Week 2 (Jan 22-26)

Jan 23 (Tu): 2. Does freer trade actually raise income or growth? Case studies: the cattle trade and Peru’s “China Shock.”

- - Sarah Gonzalez and Jason Beaubien, “Why Did the Cow Cross the Border?” [podcast], NPR: Planet Money (Nov 9, 2018) [21 minutes], transcript, Gonzalez Beaubien.pdf, [audio]
  - “Peru’s ‘China Shock’: Surprising Turns and the Women Left Behind” [podcast], Trade Talks, Episode 172, Part 1 (up to minute 21) (Nov 21, 2022), with Chad Bown and Pamela Medina Quispe [20 minutes], transcript, Trade Talks 172.pdf, Apple Podcasts audio link
  - Optional: Douglas A. Irwin, Free Trade Under Fire, 5^th (Princeton: Princeton Univ. Press, 2020), 35-83, 209-256, PDF 35-83, PDF 209-256

Jan 25 (Th): 3. Forms and patterns of protectionism. Why don’t consumers shape trade policy? Collective action and the dominance of producer interests. Then, where does a state’s comparative advantage come from? The factors model explanation.

- - HKM PIPE, 21-40, HKM PIPE 21-40.pdf
  - Keith Bradsher and Elizabeth Paton, “This China Trade War Isn’t About Semiconductors,” New York Times (Sep 17, 2023), Bradsher Paton NYT 2023.pdf
  - Optional: Kevin Grier, Robin Grier, and Gor Mkrtchian, “Campaign Contributions and Roll-Call Voting in the US House of Representatives: The Case of the Sugar Industry,” American Political Science Review (2023), 340-346, Grier et al APSR 2023.pdf

Jan 26 (F): Homework 2 [the impact of the “China Shock” on Peru] due 2:00p

- - This homework requires that you complete Part 2 of the Peru podcast above, so listen to that first:
  - “Peru’s ‘China Shock’: Surprising Turns and the Women Left Behind” [podcast], Trade Talks, Episode 172, Part 2 (from 20:30-39:00) (Nov 21, 2022), with Chad Bown and Pamela Medina Quispe [19 minutes], transcript, Trade Talks 172.pdf, Apple Podcasts audio link

Resources & Links for this Session

Learning Objectives

To empirically evaluate the assumptions, logic/mechanism, and predictions of the classical economic theory of the gains from trade
Draw conclusions from evidence about the effects of free trade and protectionist policies under different conditions, for different actors
Explain and analyze some of the challenges for inference from that evidence
Define and describe a range of instruments of trade protection and broad variations in their practice across countries and time
Explain the core concepts and theory of collective action and apply it to explain trade protectionism
Define core concepts, apply them to examples, and explain the logic and predictions of the factors model theory of trade outcomes and interests

Key Concepts

classical economic theory of the gains from trade
comparative advantage
free trade & trade liberalization
gains from trade
"global value chain"
export diversification & industrialization
"dynamic gains" from trade, "spillovers," and "productivity"
"adjustment costs" of trade liberalization
China shock
protectionism
tariffs, non-tariff barriers (NTBs or NTMs), subsidies, 'voluntary' export restraints (VERs), safeguard, antidumping (AD) duties, countervailing duties (CVDs), import licensing requirements, customs classification measures, technical barriers to trade (TBT), health/biosafety or "sanitary/phytosanitary" (SPS) barriers to trade, government procurement
public good, non-excludable, jointly consumed or nonrival in consumption
"tariff escalation"
factor of production: land, labor, capital
relative factor abundance
relative factor intensity
"factor price equalization"

Discussion Questions

What are the assumptions, logic/mechanism, and predictions of the classical economic theory of the gains from trade?
How does this theory's conclusion about the gains from trade change, if at all, if...
- the country's trade partner does not also implement free trade
- the country is small and dealing with a larger partner on whom it is heavily economically dependent
- the country's trade partner is a military rival and threat
- it is not costless to shift productive assets to different uses
Can you think of examples or evidence that would bear one way or the other on the predictions of this economic theory?
What does the evidence say about the overall validity of the claim that freer trade raises national income?
Does freer trade also raise economic growth? What is the mechanism by which it might do so, and what does the evidence say about the merits of that possible effect?
How has globalization and trade liberalization affected income and growth of developing countries?
Who gains and who loses from trade liberalization, within and across countries, according to the evidence?
What are some of the challenges for inference about the accuracy of this free trade claim, given the limits of the evidence available? What kind of evidence would we ideally want in order to draw better conclusions about the merits of this argument?
Patterns of trade protection:
- What are some different forms of trade protection? Give examples of each type.
- Why is trade protection a "puzzle," going by the classical economic theory of trade which we began this semester with?
- Why does trade protection occur, and what explains variation in trade protection across countries, time, industries, etc.?
- What is a public good, and why is 'free trade' thought of as a public good? For whom, exactly?
- What is the collective action theory's explanation of why trade protection occurs? What are some specific hypotheses from this argument?
- Evaluate those hypotheses with evidence and examples, such as the Smoot-Hawley Tariff process and outcome.
The factors model of trade and trade politics:
- What are the factors of production? Define "relative factor abundance" and apply this concept to contemporary countries -- what factors are they relatively abundant or scarce in?
- What are the various hypotheses/predictions that flow from the factors model? Explain the logic behind them.