chapter 7

what did Adam Smith argue?

that specialization increases productivity, which fuels economic growth.

comparative advantage

implies that a nation gains most by specializing in production and exporting what it produces most efficiently.

what makes comparative advantage comparative?

comparison among the things a country could potentially produce, not between one country and another.

absolute advantage

the ability to do something better than others.

neo-mercantilism

the belief that exports are good because they create jobs, and imports are bad because they take away jobs, and governments should stimulate the national economy by restricting imports and encouraging exports.

what is the neo-mercantilist position on trade?

a country should run a trade surplus.

how does economic logic treat imports and exports?

imports are gains from trade, while exports are its costs.

Heckscher-Ohlin trade theory

says that a country will export goofs that make an intensive use of the factors of production in which it is well endowed.

how does the Heckscher-Ohlin model explain abundant and scarce factors?

abundant factors are exported at better prices, and scarce factors get competition from cheap imports from abroad.

protectionism

the use of specific measures to shield domestic producers from imports.

trade barriers

impediments to the importation of foreign goods.

tariffs

taxes on imports levied at the border and paid by the importer.

quantitative restriction/ quota

limits the quantity of a foreign good that can be sold domestically; has the same effect as tariffs of making imported goods more expensive to domestic consumers.

nontariff barriers to trade

regulations for foreign goods, requirements that governments purchase from domestic providers, etc.

who most directly bears the costs of trade barriers?

consumers of the protected good, because both the imports and protected domestic goods get more expensive.

who benefits from trade barriers?

domestic industries competing w/ foreign imports.

Stolper-Samuelson theorem

emphasizes the interests of broad factors of production; predicts that trade protection benefits the scarce factor of production in the country that imposes the trade restrictions.

broad factors of production

land, labor, and capital.

Ricardo-Viner approach/ specific-factors model

emphasizes specific sectors of the economy; explains why whole industries often act together.

benefit 1 of free trade

efficient allocation of resources leading to higher national income.

benefit 2 of free trade

increased competition in the domestic market, leading to higher supply and lower prices.

benefit 3 of free trade

increased variety of goods for consumers.

benefit 4 of free trade

increased productivity leading to transfer of foreign technology and ideas.

what is the Ricardo-Viner model based on?

the principle that the factors of production are not very mobile/ it’s hard for labor/capital to move from use to use.

what’s the general rule of thumb when it comes to political institutions and protectionism?

those responsive to the interests of a concentrated group will be favorable to protection because it benefits a narrow group, whole those responsive to broad national interests will be less favorable to protection.

what is the US pattern of protectionism in the federal government?

the US president has historically been more anti-protectionist than Congress until Trump.

how does the logic of collective action problems apply to trade?

many consumers and few producers mean producers will win over consumers in many circumstances because they can organize more easily.

what is an example of varying national electoral systems?

plurality vote v. proportional vote.

what do politicians w/ local constituencies tend to favor in terms of trade policy?

trade protection that benefits local special interests.

what do politicians w/ national constituencies tend to favor in terms of trade policy?

free trade as a focus on national trade policy.

what does hegemonic stability theory (Krasner) say?

free trade is more likely when there’s an economic hegemon in the system.

what is hegemonic stability theory (Krasner) based on?

the distribution of power.

why does trade openness benefit the hegemon in hegemonic stability theory?

because it has the most efficient economy and the power to coerce/induce other states to open up to freer trade.

what is one way the hegemon in hegemonic stability theory can induce other states to open up to freer trade?

giving access to its large domestic markets.

what is one implication of the Heckscher-Ohlin model?

trade will tend to make the prices of the major factors of production more equal across countries—> wages in poor countries rise as wages in rich countries fall, achieving equilibrium.

who tends to be the “losers” of the balancing of the Heckscher-Ohlin model?

working people in rich countries.

what is the only way to mitigate social and political conflict over economic openness?

governments develop more extensive social safety nets to reduce the negative impact of the world economy on some groups in society.

what does the case for free trade depend on?

the effectiveness of social safety nets.

what is the counterargument to hegemonic stability theory (Keohane)?

international institutions provide rules and facilitate coordination for collective ends—> ex. Bretton Woods as a liberal regime of neoliberal institutionalism.

what is a trade norm of non-discrimination?

most-favored nation (MFN) status and reciprocity.

reciprocity

the concept that a concession granted by one government is met by another— a sort of linkage politically that helps bind agreements.

most-favored nation (MFN) status

when countries agree to extend to each other the same concessions that they provide to all other nations w/ MFN status.

World Trade Organization (WTO)

replaced the GATT; law that includes areas not previously included (non-trade agenda) and strengthened the dispute settlement mechanism.

General Agreement on Tariffs and Trade (GATT)

treaty focusing exclusively on trade created in 1947 as one of the original Bretton Woods institutions to oversee a dramatic liberalization of trade relations.

what is one complaint about the WTO?

developing countries have found it hard to get their concerns heard on the agenda.

what is a large part of the developing countries’ interests in trade?

agriculture, services, and textiles/clothing.

what has been the modern fault of the WTO?

gridlock as a result of trying to liberalize everything, meaningful advances have become almost impossible.