Week of November 4th, 2024 Lecture 17

PS 140 Handout for Week 10 Week of November 4th, 2024 Lecture 17 Textbook 8.2; Bown & Aaronson Key terms and concepts World Trade Organization (WTO) • Definition: • Example & other details: General Agreement on Tariffs and Trade (GATT) • Definition: • Example & other details: Most-favored Nation (MFN) • Definition: • Example & other details: Generalized System of Preferences (GSP) • Definition: • Example & other details: Uruguay Round • Definition: • Example & other details: Doha Round • Definition: • Example & other details: North American Free Trade Agreement (NAFTA) • Definition: • Example & other details: Cartel • Definition: • Example & other details: Organization of the Petroleum Exporting Countries (OPEC) • Definition: • Example & other details: Industrial Policy • Definition: • Example & other details: Intellectual property Rights • Definition: • Example & other details: Service Sector • Definition: • Example & other details: Discussion: 1) What is IPE? How does it differ from economics and IR security studies? The International Political Economy is the study of how politics and economics intersect on a global scale, focusing on issues like trade, finance, globalization, and the distribution of wealth and power. Unlike traditional economics, which generally assumes actors behave rationally to maximize gains, IPE incorporates political motivation and power dynamics, showing how states might pursue policies that aren’t purely economically beneficial. There is an emphasis on tradeoffs. For example, there are tradeoffs between: efficiency and distributional consequences, “good” economics and “good” politics, and domestic goals and international commitments. Compared to IR security studies, which focuses on military and strategic concerns, IPE is more concerned with economic aspects, such as trade and monetary relations, rather than direct conflict. 2) What are the models IR uses/has used to understand IPE broadly? How do they differ? Mercantilism: Emphasizes state power and views the economy as a zero-sum game where one state’s gain is another’s loss. Here, economic policies are used to enhance state security. Liberalism: Places greater emphasis on domestic politics (interest groups, political institutions, public opinion) Constructivist: Trade policy, European Monetary Union, the threat of inflation and debt, etc. 3) What is the relationship between free trade and comparative advantage? How do we see this in the United States’s trade politics? Comparative advantage is an economic principle suggesting that countries benefit by specializing in trading goods they can product more efficiently than others. Free trade supports this by reducing trade barriers, allowing countries to leverage their competitive advantage. In the US, trade politics reflect this through agreements like NAFTA and the USMCA, designed to lower trade barriers and encourage specialization, although debates persist over how much policies impact domestic jobs and industries. 4) What are some of the policies states use to protect their domestic industries? Why do these trade policies often lead to conflicts between different actors (internally or externally)? States often utilize tariffs, quotas, “non-tariff barriers,” export subsides, exchange rate depreciation/devaluation/undervaluation, and foreign direct investment (FDI) restrictions. Internal conflicts arise from some domestic industries benefit for protection, while others (like consumers and exporters) may suffer from higher prices or trade retaliation. External conflicts stem from other countries’ responses, such as retaliatory tariffs or complaints filed with the WTO, since protectionist policies contradict free trade agreements. 5) Why is the WTO controversial? Are the criticisms of the WTO similar to the criticisms of other institutions and organizations? Trade and Jobs: Critics argue that WTO-led liberalization can lead to job losses, particularly in industries vulnerable to foreign competition. The argument here is that while the WTO encourages open markets and trade, this can result in domestic industries struggling to compete with cheaper imports, leading to layoffs and economic shifts. The US manufacturing sector, for example, has faced challenges attributing to such global competition, sparking debates about whether WTO agreements sufficiently protect workers or primarily benefit multinational corporations and investors. Sovereignty: The WTO’s policies can be seen as infringing on national sovereignty by limiting states’ control over economic policies. WTO regulations often prevent countries from enacting protectionist policies, even if these are intended to protect local industries or support environmental or social welfare initiatives. This perceived intrusion has fueled the criticism that the WTO restricts countries’ ability to independently decide their economic paths and prioritize domestic interests over international trade rules. Development: Developing countries have raised concerns that WTO agreements disproportionately favor wealthier nations. Although the WTO aims to promote free trade, poorer nations often struggle to compete on equal terms. Furthermore, the WTO’s “one-size-fits-all” trade liberalization policies can strain developing economies by requiring them to reduce tariffs and subsidies, which may hinder the growth of emerging industries. This raises questions about the fairness of WTO rules in fostering genuine development and equitable growth. Dispute Settlement Mechanism (DSM): The WTO’s DSM is controversial because it serves as an international “trade court” that can issue binding rulings on trade disputes between member states. While the DSM helps enforce compliance, critics argue that it lacks transparency and is biased toward developed countries that have more resources to navigate the system. Additionally, decisions by the DSM can compel countries to change their laws to align with WTO rules, which can be seen as an overreach into national policy areas, especially when rulings conflict with local interests or values. The criticisms are similar to those faced by other international organizations, particularly in areas of sovereignty, transparency, and decision-making processes.