International Political Economy of Trade Notes
2020/2021
LYX119B05
International Relations and International Organization
This document contains notes from the lectures and summaries of some of the readings
Table of contents
Week 1 - Globalization and trade ...................................................................... 2
Week 2 - The theory of comparative advantage ............................................... 7
Week 3 - The distributional implications of international trade .................... 8
Week 4 - The political economy of trade: interests, institutions, ideas ........ 11
Week 5 – Protectionism .................................................................................... 27
Week 6 - Global and regional governance of trade........................................ 31
Week 7 - Trade in the 21st century.................................................................. 35
1
,Week 1 - Globalization and trade
Lecture 1
The idea of free trade and the globalization debate
Mercantilism
- dominant ideology from 15th – 18th century, created by Friedrich List and Alexander
Hamilton
- oppose free trade on 2 grounds:
1. National power perspective
- Exports are good, but imports are bad because they enrichen rivals
- “We much observe this rule, to sell more to strangers yearly than we
consume of theirs in value”
- Donald Trump´s ideas
2. Nascent infant industries much be protected from foreign competitors
- These ideas are not only historical but are still present in the contemporary politics as
well, for example in China led by communist party
Liberalism
- Defends free trade
- Adam Smith, Wealth of Nations
- Until 1846, not country thought free trade was a good idea
- 1864-1914: UK (the most powerful country at that time) led reduction in tariffs, by
repeal of Corn Laws (1846)
- In the following decades, UK was moving more and more towards freer trade not only
in its country but only in its dominions and colonies around the world
- Post-World War: US-led establishment of GATT/WHO, more spread of free trade
agreements
- This was not only for the benefit of other countries but mainly because the US
benefited hugely from an open international trade
What is International Political Economy (IPE)?
- Studies relationship between economics and politics (or: “the pursuit of wealth and the
pursuit of power”)
- Its all about wealth and power essentially
- What drives political agents and decision-making outcomes?:
1. Interest: material gains of (powerful) actors
2. Ideas: what (powerful) actors believe to be in their interest
3. Institutions: procedures through which decisions are being made
- Three key debates in the IPE:
1. Realism
2
, 2. Institutionalism/neoliberalism
3. Constructivism
4. Critical IPE
American vs. British school
American School
- Closer to economics
- Methods-driven
- Mostly quantitative
British School
- Interdisciplinary: history, law, society, economics, politics, anthropology, etc.
- Problem-driven
- Mostly qualitative
Readings
Trade and Poverty in the Poor Countries
JAGDISH BHAGWATI AND T. N. SRINIVASAN
- They see globalization as a good thing for the world because it
1. Allows international specialization
2. Increases competition and thus efficiency – cheaper and better products for
everyone
3. Created employment for low-skilled low-wage workers in developing countries
4. Offers firms from developing countries to enter global value chains, so people can
learn from working in multinational companies that they can benefit from
5. Can trigger “race to the top” in environmental and labor standards
- Focus here: on the poor countries
- Two different strands of argumentation:
1. Static Arguments
- Inflation hurts poor countries and
2. Dynamic Arguments
- Growth context
- The idea is that trade promotes growth and growth reduces poverty
- However, this is only in models but which work in empirical reality?
- the effects of trade policy on growth must proceed through links between trade and the
two “fundamentals”: accumulation and innovation
- If growth is modeled in a way such that it does not affect a segmented pool of the
poor, as in tribal areas that are not linked to the mainstream or in inner cities which are
structurally delinked from the main city where growth is occurring, then growth will
pass the poor by
3
, - it is interesting that practically no country that has been close to autarkic has managed
to sustain a high growth performance over a sustained period
- Argument: Dollar (2001 p. 17) argues that the only developing countries that have
registered significant declines in poverty are those that also have integrated faster into
the world economy on the dimensions of trade and direct investment
The Case for Free Trade
Jagdish Bhagwati
- The environmentalists’ antipathy to trade is perhaps inevitable
- Trade therefore suggests abstention from governmental intervention, whereas
environmentalism suggests its necessary
- For the most part, however, the differences derive from misconceptions between
economists and environmentalists
Misconceptions of environmentalists
- The fear is widespread among environmentalists that free trade increases economic
growth and that growth harms the environment
- That fear is misplaced
- Growth enables governments to tax and to raise resources for a variety of objectives,
including the abatement of pollution and the general protection of the environment
- How do societies actually spend these additional revenues? It depends on how getting
rich affects the desire for a better environment. Rich countries today
- have more groups worrying about environmental causes than do poor countries.
Efficient policies, such as freer trade, should generally help environmentalism, not
harm it
- two kinds of environmental problems: those that are intrinsically (naturally) domestic
and those that are intrinsically transnational
- Why do intrinsically domestic environmental questions create international concern?
