics (Today – Lecture 6)
– Import-competing sectors oppose free trade
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Factor model
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Factors of production
• Land
• Labor
– Skilled
– Unskilled
• Capital
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Factor-price equalization
(Stolper-Samuelson)
• Economic assumptions:
– Autarky:
• Scarce factors in each economy demand high payment
– Trade:
• Each economy has comparative advantage in, and
exports, goods that intensively use abundant factors
• Payment to scarce factors in each economy falls (import
competition)
• Payment to abundant factors rises (used for exports)
• Factors move from import-substituting to export
sectors
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Commerce & Coalitions
(Rogowski 1990)
• Political assumptions:
– Beneficiaries of change will try to accelerate it;
victims of change will try to halt it (desire)
– An increase in wealth enables increased political
influence (means)
– As desire & means for a particular policy
increases, likelihood increases that a political
entrepreneur will overcome collective action
problems
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Commerce and Coalitions
(Rogowski 1990, based on 3-factor model: Land, capital, labor)
Capital rich
(Developed countries)
Capital scarce
(LDCs)
Labor scarce
relative to Land
Labor abundant
relative to Land
Capitalists & Landowners
for trade
Labor against
Capital & Labor for trade
Landowners against
Class conflict
Urban-rural conflict
Landowners for trade
Labor & Capitalists against
Labor for trade
Landowners & Capitalists
against
Urban-rural conflict
Class conflict
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Britain, 1840s
• Rich relative to trade partners
• High population density (i.e., low land-labor
ratio) relative to U.S.
• What should we predict regarding policy
preferences of each group, and the resulting
political coalitions?
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Prussia (Germany), 1840s
• Economically backward relative to Britain
• High population density relative to U.S.
• What should we predict regarding policy
preferences of each group, and the resulting
political coalitions?
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United States, 1840s
• Economically backward relative to Britain
• Low population density relative to Britain and
Germany
• What should we predict regarding policy
preferences of each group, and the resulting
political coalitions?
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Commerce and Coalitions
1st Age of Globalization (increasing free trade) Britain
Labor scarce
relative to Land
Labor abundant
relative to Land
Capital rich
(Developed countries)
Capitalists & Landowners
for trade
Labor against
Capital & Labor for trade
Landowners against
Capital scarce
(LDCs)
Landowners for trade
Labor & Capitalists against
Labor for trade
Landowners & Capitalists
against
United States
Germany
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1st Age of Globalization
(from Rodrik, pp. 27-30)
• Britain: “Landlords wanted high tariffs that
kept food prices high and raised their
incomes. Urban manufacturers … wanted to
abolish the tariffs to reduce the cost of living.“
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Start of 1st Age of Globalization:
End of Corn Laws (1846)
• Actor: Landlords
• Interest: High food
prices to increase
income
• Policy preference:
Tariffs on food imports
• Actor: Urban
manufacturers
• Interest: Lower food
costs so can reduce
wages, increase profits
• Policy preference:
Abolish tariffs
Institution: Parliamentary Vote
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1st Age of Globalization
(from Rodrik, pp. 27-30)
• “Everywhere on the Continent agricultural
interests clamored for protection, often
making common cause with industrialists who
were reeling under competition from the
more advanced British producers… In
Bismarck’s Germany, this led to the famous
“marriage of iron and rye” …”
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1st Age of Globalization
(from Rodrik, pp. 27-30)
• US: “The South depended on international
trade for its prosperity. The North wanted
protection from imports, at least until it could
catch up.”
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Commerce and Coalitions
Depression of the 1930s (increasing protectionism)
W. European Fasicism
United States: New Deal
Labor scarce
relative to Land
Labor abundant
relative to Land
Capital rich
(Developed countries)
Capitalists & Landowners
for trade
Labor against
Capital & Labor for trade
Landowners against
Capital scarce
(LDCs)
Landowners for trade
Labor & Capitalists against
Labor for trade
Landowners & Capitalists
against
South American Populism
Asian & East
European Fascism
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Sector Model
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Specific factors model
(Ricardo-Viner)
• Economic assumptions:
– Not all factors are mobile; some trapped in specific sector
– All factors from a sector that intensively uses the
economy’s abundant factor gain from trade; factors from
sector intensively using economy’s scarce sector lose
– For example, capital invested in a labor intensive sector
(e.g., textiles & apparel) in a labor abundant country is
HELPED by trade
– Labor w/special training in capital-intensive sector
(computers, autos, etc.) in a labor-abundant country is
HURT by trade
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Specific factors model
(Frieden)
• Political predictions:
– Coalitions cut across factors, along industry lines if factors
have low mobility
– For example, capital & labor in labor-intensive sector forms
coalition if capital and labor cannot easily change sectors
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Organizing Interests:
The Collective Action Problem and
Trade Policy Demands
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Collective action and trade protection:
Producers lobby governments more than consumers
• Consumers
– Benefit from trade (lower prices)
– Are diffused
– Marginal benefit of lower price for each good is small
• Producers of tradeables
– Benefit from
• Protection in own country (higher prices)
• No protection in foreign country (access to markets)
– Are concentrated
– Marginal benefit of protection/access is large
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Political Institutions & Trade Policy
• Majoritarian vs. PR electoral system
– Majoritarian increases voice of minority interests,
e.g. sector-based interests (based on geography)
– PR increases voice of larger groups, e.g., class or
factor interests, or consumers
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http://www.youtube.com/watch?v=Ro_isihnqM
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Example of tariffs, WTO, & distribution
of benefits
• “We had a tire case in which they were flooding
us with cheap … Chinese tires. And we put a stop
to it and as a consequence saved jobs throughout
America. I have to say that Governor Romney
criticized me for being too tough in that tire case;
said this wouldn’t be good for American workers
and that it would be protectionist. But I tell you,
those workers don’t feel that way. They feel as if
they had finally an administration who was going
to take this issue seriously.” – Barack Obama,
October 22, 2012
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Coalition for tire protection
(from podcast)
• Tire company union
• Tire company owners
• Does this comply with the factor or sector
model?
• Does this imply factors are mobile or
immobile?
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• “It’s not like you were going to take a 52-yearold guy and send him to internet school.”
(Podcast)
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China responds to US anti-dumping tire tariff
with anti-dumping chicken part tariff
(US wins on tires, chicken parts still in dispute)
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Tire tariffs saved/created ~1200 jobs in
Ohio, etc. (swing states)
(Hufbauer & Lowry 2012)
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Estimated cost to consumers in higher tire prices
estimated at $1.1 billion, or $900,000 per job
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Another tariff case
(LaFaive 2002, Tran 2003)
• President Bush raised tariffs on steel in 2002
• Winners: Estimated 4,400 – 8,900 steel-sector
jobs in MI & PA (swing states)
• Losers: Estimated decrease in national income
$0.5-1.5 billion; lost jobs in steel-using industries
• WTO ruled against US, authorized EU to retaliate
with tariffs against FL oranges & Harley-Davidsons
(WI, PA, etc.)
• Bush reduced steel tariffs in 2003
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Take-aways
• While trade has many obvious benefits,
protectionism is a common strategy for many
reasons
– Collective action challenges (more voice for
producers than consumers)
– Winners vs. losers among producers (factors or
sectors)
– Some countries may benefit in the long run from
targeted protection policies (Lecture 8)
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The role of veto players
• Veto player must
• More veto players => more policy stability
• Institutional veto points
– President, lower house (HR), upper house (Senate)
• Partisan veto players
– Parties in institutional veto points
– Parties in coalition governments
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If there is one veto player, he can get his ideal policy choice
Democrats
Taxes on
the rich
 SQ
Republicans
Community College
spending

