Professor Deardorff assigns about six articles a week for reading in addition to the textbook. Many of these articles are very long, from journals, and since I will be tested on them, I've decided to summarize their important points here, adding more as I read them:
Jan 5 Introduction
Center for Global Development, "Global Trade and Development" [4p] Online | Q
- How important is trade for the United States, and especially its trade with developing countries?
As of the 2005 record, "over the past 40 years, trade has grown from 9.6% to 26%" of our economy. And "about 45% of US exports go to developing countries today compared with 39% a decade ago".
- Did NAFTA help the people in Mexico?
It had mixed effects. On the whole, their exports and average income increased as did FDI, but while "Mexico has seen an increase of 500,000 manufacturing jobs", it has also suffered "a loss of 1.3 million agricultural jobs. The number of jobs in the service sector has increased, although mainly in low-pay, low-productivity sectors".
- Do US tariffs cause greater harm in other rich countries or in poor ones?
They certainly cause greater harm in poor countries, where our tariff rates are the highest. The article mentions that if the "the rich countries did agree to eliminate their barriers to imports from poor countries [not just tariffs], an estimated 270 million people would be lifted out of poverty". Meanwhile, the US collects more dollars in tariffs from poor countries than rich countries despite importing a much higher value of goods from the latter. See the picture above. Even if we charged the same tariff rate to rich and poor countries alike, the charge would hurt developing countries who are struggling to catch up and compete with more developed economies.
See Question 3.
4. Who gets more from rich country governments: rich country farmers or poor countries?
Each year rich countries like the US give millions in development assistance to help increase productivity in developing countries. "But this assistance is dwarfed by the negative impacts of agricultural subsidies and tariffs", including American agricultural subsidies. "From 1995 to 2005, the US Department of Agriculture subsidies to American producers totaled more than $150 billion [compared to the no more than $4 billion that went to assist developing economies in that period]". And we're not alone: "Government support of producers in all rich countries (through subsidies and tariffs) amounts to almost four times the value of global development assistance. And if rich countries fully opened their markets to products from poor countries the value in increased income would be almost double that of development assistance:
Hufbauer and Grieco, "...Payoff from Globalization" [2p] Online | Qs
- By how much have US tariffs fallen over 60 years? By how much have incomes risen due to reduced costs of trade?
According to this 2005 op-ed article, "congress has slashed the simple average tariff rate from 40 percent in 1946 to 4 percent today". The authors estimate that over this same period, trade advancement and liberalization has meant an annual increase of $10,000 per US household.
- With tariffs now low, is there scope for any further liberalization? Why?
These authors believe that through steady liberalization in previously ignored areas such as "services, agriculture, transportation, and trade with developing countries", an additional $500 billion in gains from trade are possible.
- Who loses from liberalization, how, and how much?
Displaced workers lose, by $240,000 [lifetime costs] per worker per year on average, and agricultural landowners stand to lose $27 billion a year, collectively. However, such losses would constitute only about "five percent of the annual national gains from liberalization", again working with that $500 billion figure.
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| Heritage Foundation's Economic Freedom Index measurement areas |
- How is "economic freedom" defined? How does the Heritage Foundation measure it?
"Simply put, economic freedom is a measure of how unconstrained ordinary people are to engage in all levels of economic activity - from starting a business to opening a bank account to using a credit card... The index assesses economic freedom in 10 different areas of the economy:" See picture.
- Foreign direct investment is viewed here as an important indicator. Is it inward FDI or outward FDI that the author regards as a desirable effect of economic freedom, and why?
The author regard FDI inflows as a desirable effect of economic freedom, because he views them as a an indicator that foreigners are investing in a robust, growing economy. Our drop in FDI inflows she takes to show that "opportunities to invest, work, and do business have moved outside the United States". As the US economy becomes less and less free, she fears that "foreigners will find investing in the United States less and less attractive".
- What reasons are given for the fall of the US in the economic freedom rankings?
"First, the US government's continued expansion of expensive entitlement programs has increased the fiscal burden. Second, other important areas of economic openness - capital flows and foreign investment, trade policy, wage and prices, and regulations - have simply failed to maintain pace with the changing world."
The author cites that 106 countries have a lower corporate tax rate [Denmark?], and that the US has far too many trade barriers, including subsidies and tariffs. Also interesting is the information that Singapore and Denmark both have "fewer regulations on establishing a new business" and "have a smaller informal market".
- How is globalization (also here called "globalism") defined?
