Overview Midterm quiz answers posted soon; results soon Case 1 response and ideas to improve Case 2 Reading takehomes IPE introduction Gains from trade Influence of trade institutions

Case 1 problems with easy fixes to improve your Case 2 Include Intro and/or no Conclusion Include headings for all sections of paper, including intro/conclusion Use intro to discuss causes of war theory (Goldstein), mention you analyze 6 wars, and summarize your findings Indicate patterns, e.g., how many wars caused by one factor Careful in extrapolating too much; you only studied 6 wars Proofread/edit for grammatical errors and unclear writing Put table after essay to highlight essay as key point

Reading Takehomes re: Globalization Ghemawat, “Why the world isn't flat” Notion that world is fully globalized and everything/everybody is interconnected is simply not the case. Yes, more interconnected than before but still live within borders of states rather than across them Irwin, “The Truth about Trade” “The anti-trade rhetoric paints a grossly distorted picture …. Trade still benefits the United States enormously, and striking back at other countries by imposing new barriers or ripping up existing agreements would be self-destructive.”

International Political Economy

What is IPE? The Politics of Economics at the International Level Domestic political economy Minimum wage legislation – in the news today Who mobilizes? International political economy How economic forces drive politics at the international level

Effects of free trade Opportunities for developing countries Loss of domestic jobs Reducing trade barriers Lowers labor standards More exploitation of natural resources Cheaper products Less poverty globally Higher suicide rates Not enough money in the market for all workers Increased inequality

I support: Increasing free trade (lowering trade barriers) Decreasing free trade (increasing trade barriers) Keeping free trade at current levels

Increasing free trade (lowering trade barriers) would: Reduce the costs of things I buy Increase the costs of things I buy Have no effect on the costs of things I buy

Increasing free trade (lowering trade barriers) would: Increase Americans jobs Decrease Americans jobs Increase some American jobs and decrease other American jobs

Increasing free trade (lowering trade barriers) would: Increase jobs in poor, developing countries Decrease jobs in poor, developing countries Increase some jobs in developing countries and decrease other jobs in developing countries

Increasing free trade (lowering trade barriers) would: Harm the environment Help the environment Have complicated effects on the environment

Correct answers: Increasing free trade (lowering trade barriers) would: Reduce the costs of things I buy – for sure! Increase some American jobs and decrease other American jobs – for sure! Increase jobs in poor, developing countries – most likely Have complicated effects on the environment – for sure

Key point: Increased trade has 3 types of effects Employment effects Makes things BETTER for capitalists and workers in companies that can EXPORT to other countries Makes things WORSE for capitalists and workers in companies that must COMPETE WITH IMPORTS from other countries Price effects Makes things better for consumers in BOTH countries Other effects Inequality, environmental protection, etc. Transition costs can be huge and long-lasting

Overview: What are “gains from trade”? States, AS A WHOLE, gain from free trade By specializing in what they do better/cheaper than other countries, they can get more of what they want But NOT EVERYONE gains from trade Free trade helps consumers and exporters but harms import-competing sector States must COOPERATE in international institutions to achieve these gains from trade – it’s a Prisoners Dilemma, so it will NOT happen unilaterally States create institutions only if focused on absolute gains *not* relative gains

Per Worker Productivity Cars (units/yr) Rice (tons/yr) United States 1 (or) 3 Japan 4 (or) 1 This is a hypothetical example!

Closed Economy (protectionism, no trade, 100 million workers in each economy ) Cars (units/yr) Rice (tons/yr) United States 30 m (1*30m workers) 210 m (3*70m workers) Japan 120 m (4*30m workers) 70 m (1*70m workers) World 150 m 280 m This is a hypothetical example!

Open Economy Production (free trade, 100 million workers in each economy) Cars (units/yr) Rice (tons/yr) United States 300 m (3*100m workers) Japan 400 m (4*100m workers) World 400 m 300 m This is a hypothetical example!

Open Economy Consumption (free trade, 100 million workers in each economy) Cars (units/yr) Rice (tons/yr) United States 160 m (+130 m) 220 m (+ 10 m) Japan 240 m (+120 m) 80 m (+10 m) World 400 m 300 m This is a hypothetical example!