If there are two veto players, the possible policy outcomes
are narrowed – both must agree
Democrats
Taxes on
the rich
 SQ

Joint gains
Republicans

Community College
spending
If there are three veto players, the possible policy
outcomes are narrowed further still – all must agree
Democrats in
Senate
Taxes on
the rich
 SQ
Republicans

President


Joint gains
Community College
spending
Research Exercise 1
Empirics (Research Exercise 1)
Openness to trade = Trade (% of GDP) (pwt_openk)
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Comments
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GDP vs. GDP per capita
Real GDP vs. GDP
(PPP adjustments)
GDP per capita growth vs. GDP per capita
Trade (% of GDP) vs. Policy measures
Measurement error
Causality issues
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Correlation
Snap shot
Direction of causality/endogeneity
Omitted variables (e.g., oceans)
Growth vs. Level
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Varying measures of economic
prosperity, for 1990, from WDI
Measure
China
USA
USA/China
GDP, current dollars
357 Billion
5.8 Trillion
16.2
GDP, PPP 2005
dollars
1.2 Trillion
8 Trillion
6.7
GNI per capita,
current dollars
310
22,080
71.2
1,099
31,951
29.1
GDP growth,
constant 2000
dollars
3.8
1.9
0.5
GDP per capita
growth, current LCU
2.3
0.7
0.3
GDP per capita, PPP
2005 dollars
Which measure to use depends on the question being asked
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Alternative trade openness measure
Openness to trade = HF Trade Freedom
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Time lag for explanatory variable
Openness to trade = HF Trade Freedom, 5 year lag (i.e., 1995)
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Growth: Look for change in level
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Growth: Look for change in level
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Income level: Look for change in slope
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Income level: Look for change in slope
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Income level: Look for change in slope
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Comments
• Volatility of growth vs. rate of growth
• Alternative explanations – look at history
– Vietnam War ended in 1973
– Ghana launched Economic Recovery Program in
1983
– International financial crises ~1980 and ~1997
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