"In the most general sense, globalism refers to the process in which goods and services, including capital, move more freely within and among nations". The globalization process is one of "liberalizing laws as structures, so that goods and services can become more globally focused [and] produce more wealth" where more goods can be purchased.
- What are two reasons stated here that globalization serves the interests of capital more than labor?
"It is the dual relationship of mobile capital and fixed, unorganized and unprotected labor that has created the conditions for capital to dominate. This has been greatly enhanced by the US position toward organized labor and capital . . . The United States and the international organizations over which it has substantial influence, such as the IMF, have demanded protection of capital and encouraged or tolerated the suppression of labor and the environment in the weaker southern countries. Capital is actively being directed to markets with low wages, where workers are sometimes abused and labor organizations suppressed..."
- How does globalization lead to lower taxes, and why is this bad for the poor?
"Taxes reduce short-term benefits to capital . . . [and] are seen as undesirable because they reduce profits and interfere with the market. But the public space, including the welfare system, can only be supported by the public in the form of taxes . . [Some simply] cannot thrive in the market environment without help", help that can only be guaranteed through taxes.
- How, according to the author, does globalization reduce child labor?
If free trade or factory jobs increase farmers' and workers' incomes in developing countries, it can help them afford to send their children to school instead of work. "After all, they no longer (would no longer need) the meager income that an additional child's labor could provide.
- How does globalization benefit women?
"Firms competing globally soon find that they cannot afford to indulge their pro-male prejudices. Under pressure to reduce costs and operate more efficiently, they shift increasingly from more expensive male labor to cheaper female labor, thus increasing female wages and reducing male wages."
- Where is there evidence that trade and foreign investment can reduce poverty?
"There is now plenty of evidence that India and China, two countries with gigantic poverty problems, have been able to grow so fast by taking advantage of trade and foreign investment, and that by doing so, they have reduced poverty dramatically."
Blustein, "The Doha Disaster" [2p] Online | Qs
- Why was the Doha Round called the "Development Round," and what did this have to do with September 11, 2001?
The Doha Round began just two months after the 9/11 attacks. "The goal was to strike agreement by Jan. 1, 2005 on new international trade rules that would be much fairer for developing countries than the current ones and in so doing give the world's poor a better chance to reap the benefits of globalization. By eradicating many trade barriers and inequities that hamper growth in the developing world, the new rules would help 'drain the swamp' of poverty in which terrorism flourishes - or so the attendees hoped."
- What policies did each of the major players in Potsdam refuse to give up, leading to the meeting's deadlock?
"Developing countries accuse the US of refusing to cut its lavish farm subsidy programs . . . The European Union is blamed for balking at opening up its markets . . . and the same for Japan and South Korea . . . The rich nations, for their part, contend that developing nations aren't offering enough concessions to make it worthwhile for them to undertake politically painful measures . . . Brazil, India, Indonesia, and SA are rejecting demands to slash their barriers to manufactured imports..."
- Who, according to the author, will be hurt most by the failure of the Doha Round?
The failure of the Doha Round has led to the "proliferation in the past few years of bilateral and regional free-trade agreements" that threaten the authority of the WTO. "Failure to achieve a respectable result in the Doha talks could call the organization's credibility into further question, conceivably undermining its authority to adjudicate disputes. Hurt most would be developing countries, because in a world dominated by bilateral and regional accords, they are much more likely to be bullied by trade negotiators from rich countries, who can use their big markets as leverage to extract concessions from the smaller fry."
Lachman, Desmond, "World Has Changed..." [2p] Online | Qs
- What has happened, over the last few years, to the IMF's portfolio of outstanding loans? Why?
"The freer flow of private capital across international borders has rendered redundant the large IMF lending programs that characterized the Asian, Latin American, and Russian currency crises of the late 1990s . . . the IMF's outstanding loan book, which exceeded US $100 billion as recently as end-2003 is now down to a mere US $15 billion [as of 2007]."
- What has happened, over the last ten years, to employment in the IMF and World Bank?
Between 1995 and 2006, at a time when there was virtually no increase in their membership, both Bretton Woods institutions expanded their staffs by 50 percent to 2,700 full time employees in the case of the IMF and 8,700 employees in the case of the World Bank . . . they need to be adapted to the new realities of the global economy in the 21st century... "
- What, according to the author, are the proper roles for the two institutions today?
"In a world characterized by very large global payment imbalances, an IMF is still needed to exercise firm surveillance over the international exchange system, reluctant as the IMF might have been of late to effectively exercise that role. For its part, the World Bank is still very much needed to pursue its original mandate of alleviating poverty, especially in Africa, notwithstanding its rather poor record on that score in recent years."