Why Productivity, Not Wages, Matters: Build Cars in the US if ... Mexico Wages $160/day $24/day Days / car 25 days 250 days Where to build? A: Build in B: Build in Mexico Wages are FAR lower in Mexico than in the US but still cheaper to build cars in the US because of the lack of mechanization in Mexico. This is a hypothetical example!

Why Productivity, Not Wages, Matters: Build Cars in the US if ... Mexico Wages $160/day $24/day Days / car 25 days 250 days Productivity (cost/car) $4000 $6000 Wages are FAR lower in Mexico than in the US but still cheaper to build cars in the US because of the lack of mechanization in Mexico. This is a hypothetical example!

Why Productivity, Not Wages, Matters: Build Cars in Mexico if ... US Mexico Wages $160/day $12/day Days / car 25 days 250 days Productivity (cost/car) $4000 $3000 To make it cheaper to build cars in Mexico rather than the US, wages must be SUFFICIENTLY lower in Mexico to offset the lack of mechanization there. This is a hypothetical example!

Other Factors US Mexico Labor costs $4000 $3000 Parts and materials $5000 $5500 Transport $100 $1100 Env’l compliance $0 Total $9200 $9600 This is a hypothetical example!

Effects of free trade: updating Facebook over your morning coffee United States (makes computers cheap) Brazil (makes coffee & sugar cheap) Consumers different stuff (coffee) prices (coffee & sugar) different stuff (computers) prices (computers) Competitive sector Computer jobs Computer wages Coffee / sugar jobs Coffee / sugar wages Non-competitive sector Sugar jobs & wages O Computer jobs & wages O Mono-cropping Reduced in sugar Increased in coffee & sugar Resource use Computers: less per unit; more total units Sugar/coffee: less per unit; more total units Environmental policies Driven by domestic politics in North Influenced by economic factors in South

A real story of tariffs & trade 320M in US eat 24B lbs sugar/year (75 lbs per person/yr) 1st sugar tariff 1789 Current tariff makes US price $0.06/lb higher than world So increased cost is 75*.06= $4.50 per person per year BUT $4.50 * 320M or $1.4B total for US consumers Goes to US farmers, who will lose jobs if tariff removed 24 billion lbs of sugar/year NOT purchased from farmers in Brazil, Thailand, and India who would hire new workers if tariff was removed https://www.forbes.com/sites/timworstall/2017/01/18/if-us-sugar-tariffs-make-americans-poorer-then-donald-trumps-tariffs-will-make-americans-what/ http://www.worldstopexports.com/sugar-exports-country/

Impact of trade on the environment of Honduras From 1987 to 1999, shrimp farms expanded to cover Honduras shoreline Honduras is second largest exporter of shrimp from Latin America Damage would be less if no int’l trade in shrimp BUT effects of trade on environment are particularly complex

If free trade is so good, why is there protectionism?

Protectionism occurs despite gains from trade because import-competing sectors are powerful “For decades, Japan has defended its 778% tariffs on rice with a kind of religious zeal. Rice is a sacred crop, the government has argued, not open to trade negotiations. Its farmers are not just defenders of a proud agrarian heritage, but form the nation’s spiritual center as well.” NYT, 9 January 2014

Impacts of free-er trade by sector SECTORS Sign of Impact Impact Per person # of people impacted Export sector + Large Small (but many are unemployed) Import-competing sector - Small Consumer Really small VERY large Biggest Exports Machinery/computers: US$201.7 billion (13%) Electrical machinery: $174.2 billion (11.3%) Mineral fuels / oil: $138 billion (8.9%) Aircraft, spacecraft: $131.2 billion (8.5%) Vehicles: $130.1 billion (8.4%) Biggest Exporters Apple Exxon Mobil Johnson & Johnson (medical) Chevron Corporation (oil, gas) Procter & Gamble (household) Pfizer (pharmaceuticals) The Coca-Cola Company (beverages) Merck & Co (pharmaceuticals)

