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POLS 051 Test 3

Terms in this set (75)

What is free trade?
Reduction in barriers to trade
Tariffs
Taxes on imported goods and services
Customs fees
Export (X) taxes
non-tariff barriers
Quotas- limits on x or m
Qualitative restrictions
embargo
Globalization
Reduction of barriers to:
Trade, foreign investments, finance, currency, migration, ideas&culture, communication
Causes
Reduced transportation/communication costs
Government policy
Irwin, the truth about trade, 2016
Is hurting the US economy? No
Steady recovery from Great Recession
Unemployment: Roughly 4.4%
So, why the haters?
slow recovery and wage growth
technology: 85% of job loss from 2000-2010
No HS degree=unemployment
Why do critics blame trade?
-current account deficit (CAD)
-Value of M>value of x
Goods, services, income, aid
Why is it high?
We invest abroad(Foreign Investments)
We buy a lot (high domestic consumption)
So, how do we avoid Bankruptcy?
Foreign Investments buy US treasury notes
Is debt a problem?
Depends on when investors want $ back
What effect will the pandemic have?
Risinf debt levels
This author notes that although politicians and voters commonly blame free trade for American economic woes, he concedes that Americans do "face a much larger problem, one that lies at the root of anxieties over trade." What is that problem?
Politicians and voters often blame free trade for their economic problems and he believes the bigger issue is the "ladder" that allows low skilled workers to move to the middle class is broken. In the 2016 elections, people from all sides blamed trade agreements. In reality, both sides of a trade deal benefit, we sell what we're relatively good at, and get what we're relatively not good at.
This author notes that many politicians point to the country's negative balance of trade to argue that free trade is hurting the US economy. What's wrong with this characterization? (Note: The author refers to both the "current account deficit" and the "trade deficit" or, similarly, "the balance of trade." The current account deficit is a broader term that includes the trade deficit, which refers to how much more a country exports than it imports in goods and services).
A negative balance of trade hurts the US economy, but countries with reserve currency like the US can run a trade deficit indefinitely. Trade deficits lead to foreign capital investments, and the claim that trade deficits send jobs overseas is just untrue. The trade balance is usually in deficit during an expanding economy, and in surplus when there is high unemployment.
The author writes that, "There are good reasons why the very mention of the 1930 Smoot-Hawley Tariff Act still conjures up memories of the Great Depression." Why would it be a bad idea to restrict free trade? Who would suffer?
It would be a bad idea to restrict free trade because the entire US population and economy would suffer. In order to save the 130,000 jobs needed for the textile industry, clothing prices would soar, and then people below the poverty line would suffer even more. Even if we just put sanctions on China, then the factories would move to Thailand or Vietnam. Other countries will continue to make trade deals, whether the US is a part of them or not.
. Rodrik discusses the opportunity costs of economic liberalization. What does he mean? Cite some examples.
There have been many negative outcomes with liberalization that have been absorbed by many. For example, Trade liberalization will require a laundry list of measures beyond the simple measures of tariff and non-tariff barriers. As trade liberalization fails to materialize, the prerequisites continue to expand. For example, Great Britain, added universal provision of health and education on the list.
Rodrik argues that globalization can be costly for countries. How then does he explain the relative success of countries like China and India?
They had the freedom to do their own thing which allowed them to use their freedom abundantly. They had a development strategy that produces high economic growth that is far more effective in achieving integration with the world economy rather than a strategy that relies on openness to work its magic.
Which country led to the division of interests between the US and USSR?
Germany
Which of the following statements Irwin would agree with?
Although many blue collar workers blame free trade for job losses, the real culprit is technology
According to Irwin, is it bad to have a current account deficit?
No, because the current account deficit also depends on foreign investment levels and domestic consumption, which helps fuel our economy
The US sends more money abroad in the form of goods/services/aid etc than it takes in. How does it avoid bankruptcy?
The government relies on loans not only from foreign governments, but also US citizens
Is trade good or bad?
GOOD
1988-2013: August global income increased 24%
Global poverty drops 3.5% to 10.7%
but inequality has risen
What about trade deals?
NAFTA: 700,000 jobs lost (1994-01)
estimated 1.8 million jobs gained since 1994
but gains are uneven
environmental problems
negotiated in secret
The theory of free trade?
