Lecture 10 - The Global Economy and World Politics Professor Edward Weisband Lecture 10 The Benefits of Openness International Trade and Efficiency

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Unformatted text preview: The Global Economy and World Politics Professor Edward Weisband Lecture 10: The Benefits of Openness: International Trade and Efficiency Standards From National to International Scapes: Policy Tensions & Regulatory Interfaces We have discussed the regulatory interface between hierarchy and heteronomy in the national scape Now we move policy tensions in the international scape: Free Trade Neoliberalism (Heteronomous Openness) v. Protectionist Policy Barriers (Hierarchical Closure) And NeoMercantilism (a Regulatory Interface) The policy tensions between heteronomy and hierarchy extend into the international scape via international markets in which national economies participate NeoLiberalism "Free Trade NeoMercantilism "Open Trade' Protectionism "Fair Trade" The Search for the Balance in International Trade Policy "Free trade" arguments can be positive but when carried to the extreme in rejecting all government intrusion become transformed into policy ideology or neoliberal "religion" Protectionist policies can serve the interests of the overall economy but when carried to the extreme of rejecting free trade become transformed into policy ideology or isolationist religion Neither promotes overall national economic competitiveness if universalized as principles equally relevant to all national economies --WHY? Because taken to extreme both inhibit the development of sectoral diversification with synergies The Neo-Mercantilist Interface Neoliberalism universalizes and absolutizes the theory of market efficiencies in the international scape Without taking into account that government policies can be justified To the extent that they promote trade policies that advance sectoral diversification with sectoral synergies And thus macroeconomic competitiveness We call these policies "neomercantilist" Trade provides possibilities for sectoral diversification across national economic sectors But governments play an important role in encouraging the domestic conditions that allow sectoral synergies to occur Particularly in developing economies as they compete with wealthy Open Trade: The Regulatory Balance By achieving an appropriate regulatory balance between free trade and protectionism National economies can use exports to grow their economies And government interventions to diversify synergistically In ways that promote overall macroeconomic competitiveness We call this appropriate regulatory balance "open trade liberalism" Ex: Asian Tigers, China, and India The Hierarchy-Heteronomy Interface To understand the interplay between hierarchy and heteronomy on an international scape We must first turn our attention to the core arguments of open trade liberalism And to the theoretical frameworks that link efficiency up scales of value addedness Across diversified and synergistically interdependent sectors To market openness between and among national economies The Efficiencies of Open Trade Open trade that relies on a regulatory interface between government regulations and competitive international markets balances trade policies in ways designed to promote national economic competitiveness through sectoral diversification combined with sectoral synergies--HOW??? Open trade permits national economies to "borrow" costly factors of production from abroad And to use these as capital inputs into domestic production of goods and services In ways that allow a national economy to grow through diversification and synergy The Core Argument of Open Trade Liberalism Open international trade Allows national economies to specialize In what is most efficient for them to produce And to trade in exchange for goods and services that are least efficient for them to produce This grounds notions of specialization coordinated by open international heteronomous markets "Borrowing" Capital Inputs Across Borders Open trade allows national economies to "borrow" what is most inefficient or costly for them to produce Thus allowing cheaper capital inputs "borrowed" from abroad To contribute to conversion processes Leading to more efficient production up scales of value addedness Within national economic scapes Market Efficiency Limited by Size For reasons of "borrowing" across national economies International markets grow efficiently when they promote exchanges across open markets Remember: market efficiencies are limited only by market size As markets extend into other markets Opportunity costs within national economies are diminished Due to enhanced national sectoral diversification with sectoral synergies International Trade Efficiencies and Sectoral Diversification International trade through open markets across political boundaries Contributes to world, regional, and bilateral economic efficiency across diversified sectors By enhancing national competitiveness up scales of value addedness By means of chains of international exchanges That promote greater sectoral diversification combined with sectoral synergies within national economies International trade in some sectors contributes to the efficiencies gleaned by means of trade in other sectors The Benefits of Increased International Trade Increased international creates new jobs in new sectors As economies pursue competitiveness in international markets Up scales of value addedness Higher demand across international markets prompt wages to move higher Wages in export sectors tend to be higher than in other sectors International trade also promotes real GDP growth So that trade promotes income And income promotes demand For both traded but also for nontraded goods and services Open Trade and Efficiency: A Virtuous Cycle Open international trade points to the logic of efficiency Nurtures a virtuous cycle Openness in some sectors contributes to the competitiveness in all sectors By making income generated in competitive sectors available to noncompetitive sectors These leads to sectoral diversification with synergies up the scales of value addedness Many Winners But A Few Losers International trade that involves imports Generates gains to consumers That compensate consumers More than the losses experienced by producers International trade that involves exports Generates gains to producers That compensate producers More than the losses experienced by consumers The losers often become special interests that mount political pressure to raise protectionist barriers despite the costs in terms of macroeconomic efficiency standards Interdependence in the International Scape The problem is that as national economies become dependent on borrowing cheaper capital inputs from abroad They become interdependent Thus open trade carries the same risks across economies that specialization requires within national economies The political response to the risks associated with interdependence tends to be protectionist forms of closure The Problem With Protectionism Protectionist policies overwhelmingly seek to protect specific sets of uncompetitive national industries or sectors against international competition Not on the basis of efficiency standards linked to diversification with synergies But on the basis of special interests that aggrandize pockets But make everyone else carry the cost Nationally and internationally The Neo-Mercantilist Interface Neomerecantilism, by contrast, uses regulatory policies That are designed to insure that the foreign exchange income Generated through trade Is applied in ways that strengthen competitiveness By means of domestic sectoral diversification with synergies It is especially important for developing countries to seek the right open trade balance between free trade and protectionism ...
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This note was uploaded on 03/30/2008 for the course PSCI 2064 taught by Professor Eweisband during the Spring '08 term at Virginia Tech.

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