Types of protectionism Protectionist policy Gov’t revenue impacts Visibility to victims Free-trade defensible Tariffs Increase revenues Very visible Hard to defend Quotas No effect on revenues Subsidies Cost revenue (expenditure) Not very visible Non-tariff barriers Easier to defend

Trade deficits and surpluses Trade BALANCE = Exports imports Country with more exports than imports has a trade SURPLUS Country with more imports than exports has a trade DEFICIT Country-by-country variation: China surplus with US/EU but deficit with Korea/Saudi Arabia US deficit with China/EU; surplus with S. & C. America Benefits of trade surplus: high employment because producing for own AND other countries Benefits of strong currency: lower priced imports which makes trade deficit more likely People as employees like trade surplus (more secure jobs) but as consumers like trade deficits (lower prices)

US Trade Deficit – We buy more from foreigners than we sell to them

But much of our trade deficit comes from buying foreign oil

Trade balances Where do they come from Individual choices and free market: consumer preferences and savings rate General economic status and demand for one’s exports Government policies try to increase exports while creating barriers to imports Trade barriers on imports and subsidies on exports Exchange rates: devaluing currency makes imports less attractive locally and exports more attractive to foreigners Fiscal (taxes/expenditures) and monetary policies Industrial policy – help certain industries

Problems of trade deficits States must balance trade deficits by borrowing money from other countries, i.e., countries must borrow to finance purchases of imports that exceed income from exports Borrowing to run a trade deficit makes country vulnerable to foreign investors who may stop providing loans to finance that deficit Largest example: Chinese loans to cover ongoing US trade deficit (current account deficit) US government budget (2015) = $3.8 trillion Total debt: $19 trillion (5 years of budget) Owed to US citizens: $13 trillion Owed to Chinese government/citizens: $1.2 trillion Owed to other governments/citizens: $5.0 trillion

Institutions: World Trade Organization “Developed countries’ tariff cuts were for the most part phased in over five years from 1 January 1995. The result is a 40% cut in their tariffs on industrial products, from an average of 6.3% to 3.8%.” “Over three quarters of WTO members are developing or least-developed countries. All WTO agreements contain special provision for them, including longer time periods to implement agreements and commitments, measures to increase their trading opportunities and support to help them build the infrastructure for WTO work, handle disputes, and implement technical standards.”

What impacts has the WTO had? Think counterfactually

Institutions: International Labor Organization Convention concerning Equal Remuneration for Men and Women Workers for Work of Equal Value “ensure the application to all workers of the principle of equal remuneration for men and women workers for work of equal value”

http://cep. lse. ac. uk/leed/docs/public/genderpay_simon2 http://cep.lse.ac.uk/leed/docs/public/genderpay_simon2.pdf and http://www.infoplease.com/ipa/A0882775.html

What Can our Theories Explain Realism Institutionalism Feminist Theory Focus – what is being explained? Actors – who are considered the main actors to watch? Goals – what are the goals of the main actors? Means – what means do actors use to achieve their goals? Organizing Principles – how is the international system organized? Dynamics – what does the process of international relations look like? International Trade: What Can our Theories Explain

Realism Institutionalism Feminist Theory Focus – what is being explained? Actors – who are considered the main actors to watch? Goals – what are the goals of the main actors? Means – what means do actors use to achieve their goals? Organizing Principles – how is the international system organized? Dynamics – what does the process of international relations look like?

Realism Institutionalism Feminist Theory Focus – what is being explained? Beggar-thy-neighbor policies of 1930s WTO – states do cooperate, despite risks Actors – who are considered the main actors to watch? States are the ones involved Not unitary actors: domestic politics matter Barriers decreasing among developed but not vis-à-vis developing Goals – what are the goals of the main actors? Increasing economic well-being Means – what means do actors use to achieve their goals? Power still matters; military force during colonialism GATT/WTO; OPEC Differences in tariffs across genders (but not systematic) Organizing Principles – how is the international system organized? Institutions influence tariffs and trade; no beggar-thy-neighbor 2008 Less influence of 1951 Equal Remuneration Convention on pay gap Dynamics – what does the process of international relations look like? Acquisition of power – colonialism, economic power