POS_486_Midterm_Review

Blinder, A. (2019). "The Free-Trade Paradox: The Bad Politics of a Good Idea." Foreign Affairs, 98(1), 119-128. The article discusses the paradox of free trade, examining why the concept, despite being widely accepted among economists, faces skepticism and opposition from the public and politicians. It begins by tracing the historical roots of mercantilism and contrasting it with the ideas of Adam Smith and David Ricardo, who championed free trade. Despite the economic benefits outlined by Smith and Ricardo, the public's understanding and support for free trade remain limited. The article highlights the discrepancy between U.S. trade policy at a macro level, which historically supported international trade, and protectionist measures taken at a micro level, such as tariffs and quotas. It discusses how President Donald Trump's protectionist stance reflects a broader trend of skepticism towards free trade, even among traditional supporters. The public's perception of trade varies depending on how it's framed, with support dwindling when linked to issues like job loss or globalization. This discrepancy between public perception and economic theory is attributed to the counterintuitive nature of comparative advantage and the failure of policymakers to adequately address the losers of trade liberalization. The article also explores the political dynamics surrounding trade agreements, where the concentrated losses incurred by specific industries often outweigh the diffuse benefits to consumers. Moreover, the interests of producers, particularly job security, are often prioritized over consumer welfare in public discourse. Despite attempts to mitigate opposition to free trade through policies like Trade Adjustment Assistance and efforts to emphasize the benefits of technological progress, the fundamental philosophical differences between economists and the public regarding the goals of an economic system pose significant challenges. In conclusion, while there are some strategies economists and policymakers can employ to address opposition to free trade, the inherent complexities and philosophical differences suggest that convincing the public of its benefits may remain an uphill battle. RCEP: A new trade agreement that will shape global economics and politics Peter A. Petri and Michael Plummer, November 16, 2020 The article discusses the signing of the Regional Comprehensive Economic Partnership (RCEP), a significant free trade agreement involving 15 countries from the Association of Southeast Asian Nations (ASEAN) and five regional partners. It contrasts RCEP with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), highlighting their importance amid the Trump era's trade dynamics. RCEP is projected to connect around 30% of the global population and output, potentially adding substantial gains to world incomes and trade by 2030. Despite being less rigorous than the CPTPP, RCEP is expected to enhance efficiency in North and Southeast Asian economies, particularly in technology, manufacturing, agriculture, and natural resources. Geopolitically, RCEP underscores ASEAN's diplomatic prowess, with China benefiting from its patient negotiations and regional integration efforts. The agreement also facilitates

economic integration in Northeast Asia, potentially stimulating further trade negotiations in the region. RCEP and the CPTPP serve as counterexamples to the declining trend of rules-based trade globally, offering mutual benefits to their members and potentially increasing influence, particularly for China. In response, the United States must adjust its policies in East Asia, acknowledging China's growing role, ASEAN's integration, and its diminished economic influence. While the Trump administration's Free and Open Indo-Pacific (FOIP) vision aligned with established policy principles, its emphasis on isolating China and prioritizing security arrangements strained relationships with East Asian partners. Moving forward, the U.S. could either continue FOIP with greater multilateral support, reengage fully in regional economic networks alongside a robust security role, or emphasize intensified soft-power engagement combined with firm security commitments. Each option presents distinct challenges and opportunities in navigating East Asia's evolving economic and security landscape. How Trump’s Tariffs Really Affected the U.S. Job Market MICHAEL PETTIS The article critiques a January 2021 study commissioned by the U.S.-China Business Council (USCBC), which claims that former President Donald Trump's trade policies cost the United States 245,000 jobs. It argues that Trump's trade policies were flawed because they were based on outdated ideas about trade and failed to address the root causes of U.S. trade imbalances. The USCBC report suggests that scaling back tariffs could prevent further job losses and stimulate economic growth. However, the article contends that the USCBC's analysis is flawed for several reasons. First, it argues that the USCBC's methodology wrongly assumes that trade clears bilaterally, overlooking the indirect transmission of trade imbalances through global capital flows. Second, it criticizes the USCBC's focus on the direct employment impact of trade components without considering indirect effects on macroeconomic variables such as investment and savings. Third, it disputes the USCBC's conclusion that trade deficits are always negative, arguing that deficits can be positive for growth under certain conditions. Instead, the article proposes a more comprehensive approach to analyzing the impact of trade policies, focusing on questions such as the causes of China's high savings, the destination of China's excess savings, and the effect of capital inflows on U.S. investment and savings. It suggests that without accounting for changes in capital and trade flows in the twenty-first century, analysts cannot accurately assess the consequences of trade policies like Trump's tariffs. Did Trump’s tariffs benefit American workers and national security? Geoffrey Gertz, September 10, 2020 The article evaluates President Trump's trade policies, particularly his imposition of tariffs on various countries, and assesses their success based on three metrics: their impact on

