July 7th part 2

Theories and Institutions of International Trade

Theory of comparative advantage & developer

Developed my David Ricardo; suggests a country should specialize in producing goods for which it has the lowest opportunity cost —> allows countries to trade and consume beyond what they could produce alone, benefiting everyone

Define opportunity cost in the context of international trade

Essentially the cost of giving up one alternative for choosing another —> in trade, this means the amount of one good a country sacrifices to produce more of another —> ensures scarce resources are used efficiently

What is competitive advantage and how can a country achieve it?

Competitive advantage means producing goods of a given quality at a lower cost than rivals —> can be achieved through lower wages/taxes, higher productivity, strong infrastructure

What are the main institutions involved in global trade?

GATT (General agreement on tariffs and trade), WTO, IMF, World Bank, United Nations, Auto Pact, CUFTA/NAFTA/USMCA (free trade agreements)

What is the mainstream economic view of free trade?

It supports free trade as a way to increase global inefficiency and welfare —> based on comparative advantage, it argues that eliminating trade barriers leads to optimal resource use and mutual gains from specialization

Why do political economy critics oppose free trade?

They argue that it 1) increases inequality, 2) erodes national industries, 3) undermines sovereignty, 4) damages the environment, 5) benefits corporations at the expense of workers & local culture —> advocate for more active role of the state in managing development

Political economy critiques of free trade: Marxian

Trade serves capital accumulation and imperialism

Political economy critiques of free trade: World Systems Theory

The core exploits the periphery by importing cheap raw materials from them, selling expensive manufactured goods back to periphery market

Political economy critiques of free trade: Developmentalist

Favors infant industry protection & state-led industrialization

Political economy critiques of free trade: Ecological

Criticizes environmental costs and trade’s impact on sustainability; negative externalities of shipping goods around the globe are not sufficiently accounted for —> promotes producing and consuming locally

What are some import-restricting trade policies?

Tariffs, quotas, government procurement policies, administrative barriers, and regulatory barriers that limit or control the flow of imported goods

What is Elaine Bernard’s critique of NAFTA?

It limits democratic policy-making by preventing governments from responding to citizens’ needs —> shifts manufacturing to lower-wage countries (e.g. from U.S. to Mexico) —> gives foreign investors power to override domestic regulations (e.g. environment laws)

What are some controversial aspects of the original NAFTA?

Job losses due to manufacturing shifts to Mexico —> biased dispute resolution favouring U.S. interests —> weakening of labor and environmental standards —> asymmetrical obligations (e.g., Canada’s energy sharing vs. Mexico’s exemption)

What changed in NAFTA 2.0 (USMCA)?

Corporate right to sue governments was removed —> more auto parts must be made in North America (75%) —> minimum wages for Mexican auto workers improved —> stricter rules of origin

What does “race to the bottom” mean in trade agreements?

Refers to countries reducing wages, labor protections, and environmental regulations to attract investment, often leading to lower standards globally