The main reason is the belief that diversity in environmental standards may affect
competitiveness. Businesses and labor unions worry that their rivals in other countries
may gain an edge if their governments impose lower standards of environmental
protection
- international differences in environmental standards are perfectly natural
- Equally, a certain environmental good might be valued more highly by a poor country
than by a rich one
- The consequences of differing standards are clear: each country will have less of the
industry whose pollution it fears relatively more than other countries do
- Environmentalists oppose free trade for yet another reason: they wish to use trade
policy to impose their values on other communities and countries
4
2020/2021
LYX119B05
International Relations and International Organization
This document contains notes from the lectures and summaries of some of the readings
Table of contents
Week 1 - Globalization and trade ...................................................................... 2
Week 2 - The theory of comparative advantage ............................................... 7
Week 3 - The distributional implications of international trade .................... 8
Week 4 - The political economy of trade: interests, institutions, ideas ........ 11
Week 5 – Protectionism .................................................................................... 27
Week 6 - Global and regional governance of trade........................................ 31
Week 7 - Trade in the 21st century.................................................................. 35
1
,Week 1 - Globalization and trade
Lecture 1
The idea of free trade and the globalization debate
Mercantilism
- dominant ideology from 15th – 18th century, created by Friedrich List and Alexander
Hamilton
- oppose free trade on 2 grounds:
1. National power perspective
- Exports are good, but imports are bad because they enrichen rivals
- “We much observe this rule, to sell more to strangers yearly than we
consume of theirs in value”
- Donald Trump´s ideas
2. Nascent infant industries much be protected from foreign competitors
- These ideas are not only historical but are still present in the contemporary politics as
well, for example in China led by communist party
Liberalism
- Defends free trade
- Adam Smith, Wealth of Nations
- Until 1846, not country thought free trade was a good idea
- 1864-1914: UK (the most powerful country at that time) led reduction in tariffs, by
repeal of Corn Laws (1846)
- In the following decades, UK was moving more and more towards freer trade not only
in its country but only in its dominions and colonies around the world
- Post-World War: US-led establishment of GATT/WHO, more spread of free trade
agreements
- This was not only for the benefit of other countries but mainly because the US
benefited hugely from an open international trade
What is International Political Economy (IPE)?
- Studies relationship between economics and politics (or: “the pursuit of wealth and the
pursuit of power”)
- Its all about wealth and power essentially
- What drives political agents and decision-making outcomes?:
1. Interest: material gains of (powerful) actors
2. Ideas: what (powerful) actors believe to be in their interest
3. Institutions: procedures through which decisions are being made
- Three key debates in the IPE:
1. Realism
2
, 2. Institutionalism/neoliberalism
3. Constructivism
4. Critical IPE
American vs. British school
American School
- Closer to economics
- Methods-driven
- Mostly quantitative
British School
- Interdisciplinary: history, law, society, economics, politics, anthropology, etc.
- Problem-driven
- Mostly qualitative
Readings
Trade and Poverty in the Poor Countries
JAGDISH BHAGWATI AND T. N. SRINIVASAN
- They see globalization as a good thing for the world because it
1. Allows international specialization
2. Increases competition and thus efficiency – cheaper and better products for
everyone
3. Created employment for low-skilled low-wage workers in developing countries
4. Offers firms from developing countries to enter global value chains, so people can
learn from working in multinational companies that they can benefit from
5. Can trigger “race to the top” in environmental and labor standards
- Focus here: on the poor countries
- Two different strands of argumentation:
1. Static Arguments
- Inflation hurts poor countries and
2. Dynamic Arguments
- Growth context
- The idea is that trade promotes growth and growth reduces poverty
- However, this is only in models but which work in empirical reality?
- the effects of trade policy on growth must proceed through links between trade and the
two “fundamentals”: accumulation and innovation
- If growth is modeled in a way such that it does not affect a segmented pool of the
poor, as in tribal areas that are not linked to the mainstream or in inner cities which are
structurally delinked from the main city where growth is occurring, then growth will
pass the poor by
3
, - it is interesting that practically no country that has been close to autarkic has managed
to sustain a high growth performance over a sustained period
- Argument: Dollar (2001 p. 17) argues that the only developing countries that have
registered significant declines in poverty are those that also have integrated faster into
the world economy on the dimensions of trade and direct investment
The Case for Free Trade
Jagdish Bhagwati
- The environmentalists’ antipathy to trade is perhaps inevitable
- Trade therefore suggests abstention from governmental intervention, whereas
environmentalism suggests its necessary
- For the most part, however, the differences derive from misconceptions between
economists and environmentalists
Misconceptions of environmentalists
- The fear is widespread among environmentalists that free trade increases economic
growth and that growth harms the environment
- That fear is misplaced
- Growth enables governments to tax and to raise resources for a variety of objectives,
including the abatement of pollution and the general protection of the environment
- How do societies actually spend these additional revenues? It depends on how getting
rich affects the desire for a better environment. Rich countries today
- have more groups worrying about environmental causes than do poor countries.
Efficient policies, such as freer trade, should generally help environmentalism, not
harm it
- two kinds of environmental problems: those that are intrinsically (naturally) domestic
and those that are intrinsically transnational
- Why do intrinsically domestic environmental questions create international concern?
The main reason is the belief that diversity in environmental standards may affect
competitiveness. Businesses and labor unions worry that their rivals in other countries
may gain an edge if their governments impose lower standards of environmental
protection
- international differences in environmental standards are perfectly natural
- Equally, a certain environmental good might be valued more highly by a poor country
than by a rich one
- The consequences of differing standards are clear: each country will have less of the
industry whose pollution it fears relatively more than other countries do
- Environmentalists oppose free trade for yet another reason: they wish to use trade
policy to impose their values on other communities and countries
4
