Trade Theories DiscussionTrade Theory Lecture #2 Purpose of Theory Help us describe and explain state (country) behavior Why do states trade? Why do some states have different trade policies? Each theory or perspective emphasizes different values, actors, and solutions In IPE we can blend perspectives together – flexible, multidimensional, overlap IMPORTANT – these are analytical approaches, we should not use them to label states – but rather use them as a method of inquiry/schools of thought “It seems to me, the best way to describe America’s trade policy might be mercantilism because …” – this is correct “America is mercantilist” – this is incorrect Mercantilism (economic nationalism/realism) Friedrich List and Alexander Hamilton IPE is characterized by distributional conflict or competition Zero sum game – I win, you lose Given this perspective about the world, a close relationship is needed between economic activity (the market) and the state The state should play a large role in determining how a society’s resources are allocated – picking ‘winners and losers’ Economic policy used to channel resources to those economic activities that promote and protect the national interest Trade is to be valued for exports – but imports are discouraged WHY?? Can you think of an example? Economic protectionism – especially of ‘infant industries’ If you leave the market alone – ‘market failure’ Statist or ‘industrial policy’ Mercantilism in Action Traditionally we think of mercantilism during the era of colonialism 1500-1800 Thinkers like List and Hamilton exist within the competitive world arena To compete, you must develop, increase industrial exports – run positive trade balance You do this through government intervention and protectionism Today, neo-mercantilism was revived in the 1970s/80s Decline of American economic hegemony = more competition (Japan) Crises of 1970/80s led to a desire for more attention to economics and state intervention A modern country where mercantilism might describe its behavior? China – heavy involvement of the state/government to pick winners/losers and where to invest state resources – for national development/global expansion The U.S. under President Trump has started to push back on this – competition! Liberalism (there are many variations) Adam Smith and David Ricardo IPE is essentially harmonious – people behave rationally, and when there is money to make, why fight? – mutually beneficial Economic activity is not about enhancing state power – individuals drive the market and their pursuit of wealth Governments should make little effort to influence the country’s trade policy or to shape who wins/loses →’free markets’ or laissez-faire This is not Adam Smith All trade is good – trade surpluses are not the most important thing When the government gets in the way of the market (i.e. regulation) – leads to ‘state failure’ The invisible hand – markets will manage themselves Capitalism or ‘market orthodoxy’ Liberalism in Action Remember – international liberalism is not the same as liberalism in American domestic politics – there is some overlap, but don’t confuse them Classic liberalism – 1700 – 1800s with Smith and Ricardo Repeal of the Corn Laws in Britain in 1846 – free trade and its mutual benefits Economic liberalism is revived after WWII – GATT Neoliberalism took hold in the 1980s – Milton Friedman, Reagan and Thatcher Post-war economic order – embedded liberalism via regimes/institutions Exported around the world – negative connotation in places like Latin America A modern example that economic liberalism would explain? Regional free trade pacts – NAFTA, the European Union, Asia-Pacific Economic Cooperation (APEC) Marxism Structuralism Karl Marx Critique of capitalism/liberals and the ‘structures’ it creates – classes Markets exist within a social environment and they interact Capitalism leads to an increasing concentration of wealth and inequality – small wealthy elite The capitalist class (the owners of capital) make decisions and the state operates as an agent of this class – therefore, large corporations make policy for how resources will be used – winners/losers, trade policy, etc.. The division of classes would eventually lead to a revolution by the workers and replace capitalism with socialism Marxist also critiques capitalism on a global level In the search for wealth, the global elite promoted foreign policies of imperialism Dominating markets/resources overseas – e.g. US corporations in Latin America This creates a global bifurcation of classes – rich and poor countries with the same level of exploitation by greedy capitalists – ‘dependency theory’ Marxism or Structuralism in Action Marxist ideas 1800s, catch on in early 1900s – Russian Revolution Marxism both describes state behavior and provides a solution – replace capitalism with socialism/communism Response to the industrial revolution and WWI – exploitation/class struggle Global competition between economic models – Cold War 1945-1989 Related ideas of dependency theory – born in Latin America 1960s Advanced capitalist states (like the US) keep countries in the Global South from achieving economic development – instead keep them ‘dependent’ This dependency plays a role in the global distribution of wealth/power A modern example that Marxism would help explain? Exploitation by big corporations of developing countries or global economic institutions that are largely run by Western/capitalist countries (WTO, IMF, G20) Other Theories Constructivism Socially constructed facts are what matter – collectively held beliefs like money A community of thought/people and their shared beliefs determine what is included in state behavior – state’s ‘sense of self’ Who are my economic allies? What economic model do I ‘identify’ with? Feminism Gender is the key source of analysis – the patriarchy has led to unequal economic relations between genders Economic policies impact, ignore, and damage women – critical theory Environmentalism The relationship between economics and the environment key determinant Capitalism and other policies can ignore the environmental impact due to its focus on wealth – also a critical theory https://www.cnbc.com/2020/08/24/deal-over-american-lobster-helps-to-ease-us-eu-tradetensions.html I found an article about a recent deal struck by the United States and the European Union in an effort to end a tariff dispute over U.S. lobster exports. A brief summary is that the US and EU have been having lots of trade trouble in recent years under the Trump administration who has pushed for more trade protectionism since taking office. This recent deal, however, seems to be showing a slight improvement in relations between the two sides as the EU has agreed to end tariffs on US frozen and live lobster – which has been a struggling industry in the US recently. In exchange, the US has promised to slash duties on certain EU goods. The hope is that this ‘mini deal’ will lead to more amicable relations between the US and Europe on broader trade-related issues, such as steel and aluminum tariffs and disputes over European state subsidies to its aircraft industries. I can use two trade theories to explain the recent trade relations between the US and EU. First, it seems that mercantilism has some explanatory power for how these two sides have been putting tariffs on each other to protect their own domestic industries. This seems to be more confrontational as mercantilism predicts, and that countries are more selfish in trying to sell their own products instead of buying imports from abroad. On the other hand, there also seems to be some liberalism at work here too. The fact that the US and EU are able to come together and agree on some lowering of tariffs, shows that harmony and cooperation is possible. And that free trade and laissez faire economics is the preferred outcome, as Smith and Ricardo would advise. Thus liberalism can explain some of this current event as well – everyone should have cheap lobster! …
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