The article discusses the significant impact of tariffs and trade tensions on the U.S. soybean industry, particularly in relation to China. Here's a summary of the key points: 1. Diversified Usage of Soybean Products:  The U.S. soybean industry has invested in expanding its markets domestically and internationally, finding innovative uses for soybean products in various industries like asphalt, shoe soles, and aquaculture. 2. Dependence on Chinese Market:  Despite efforts to diversify, the loss of the Chinese market, which has been developed over 40 years, poses a significant challenge.  China's growing demand for pork and poultry raised on soy-based feed makes it a crucial market for U.S. soybeans. 3. Impact of Tariffs and Trade Policies:  President Trump's tariffs on China, aimed at addressing the trade imbalance, led to retaliatory tariffs from China, particularly on key U.S. agricultural products like soybeans.  These tariffs have hit rural Midwestern states, where many farmers, who historically supported Republican candidates, have been affected. 4. Farmer Perspectives:  Some farmers support Trump's approach on China, believing he is standing up for the country.  However, others express concerns about the negative impact of tariffs on soybean prices and the uncertainty it brings to the agricultural sector.  Farmers emphasize the importance of markets over government aid, expressing disappointment in the loss of markets due to trade tensions. 5. Doubt About Market Recovery:  Farmers are doubtful about regaining access to the Chinese market, especially considering China's shift to other suppliers like Brazil and Argentina.  Despite optimism initially surrounding Ambassador Branstad's role in China, some farmers feel disillusioned by the ongoing trade tensions. 6. Hope for Resolution:  While some farmers continue to support Trump's tariffs, others express the need for a resolution to trade tensions to restore access to crucial markets like China.  There is a sense of uncertainty and concern among farmers about the future of agriculture amidst ongoing trade disputes. In summary, the article highlights the challenges faced by the U.S. soybean industry due to tariffs and trade tensions with China, as well as the perspectives of farmers affected by these policies. Biden’s Turn Against Trade Makes It Hard to Win Friends An era of inclusive U.S. economic policy is over, sparking anxiety around the world.

