1. 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

2. 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

3. 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.”

4. International Political Economy

5. 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

6. 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

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

8. 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

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

10. 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

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

12. 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

13. 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

14. 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

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

16. 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!

17. 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!

18. 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!

19. 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!

20. 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!

21. 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!

22. 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!

23. 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

24. 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

25. 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

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

27. 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

28. 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)

29. 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

30. 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)

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

32. But much of our trade deficit comes from buying foreign oil

33. 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

34. 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

35. Institutions: World Trade Organization
“Developed countries’ tariff cuts were for the most part phased in over five years from 1 January 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.”

36. What impacts has the WTO had?
Think counterfactually

39. 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”

40. http://cep. lse. ac. uk/leed/docs/public/genderpay_simon2
and

41. 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

42. 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?

43. 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