Global Exchange, "The Global Rulemakers" [2p] Online | Qs
Who, according to this site, are the main beneficiaries of the international economic institutions?
The main beneficiaries are the rich countries and their multinational corporations, according to these authors.
Jan 12 Comparative Advantage and the Gains from Trade
Deardorff, "...Comparative Advantage" [7p] Online | Qs
- Why is comparative advantage a relative concept in two senses simultaneously?
Comparative advantage is dependent on the reality that, first, for any two goods, a single producer can produce one more efficiently than the other, and second, that, for any two producers, a single good can be produced more efficiently by one than the other.
- With two goods and two countries, how do you identify the good in which a country has a comparative advantage?
The country with comparative advantage in good 1 can produce good 1 at a lower opportunity cost ( in terms of good 2) than another country.
- If the wage rate in a country falls due to trade, do workers lose from trade?
On the face of this question, yes, of course they do. All else equal, a falling wage rate is a loss for workers. Of course, it is possible that their real wage, "what their wage will buy", actually increases if the prices of goods fall enough.
- To what extent is globalization a new phenomenon?
"In many ways, the world economy reached a peak of globalization just before WWI, when trade and FDI attained what were then unprecedented levels that are still quite remarkable given the technologies that were available . . . But the current wave of globalization has far surpassed that of a century ago . . . at least in the second half of the 20th century, both international trade and international capital flows of various kinds were increasing steadily, and this is much of what has come to be called globalization."
- Who are the main winners and losers from globalization?
As consumers, everyone benefits. As workers, it's another story. "Owners of abundant factors tend to gain more than average from trade, while owners of scarce factors are made unambiguously worse off." Thus, while unskilled labor loses in countries like the United States, it wins in lesser developed countries, where the elite should lose from trade.
The authors draw the conclusion that "globalization can be expected to reduce income inequality worldwide, even while it may increase inequality within rich countries." So far, however, I believe that inner-country inequality, even in lesser developed countries where unskilled labor is an abundant factor, is on the rise. I wonder whether there is any evidence of elites losing from trade in developing countries.
- In what ways does the WTO have powers that are broader and/or more effective than those of the GATT?
The WTO addresses more issues, including "trade in services, tariffs in agriculture, and intellectual property protection. The most important chance in the WTO, compared to the GATT, may be its dispute settlement mechanism", which now requires "a unanimous decision to block a report", and includes the right to appeal.
- Why did the WTO ministerial meeting in Seattle in 1999 fail?
"The December 1999 protests at the Seattle ministerial heightened public awareness of globalization and the WTO, perhaps contributing to the failure to initiate a new trade round. The more basic reason for the Seattle failure was the disagreements that divide major participants on agriculture, labor standards, anti-dumping, and market access in textiles and apparel."
- What parts of the world have risen from poverty through international trade?
Brooks cites China, East Asia, the former Soviet bloc, and Latin America as regions whose poorest citizens have benefited through international trade.
- What part of the world has "languished," and why, according to the author.
Meanwhile, "Africa has languished . . . in 1970 Africa represented 15% of the world's poor; today, that continent contains 68%". There, "trade has stayed largely unchanged as a percentage of GDP since 1980" even while "the rest of the world developed in tandem with our complicated consumerist ways" and benefited.
- What indicators, besides per capita income, does the author use to show progress?
Infant and child mortality, and access to primary education, both of which has been greatly improved upon in China and Latin America.
Roberts, "Statement..." [4p] Online | Qs
Bivens, "Marketing Gains from Trade." [4p] Online | Qs
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Martin Luther King Jr. Day: Jan 17
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Jan 19 Modern Theories and Additional Effects of Trade
Gerber, Ch. 4, pp. 63-65 [4th: 60-62], 68-73 [4th: 65-70], and Ch. 5, pp. 93-98 [4th: 90-96] [13p]
Krugman, "Is Free Trade Passé?" [14p] Online (J) | CP 2 | Qs
Bivens, "Globalization and American Wages" [11p] Online | Qs
Jan 24 Tariffs
Gerber, Ch. 6, pp. 119-132 [4th: 116-127], and Ch. 7, pp. 140-145 [4th: 136-142] [17p]
Feenstra, "How Costly...", pp. 159-171,175-178 only. [16p] Online (J) | CP 2 | Qs
Schavey, "Catch-22 of U.S. Trade" [3p] Online | Qs
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