By Edward Alden, JUNE 22, 2023, 6:45 AM 1. Biden's Dramatic Economic Policy Changes: Thirty months into his first term, President Joe Biden has implemented significant economic policy changes, including infrastructure rebuilding, semiconductor production subsidies, and job creation in manufacturing and clean energy sectors. 2. Shift Away from Reagan-Era Trade Model: The Biden administration is departing from the Reagan-era trade model, which focused on cutting tariffs and reducing regulatory barriers, towards a more protectionist approach that emphasizes reshoring manufacturing jobs and building resilient supply chains. 3. Conflicting Goals in Trade Policy: The administration aims to reduce dependence on China by diversifying trade partners while simultaneously attracting investment and manufacturing jobs back to the U.S. However, reconciling these goals has been challenging. 4. Critique of Past Trade Policies: U.S. Trade Representative Katherine Tai criticized past trade policies for prioritizing efficiency over equity and allowing production to move outside U.S. borders, resulting in exploitation and low standards. 5. Proposed Alternative Trade Approach: Tai proposed a trade policy that requires trading partners to adopt higher labor and environmental standards, similar to those in the USMCA. This approach could reduce trade with developing countries that may not meet advanced-economy standards. 6. Ambiguity in Biden Administration's Trade Agenda: While some senior officials advocate for a more inclusive trade vision, Biden's administration maintains ambiguity in its trade agenda due to domestic political considerations. The administration aims to balance serving U.S. workers' interests with reassuring allies and trading partners. 7. Global Anxiety and Uncertainty: The departure from the old free trade model towards an industrial policy raises questions about which countries will benefit and which will be left out. Until the Biden administration clarifies its trade direction, anxiety in foreign capitals will persist. The Biden administration has ushered in significant economic policy changes, including infrastructure investments, semiconductor subsidies, and job creation efforts. Departing from the Reagan-era trade model, the administration aims to reshore manufacturing jobs and build resilient supply chains. However, reconciling the goals of reducing dependence on China while attracting investment back to the U.S. has proven challenging. U.S. Trade Representative Katherine Tai criticized past trade policies for prioritizing efficiency over equity and proposed a new approach requiring higher labor and environmental standards from trading partners. Ambiguity in the administration's trade agenda persists due to domestic political considerations, leaving foreign capitals anxious about the future direction of U.S. trade policy. Venezuela’s Modest Economic Liberalization Has Created a ‘Hellscape of Inequality’ As high-end stores open in Caracas, the poor are getting poorer. By Tony Frangie-Mawad, JANUARY 19, 2023, 8:00 AM 1. Economic Shift in Venezuela: Venezuela has experienced a significant change in economic policies under President Nicolás Maduro, moving away from orthodox socialist approaches towards mild economic liberalization. 2. Emergence of a "Bubble": This shift has led to the emergence of a wealthy enclave in Caracas, characterized by the opening of high-end stores, restaurants, and nightclubs catering to the affluent population.

ratified by G20 finance ministers and national leaders, with full implementation targeted by 2023. The accord signals a significant shift in global tax policy and aims to tackle tax avoidance while distributing tax revenue more equitably among nations. 1. Agreement on Global Minimum Tax: The major powers have agreed on a 15 percent global minimum tax to counter tax havens and ensure fair taxation. 2. Targeted Companies: The tax applies to companies with annual revenue exceeding €750 million, aiming to generate $150 billion in additional tax revenue per year. 3. OECD Leadership: The OECD led the negotiations, with Mathias Cormann, the organization's secretary- general, emphasizing the importance of effective implementation. 4. Biden Administration's Role: President Biden's commitment to multilateralism revitalized negotiations, with the United States proposing the 15 percent minimum corporate tax rate. 5. Challenges and Holdouts: Some countries initially resisted, including Hungary, Ireland, and Estonia, but eventually joined the agreement with certain concessions. 6. Taxation in the Digital Era: The agreement also addresses taxation for technology giants, requiring them to pay taxes where they operate, even without a physical presence. 7. Details and Implementation: While critical details remain to be finalized, G20 finance ministers and national leaders are expected to ratify the agreement, with full implementation targeted by 2023. 8. Significance of the Agreement: The accord represents a significant shift in global tax policy, aiming to combat tax avoidance and distribute tax revenue more equitably among nations. These points highlight the key aspects of the agreement and its implications for international taxation. Midterm Review Sheet: 1. WTO & the World Trading System : The World Trade Organization (WTO) is an international organization that regulates and facilitates trade between nations. It establishes rules for trade, resolves disputes, and promotes free trade. 2. The Political Economy of International Trade Cooperation : This refers to the interaction between political and economic factors in shaping international trade policies and agreements. 3. A Society-Centered Approach to Trade : Focuses on the impact of trade on society, including its effects on income distribution, employment, and social welfare. 4. A State-Centered Approach to Trade : Emphasizes the role of governments in shaping trade policies and regulations to advance national interests. 5. ISI (Import Substitution Industrialization) : A strategy aimed at promoting domestic industries by substituting imported goods with domestically produced ones through protectionist measures. 6. E. Asian Development Model : Refers to the economic development strategies adopted by East Asian countries, characterized by export-oriented industrialization, state intervention, and emphasis on education and infrastructure. 7. Neoliberalism : An economic ideology advocating for free-market principles, limited government intervention, deregulation, and privatization. 8. MNCs (Multinational Corporations) : Large companies that operate and have investments in multiple countries. 9. GATT (General Agreement on Tariffs and Trade) : An international trade agreement aimed at reducing barriers to trade and promoting free trade. 10. WTO : The World Trade Organization is a successor to GATT, established in 1995 to oversee global trade rules and resolve trade disputes among member countries. 11. Trade Liberalization : The process of reducing barriers to trade, such as tariffs and quotas, to promote free trade. 12. Recent Trade War between U.S. and China : A series of tariffs and trade barriers imposed by the United States and China on each other's goods, leading to increased tensions and disruptions in global trade.

