International Trade Seminar

Seminar Objectives

The goals of this seminar are that we: (1) use intermediate microeconomic tools to assess how international trade patterns are determined and what their implications are for economic efficiency and income distribution; and (2) apply these analytical tools in evaluating potential changes in world economic conditions and trade policy. In particular, we want to be able to assess what governments, international organizations, and think tanks say on these issues.

Course Mechanics

Your grade in this seminar will depend upon the following elements:

1. (35 percent) presentation of reports, homework, debates, and participation in class discussion (if you expect to miss more than 3 classes during the semester, this is the wrong time slot to be taking a seminar);
2. (35 percent) a written paper of 10-15 pages addressing an international trade issue that you and I agree upon. An outline is due by April 2 at the latest. A first draft should be submitted by April 23 and the final paper is due by May 7.
3. (30 percent) an in-class open book mid-term exam;

There is no assigned text for this course. A traditional text, however, is on reserve in Burling Library to provide background material for the various topics we consider, and I will provide you with chapters from another text.

J. Markusen, J. Melvin, W. Kaempfer and K. Maskus, The Theory of International Trade, Harper and Row, 1995

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Course Outline

1. A Review of Microeconomic Tools of Analysis
   MMKM: 2, 3, 4, 5
   
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2. Traditional Explanations of the Pattern of Trade, and Implications for Income Distribution and Welfare
   MMKM: 6, 7, 8, 9
   DM: 2, 3
   
   These chapters cover three basic models often used in analyzing international trade issues: (1) the Ricardian model; (2) a neoclassical, specific-factors model; and (3) the Heckscher-Ohlin-Samuelson factor endowments model. As we review these models in class, we want to demonstrate how each one analyzes the effects of an increase in the supply of a factor input, an improvement in technology, and a decline in the price of the imported good. Our four groups will use their understanding of these models to interpret the following readings:
   
   

   A-	Paul Krugman, "Does Third World Growth Hurt First World Prosperity?" Chapter 4 in Pop Internationalism (Cambridge, MA: MIT Press, 1997)
   B-	Stephen Magee, et. al., "Three Simple Tests of the Stolper-Samuelson Theorem," Ch. 7 in Black Hole Tariffs and Endogenous Policy Theory (New York: Cambridge University Press, 1989)
   C-	Adrian Wood, "Openness and Wage Inequality in Developing countries: The Latin American Challenge to East Asian Conventional Wisdom," The World Bank Economic Review, January 1997, pp. 33-57.
   D-	Stephen Magee, et. al., "Increasing Returns to Politics and Factor Endowments," Ch. 12 in Black Hole Tariffs and Endogenous Policy Theory (New York: Cambridge University Press, 1989)

   
   
   

   Debate #1 -- Has greater U.S. trade hurt low-skilled workers?   Symposium on Income Inequality and Trade, Journal of Economic Perspectives, Summer 1995    R. Freeman, "Are Your Wages Set in Beijing?"    A. Wood, "How Trade Hurts Unskilled Workers"    P. Krugman and R. Lawrence, "Trade, Jobs and Wages," Scientific American, April 1994, pp. 44-49

   
   
   HOMEWORK ASSIGNMENT # 1
   
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3. Free Trade and Fair Trade
   
   Why do economists have a bias in favor of free trade?
   
   What are the costs of ignoring this policy prescription?
   MMKM: 15, 16
   DM: 5
   
   G. Hufbauer and K. Elliott, Measuring the Costs of Protection in the United States (Washington, D.C.: Institute for International Economics, 1994), Chapters 1 and 2
   
   USITC, The Economic Effects of significant US Import Restraints: Third Update 2002, Investigation 332-225, Publication 3519, June 2002
   (ftp://ftp.usitc.gov/pub/reports/studies/pub3519.pdf)
   
   P.K.M. Tharakan, "Is Anti-Dumping Here to Stay?" The World Economy, March 1999
   
   

   Debate #2 - Chinese and U.S. Positions in an Unfair Trade Case   Are bicycles from China being dumped in the U.S. market? Do these imports materially injure the U.S. industry?   Material from the International Trade Administration (Federal Register, April 30, 1996) and from the International Trade Commission (731-TA-731, June 1996) (http://www.ita.doc.gov/import_admin/records/frn/frnapr96/a570843.html (http://www.usitc.gov/wais/reports/arc/w2968.htm)

   
   
   

