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Unformatted text preview: International Politics Chapter 6: International Trade Main Points • Economists unanimously conclude that international trade brings important benefits to national economies and barriers to trade hurt economic growth. Reducing trade barriers and pursuing trade liberalization is good for any nation’s economy. • However, trade can harm the interests of groups and individuals in a society in particular. • The nature of a country’s economy determines which groups have an interest in expanding or restricting the country’s trade with the rest of the world. National political institutions affect the extent to which interest groups that stand to lose from world trade will prevail over those that stand to gain. • The politics of international trade also involves strategic interaction among national governments. Governments can face difficult problems of bargaining and cooperation, which can lead to trade conflicts among nations. • The institutions of the international trading system can facilitate cooperation among governments as they confront the demands of both their own constituents and foreign counterparts. Supporting Details • Economist Adam Smith argued in The Wealth of Nations that specialization and division of labor makes societies wealthier by increasing productivity (economic liberalist theories). Comparative advantage is at the core of this argument: countries should do what they do best and specialize in what it produces most efficiently compared to other goods it could produce. • Heckscher-Ohlin trade theory addresses the issue that the comparative advantage theory is only useful if we can figure out what good that country has advantage to produce. Countries should base the goods the make for export on their factor endowments (land, labor, capital, human capital, etc). So if they have a lot of land they should export crops because they will have a comparative advantage in agriculture. • Countries that share a currency or invest heavily in one another are more likely to trade with each other. Diplomatic and military relations influence trade patterns; trade relations tend to actually track alliances. • Despite all this evidence, protectionist policies to shield domestic producers from imports are still the norm. They do this with trade barriers, tariffs, quotas , and regulations, all of which raise the price of the import for the consumer. These policies were common in colonialist mercantilism times, but then from 1860-1914 international trade among industrial nations became liberalized. However WW1 and WWII ruined this, and after 1945 the Western world gradually reduced barriers and is now moving towards globalization. • Governments often restrict trade because domestic producers influence them since they are concerned that imports will cut into profits or cost them jobs. Therefore the redistributive effect of protectionism is that producers gain and consumers lose, since the higher cost is reflected in the good’s price. producers gain and consumers lose, since the higher cost is reflected in the good’s price....
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This note was uploaded on 01/22/2012 for the course POLI 150 taught by Professor Mosley during the Spring '08 term at UNC.
- Spring '08