13. DOHA Round : A series of negotiations under the WTO aimed at further liberalizing international trade, with a focus on developing countries' interests. 14. RTA (Regional Trade Agreements) : Agreements between countries in a specific region to reduce trade barriers among themselves. 15. TPP (Trans-Pacific Partnership) : A proposed trade agreement among Pacific Rim countries aimed at promoting economic integration and trade liberalization. 16. Export and Import-Oriented Interests : Refers to industries or sectors that benefit from promoting exports or protecting domestic markets from imports, respectively. 17. Scarce vs. Abundant Factors : Scarce factors are those in limited supply relative to demand, while abundant factors are readily available. 18. Factor Mobility : Refers to the ability of factors of production, such as labor and capital, to move between industries or countries. 19. Tariffs : Taxes imposed on imported goods, which can affect the cost and competitiveness of traded goods. 20. Economies of Scale : Cost advantages that result from increased production and efficiency as the scale of production increases. 21. Economies of Experience : Cost advantages gained from accumulated knowledge and expertise over time. 22. Production Possibility Frontier : A graphical representation of the maximum output combinations of two goods that a country can produce given its resources and technology. 23. Consumption Indifference Curve : A graphical representation showing combinations of two goods that provide the same level of satisfaction for a consumer. 24. Partial Equilibrium Model : An economic model that analyzes the equilibrium of a single market, holding other factors constant. 25. General Equilibrium Model : An economic model that analyzes the equilibrium of all markets in an economy simultaneously. 26. Absolute and Comparative Advantage : Absolute advantage refers to the ability of a country to produce a good using fewer resources than another country, while comparative advantage refers to the ability to produce a good at a lower opportunity cost. 27. Prisoner's Dilemma : A game theory scenario where two players acting in their own self-interest result in an outcome that is worse for both compared to cooperating. 28. Nash Equilibrium : A concept in game theory where each player's strategy is optimal given the strategies chosen by others. 29. Tit-for-Tat Strategy : A strategy in which a player responds to an opponent's action with a similar action. 30. Strategic Trade Theory : An economic theory that analyzes the strategic behavior of firms and governments in international trade. 31. Payoff Matrices : Tables showing the possible outcomes of strategic interactions between players in a game, along with the associated payoffs for each player. 32. Subsidies : Financial assistance or incentives provided by governments to businesses or industries to promote their growth or competitiveness. 33. First-Mover Advantage : The competitive advantage gained by a company that is the first to enter a market or industry. 34. Opportunity Costs : The value of the next best alternative forgone when a decision is made. 35. Sectoral vs. Factoral Models of Trade : Sectoral models focus on differences in industries, while factoral models focus on differences in factors of production. 36. Specific Factors : Inputs such as labor, capital, or land that are specialized to a particular industry or sector.