Adam Smith(1776): The wealth of nations
Division of labor:
Specialization creates efficiency
Efficiency increases profits, growth
Absolute Advantage
Each country specializes in what it is best at making
trade creates efficient
David Ricardo
The problem
What if A is better than B?
Comparative Advantage
What you make should depend on the opportunity cost
Opportunity cost: The cost of goods?
What determines comparative advantage
Hecksher Ohlin theorem
Comparative Advantage--Factors of production(Land,labor,capital,human capital)
Determined by which factors of production you are rich in
What you own determines what you trade
Australia/ Canada:Land
China/India: Labor
USA/Japan: Capital
Who supports/opposes free trade?
Simple factors model
workers and owners are ties to their industries
x industries support free trade
USA aerospace, pharmaceuticals
M competing industries oppose free trade
USA: steel, textiles
Irwin: No HS degree= 7% unemployment
Free trade
In theory, free trade should benefit all countries
everyone has a comparative advantage
But free trade...
Destroys low wage jobs in non CA industries
creates high wage jobs in CA industries
Trade creates better, not more jobs
Does economic integration work?
Rodrik: No, it must be managed
Opportunity costa
money diverted from school programs
3 WTO agreements= $150 million
Should rules protect investors or citizens?
Patent laws
Does economic integration work?
Asia: 1990-2000: GDP/CAP increases 5.5% a year
Rodrik: Growth---Liberalization
Asia: Gradual Liberilazation
The Evolution of global economy
15th-18th century:Mercantilism
19th c: Free trade(Industrial revolution, repeal of the corn laws)
Mid 19th c: ww1, globalization
Technology: railroad, steamship, telegraph
The De-Evolution of the Global economy
Great depression
beggar thy neighbor
average tariff rate rises to 25%
Evolution of the Global economy
Bretton woods conference 1944
international monetary fund
loans monetary cooperation
world bank
loans fir sustainable development
international trade organization
Structural Adjustment programs
conditions attached to the WB and IMF loans
Based on Washington consensus
Austerity and Liberalization
Privatization (End government monopolies)
liberalize trade(Remove high tariffs)
Government deregulation (Cut government)
economic reforms
Loan Conditions Still exist
Successful: Ireland 2010--$117 billion bailout
tax increase and welfare cuts
fast growing economy
not so successful: greece-- 300 bn euros
since 2010
healthcare cut 50%: edu cut 25%
Debt to GDP:146%
Unemployment 22.5%
The Great Recession
Tech bubble bursts spring 7000
tech stocks fall 78%
2001 tax cut increase deficit
deficit
difference between revenue and spending
2001: surplus of $128.23 billion
2002: deficit of 157.75 billion
Fed lowers interest rate
cheap cash creates real estate/consumption boom
Zakaria argues that the anger of Islamic terrorists is NOT simply a matter of religious tension or historical animosity. Rather, he argues, the roots of Muslim rage can be found in the history of the last 30 years, not the last 300. How have the failures of rulers and ideas mixed with religion to fuel anger in the Middle East toward the United States?
The failure of rulers led to a movement then to a dictator rule. Money from oil has done little for the middle east besides create a rich class of Arabs. Also, the movement towards more simple, ideals of Islam came out against "Westoxification", and schools spreading a rigid form of Islam that views the Western world as evil.
Mortgage industry
Mortgages with high fees and variable interest rates
mortgage- backed securities with AAA ratings
pension finds buy
Borrowers default, ripple effect
What caused it?
Moral Hazard
Deregulation
Misguided faith in market
Moral Hazard
Protection--- Risky behavior
Banks make high risk investments
Deregulation
1933 glass-steagall Act
1999 repeal of glass-steagall act
-Allows banks to be too big too fast
2010 Dodd-Frank Act
-Brings back regulation for now
How did the recession Spread?
Foreign investors unaware of the risk
- 1/4 of US mortgages go abroad
US exports the Washington Consensus
- Housing bubbles in Spain, Ireland, UK
Size of the US economy
- Who the US stops spending, ripple effect
The Response
The US spends its way out: $4 trillion in bailout
Busch
The troubled asset relief program
Obama
$787 billion fiscal stimulus bill
the Fed
print $, has a stake in over 700 banks
Why no global Great Depression?
