Overview
 Midterm discussion
 Reading takehomes
 IPE introduction
 Gains from trade
 Influence of trade institutions
Midterm Quiz Answers
Reading Takehomes re:
Globalization
 InternationalRelations.org
 Definition: “intensification of worldwide social relations
which link distant localities in such a way that local
happenings are shaped by events occurring many miles away
and vice versa.”
 Been going on for centuries, but differs in form
 Range of effects and range of actors affected
 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 living
within the borders of states rather than across them.
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
I support:
A. Increasing free trade (lowering trade barriers)
B. Decreasing free trade (increasing trade barriers)
C. Keeping free trade at current levels
Increasing free trade (lowering
trade barriers) would:
A. Reduce the costs of things I buy
B. Increase the costs of things I buy
C. Have no effect on the costs of things I buy
Increasing free trade (lowering
trade barriers) would:
A. Increase Americans jobs
B. Decrease Americans jobs
C. Increase some American jobs and decrease other
American jobs
Increasing free trade (lowering
trade barriers) would:
A. Increase jobs in poor, developing countries
B. Decrease jobs in poor, developing countries
C. Increase some jobs in developing countries and
decrease other jobs in developing countries
Increasing free trade (lowering
trade barriers) would:
A. Harm the environment
B. Help the environment
C. 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
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
210 m
(1*30m workers)
(3*70m workers)
Japan
120 m
70 m
(4*30m workers)
(1*70m workers)
150 m
280 m
World
This is a hypothetical example!
Open Economy Production
(free trade, 100 million workers in each economy)
Cars
(units/yr)
United
States
Japan
Rice
(tons/yr)
300 m
(3*100m workers)
400 m
(4*100m workers)
World
400 m
This is a hypothetical example!
300 m
Open Economy Consumption
(free trade, 100 million workers in each economy)
Cars
(units/yr)
Rice
(tons/yr)
United
States
160 m
220 m
(+130 m)
(+ 10 m)
Japan
240 m
80 m
(+120 m)
(+10 m)
400 m
300 m
World
This is a hypothetical example!
Why Productivity, Not Wages, Matters:
Build Cars in the US if ...
US
Mexico
Wages
$160/day
$24/day
Days / car
25 days
250 days
Where to
build?
A: Build in
US
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 ...
US
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
Transport
$5000
$5500
$100
$1100
Env’l
compliance
Total
$100
$0
$9200
$9600
This is a hypothetical example!
The Domestic Politics of IPE
Three sectors
 After graduation, you will be a
 Consumer
 And you will also be one of the following:
 Employed for Pepsi (an exporter)
 Employed for C&H Sugar (an import-competer)
 Unemployed (a bummer)
 THREE SECTORS
 Consumer
 Export
 Import-competing
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
Large
Small
Consumer
Really small
VERY large
+
US Export Sector / Import-Competing Sectors
Protectionism occurs despite gains
from trade because importcompeting 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
Types of protectionism
Protectionist Gov’t
policy
revenue
impacts
Tariffs
Increase
revenues
Quotas
No effect on
revenues
Subsidies
Cost revenue
(expenditure)
Non-tariff
No effect on
barriers
revenues
Visibility to
victims
Free-trade
defensible
Very visible Hard to
defend
Very visible Hard to
defend
Not very
Hard to
visible
defend
Not very
Easier to
visible
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)
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 leastdeveloped 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.pdf and http://www.infoplease.com/ipa/A0882775.html
Realism
Institutionalism
Feminist Theory
Focus – what is being
explained?
International Trade:
What Can our
Theories Explain
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
Realism
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
Institutionalism
Feminist Theory
Realism
Institutionalism
Focus – what is being
explained?
Beggar-thyWTO – states do
neighbor policies cooperate, despite
of 1930s
risks
Actors – who are
considered the main
actors to watch?
States are the
ones involved
Goals – what are the
goals of the main
actors?
Means – what means
do actors use to
achieve their goals?
Barriers decreasing
among developed but
not vis-à-vis developing
Increasing
economic wellbeing
Power still
matters; military
force during
colonialism
Organizing
Principles – how is
the international
system organized?
Dynamics – what
does the process of
international relations
Not unitary actors:
domestic politics
matter
Feminist Theory
Acquisition of
power –
colonialism,
GATT/WTO; OPEC
Differences in tariffs
across genders (but not
systematic)
Institutions
influence tariffs and
trade; no beggarthy-neighbor 2008
Less influence of 1951
Equal Remuneration
Convention on pay gap
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
US Trade Deficit –
We buy more from foreigners
than we sell to them
But much of our trade deficit
comes from buying foreign oil