of assets, while Foreign Direct Investment (FDI) involves owning or controlling assets in a foreign country. 58. Locational Advantages : Factors that make a particular location attractive for business investment, such as access to markets, resources, or skilled labor. 59. Market Imperfections : Flaws or inefficiencies in the functioning of markets, such as monopolies, externalities, or information asymmetry. 60. Intangible Assets : Non-physical assets such as intellectual property, brand value, or goodwill. 61. Specific Assets : Assets that are valuable only in a particular context or relationship, such as specialized equipment or technology. 62. Horizontal & Vertical Integration : Horizontal integration refers to merging or acquiring firms at the same stage of production or distribution, while vertical integration involves merging or acquiring firms at different stages of the production process. VIDEO Global exchange : free trade and protectionism 1. International trade has experienced significant growth over the last 35 years due to multinational trade agreements and technological advancements in transportation, increasing from $0.4 trillion in 1970 to $10.8 trillion in 2004. 2. Trade is essential for economic development, with many Asian countries experiencing success driven by large exports of manufactured goods. 3. The pattern of trade involves about half between developed countries, one-third between developed and developing countries (North-South trade), and 15% between developing countries. 4. Developed countries tend to export high-tech goods, while developing countries export basic staples and textiles. 5. Intra-industry trade (similar products) and trade in primary commodities (natural resources) are significant aspects of global trade. 6. The success of trade depends on comparative advantage (ability to produce goods at a lower opportunity cost) and economies of scale (greater scale of production leading to more efficiency). 7. The Heckscher-Ohlin trade theory suggests that countries export goods that align with their abundant factors of production. 8. Policy decisions regarding trade, such as protectionism or liberalization, impact economic outcomes and distribution of gains. 9. There are arguments both for and against free trade, with concerns about its impact on job loss, wage inequality, and cultural identity. Summary: The lecture highlights the importance of international trade in driving economic development and growth. It discusses the historical evolution of trade patterns, the significance of comparative advantage and economies of scale, and the impact of trade policies on economic outcomes. While free trade is generally seen as beneficial for overall welfare, concerns remain about its unequal distribution of gains and its potential negative effects on labor standards and cultural identity. Ultimately, the lecture emphasizes the need for policymakers to carefully manage trade policies to ensure equitable outcomes for all stakeholders involved. Video

PBS Frontline's Trump's Trade War Top officials from the US and China are preparing for negotiations amid escalating trade tensions. The documentary investigates the trade conflict between the US and China. The conflict is described as more than a trade war but a "techonomic war" and a great power struggle. Tariffs imposed by the Trump administration triggered retaliation from China, exacerbating the situation. The documentary delves into the relationship between President Trump and President Xi, starting from their initial meeting at Mar-a-Lago. Despite the initial optimism, the relationship between the two leaders soured within a year, leading to the imposition of tariffs. The implementation of tariffs aimed to revive industries like steel in the US but had mixed consequences for various businesses. The documentary explores Trump's long-standing focus on trade issues, dating back to his criticism of Japan in the late 1980s. Trump's advisers were divided into globalists and nationalists, with differing views on how to confront China economically. The documentary highlights the personal nature of the debates among Trump's advisers, reflecting the high stakes involved. This section of the transcript discusses the escalation of the trade conflict between the United States and China, as well as the underlying factors contributing to it. Here's a summary: Steel and Aluminum Tariffs: In March 2018, President Trump imposed tariffs on steel and aluminum imports, citing national security concerns. These tariffs surprised US allies more than China, as they affected countries like Canada, which exported more steel to the US than China did. Escalation of Trade War: Following the initial tariffs, the trade war between the US and China intensified. Trump announced tariffs on $50 billion worth of Chinese exports, prompting China to retaliate with tariffs on American exports. This led to the initiation of the "biggest trade war in economic history." Impact on Chinese Businesses: Despite the trade war, many Chinese businesses remained unfazed, particularly those attending trade expos like the one in Shanghai. Some businesses reported minimal impact from the tariffs, and the Chinese government downplayed the effects of the trade war. The China Model: China's economic strategy, known as the China model, involves a blend of state control and private entrepreneurship. Special economic zones prioritize industries deemed critical for China's success. One such zone in Wenzhou focuses on high-tech development, exemplified by companies like WM Motor, which produces electric cars. Made in China 2025: Under President Xi Jinping, China launched the Made in China 2025 initiative, aiming to dominate key global industries. This initiative has

The documentary explores the escalating trade tensions between the US and China, characterized as more than a trade war but a broader conflict encompassing technology and economics. It traces the trajectory of the relationship between President Trump and President Xi, from their promising initial meeting to the eventual imposition of tariffs. The implementation of tariffs aimed to protect American industries but had varied impacts on businesses. The documentary also delves into Trump's long-standing focus on trade issues and the divisions among his advisers on how best to confront China. Ultimately, it portrays a complex economic and geopolitical landscape marked by personal conflicts and high stakes. Overall, the section highlights the complexities and tensions underlying the US- China trade relationship, driven by differing economic strategies, technological competition, and geopolitical considerations. Overall, the excerpt highlights the complexity and stakes of the U.S.-China trade war, underscoring its potential to shape the global economic and geopolitical landscape for years to come.