Realism(HST): US leadership
GR: Tarp, ARRA, Dodd-Frank
Liberalism: Institutions
- Forums for communication
Constructivism
- Consensus that int'l trade, investment is beneficial
What are the Corn Laws?
laws which protected agriculture in the British Empire by limiting the import of grain from other countries
What is the Washington Consensus?
A set of policies that encourage austerity and liberalization
Heckscher-Ohlin Theory
That the factors of production a country is rich in determines its comparative advantage
Why the long peace?
Bipolarity~ Reality of military power~ SimpleMutual interdependenceNuclear Deterrence(MAD)"Reconnaissance Revolution"Ideology~Soviets give up on the idea of war with capitalism
Why the Long Peace?
Developments in satellite technology
Bipolarity
an international system in which there are two great powers or blocs of roughly equal strength or weight
Why did tension arise?
Clash of interests~Realism
*Germany~
Domestic Politics~ Clash of Ideologies
* Constructivism
* Democratic Peace
Poland
Nov 1943: Tehran conference
Stalin wants Poland, Promises elections
April 1945: Roosevelt dies
May 1945: The hopkins DealNon communists in non essential positions and elections
Sept 1945: spheres of influence US proposes "Hopkins deal" for Romania and Bulgaria
Why? Maybe US wants Japan
Sphere of Influence
A foreign region in which a nation has control over trade and other economic activities.
How to divide the postwar world
Central/Eastern Europe for JapanGermany
Neither wants a strong or weak Germany
USSR: Wants reparations(Especially in the West)
US: Wants to Contain Soviet Expansion
Hegemonic Stability Theory
the argument that regimes are most effective when power in the international system is most concentrated
Hegemonic Stability Theory
Superpowers vying to be the hegemon
US: Trying to keep the Soviets Down
May 1945: The US ends the lend-lease programLimits Soviets reparationsMarshall Plan:
April 1947- $17 billionUSSR: trying to expand the powerSlow to withdraw from Iran
Pressures Turkey for military bases"
Everyone imposes his own system as far as his army can reach"~ Joseph Stalin
Marshall Plan
A United States program of economic aid for the reconstruction of Europe (1948-1952)
Defensive Realism
a variant of realist theory that emphasizes the preservation of power, as opposed to the expansion of power, as an actor's primary security objective
Defensive Realism
Security Dilemma~Berlin Blockade
1948-1949West: Begins to form Western Zones
USSR: Closes off access to Berlin"
At the Bottom of the Kremlin's neurotic view of the world affairs is traditional and instinctive Russian sense of security"
Domestic sources
Truman Doctrine~British can no longer aid Turkey and Greece
Truman inflates threat to fund containmentApplies containment to communism, not USSR
Truman Doctrine
1947, President Truman's policy of providing economic and military aid to any country threatened by communism or totalitarian ideology, mainly helped Greece and Turkey
1. What are the four reasons Gaddis gives to explain why bipolarity is a more stable system?
Bipolarity is a more stable system because one, it reflected the facts of where military power resided at the end of ww2 and where it still does today. It differed from the settlement of 1919 which made so little effort to accommodate the interests of Germany and the Soviets. The second reason is that the bipolar system was a simple one that did not require sophisticated leadership to maintain. The 3rd reason is because of the simple structure, the alliances in this bipolar system have tended to be more stable then they were during the 19th century. The 4th reason is because the stability of the basic alliance systems have been tolerated without the disruptions that might have attended such changes in a more delicately balanced multipolar system.
What other features led to the stability of superpower relations during the Cold War, according to the author?
Other features that led to the stability of superpower relations during the cold war was the bilateral relationship between the Soviets and America. Before the cold war, Russia and the US have never gone to war with each other, despite frequent tension. This record was thought to be all the more remarkable in view of the fact that, in ideological terms, the Russian and American Systems of government could hardly have been more different.
What IR theory is Gladdis using?
Defensive Realism
Constructivism
A movement in IR theory that examines how changing international norms and actors' identities help shape the content of state interests.
Constructivism
IdeologyCommunism predicts war within capitalismDeep suspicion in the USThe first red scare 1919-1921The second red scare 1950-1954
Liberalism
Neoliberal institutionalismVeto power (p5) weakens UNSCUS,UK,FRANCE,SOVIET UNION, UNSC
Democratic Peace
"Kennan: Soviets will use "front organizations" to "undermine general public and strategic potential of major western powers"
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