   Debate #3 - Mexican and U.S. Positions in a Safeguard Case   Are fairly traded imports of broom corn brooms a substantial cause of injury to the U.S. industry? What action, to be phased out over a 4-year period, would remedy this situation?   Materials from the International Trade Commission (TA-201-65, July 1996) and the Office of the U.S. Trade Representative (December 1996) (http://www.ustr.gov/releases/1996/12/96-92.html) (http://www.usitc.gov/wais/reports/arc/w2984.htm)

   
   
   HOMEWORK ASSIGNMENT # 2
   
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4. Strategic Trade Policy
   
   Is free trade an outdated strategy meant for a simpler world? Does a country gain from a tougher trade policy in response to closed markets and foreign targeting of particular industries?
   MMKM: 11, 12, 17
   DM: 4,6
   
   An Overview of the Issue
   

   D - P. Krugman, "Is Free Trade Passé?" Journal of Economic Perspectives, Fall 1987 C - A. Dixit, "How Should the United States Respond to Other Countries' Trade Policies?" in Robert Stern (ed.), U.S. Trade Policies in a Changing World Economy (Cambridge, MA: MIT Press, 1989) B - B. Spencer, "What Should Trade Policy Target?" #4 in Paul Krugman (ed.), Strategic Trade Policy and the New International Economics (Cambridge, MA: MIT Press, 1986) A - G. Grossman, "Strategic Export Promotion: A Critique," #3 in Strategic Trade Policy and the New International Economics

   
   HOMEWORK ASSIGNMENT #3
   
   MID-TERM EXAM March 12th
   
   

   Specific Industry Examples

   A - R. Baldwin and P. Krugman, "Industrial Policy and International Competition in Wide-Bodied Jet Aircraft," #3 in R. Baldwin (ed.), Trade Policy Issues and Empirical Analysis (Chicago: University of Chicago Press, 1988) B - D. Irwin and P. Klenow, Learning by Doing Spillovers in the Semiconductor Industry," Journal of Political Economy, December 1994, pp. 1200-1227 C - L. Tyson, "Managing Trade and Competition in the Semiconductor Industry," #4 in Who's Bashing Whom (Washington, D.C.: Institute for International Economics, 1992) D - L. Tyson, "Industrial Policy and Trade Management in the Commercial Aircraft Industry," #5 in Who's Bashing Whom

   
   
   Topics to be Selected by the Class from the Following Set
   
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5. International Movements of People
   
   Does emigration of unskilled labor from developing countries represent a beneficial safety valve or a loss to those economies? Are U.S. fines on employers of illegal aliens an efficient national policy, or is immigration desirable as an impetus to U.S. growth?
   MMKM: 21
   DM: 7
   
   

   R. Mundell, "International Trade and Factor Mobility," in Readings in International Economics, pp. 101-106 *G. Borjas, "The Economic Benefits from Immigration," Journal of Economic Perspectives, Spring 1995 B. Chiswick, "Illegal Immigration and Immigration Control," Journal of Economic Perspectives, Summer 1988 *R. Friedberg and Jennifer Hunt, "The Impact of Immigrants on Host Country Wages, Employment and Growth," Journal of Economic Perspectives, Spring 1995

   
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6. Multinational Corporations
   
   Do multinational corporations represent a source of technology and provide a marketing network that warrants special incentives to attract them into a country? Are beyond the control of governments in individual countries and a threat to national welfare?
   MMKM: 22
   DM: 7
   
   

   *J. Markusen, "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, Spring 1995 E. Graham and P. Krugman, Foreign Direct Investment in the United States (Washington, D.C.: Institute for International Economics, 1995), Ch. 3 *J. Mendez, "Immiserisation and the Emergence of Multinational Firms in a Less Developed Country," Journal of Development Studies, 1983 J. Mutti, "The Influence of Taxation on Industrial Location," Journal of the Flagstaff Institute, June 2002.

   
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7. Bilateral Trade Agreements and Trade Preferences
   
   What are the potential economic gains from groupings such as the European Community or the North American Free Trade Agreement? In what sense do those groups merely gain at the expense of those who are excluded? Is an expanded European Union a trade threat to the U.S. and Japan or to India and Pakistan?
   MMKM: 18
   CFJ: 14
   
   A. Panagariya, "The Regionalism Debate: An Overview," The World Economy, June 1999, pp. 477-511.
   
   A Yeats, "Does Mercosur's Trade Performance Raise Concerns about the Effects of Regional Trade Agreements?" The World Bank Economic Review, January 1998, pp. 1-27.
   
   J. Mutti, NAFTA: What Have Been the Economic Consequences for Mexico and the United States (Economic Strategy Institute, 2001) Chapters 1 and 2
   
   Jeffrey Frankel, Regional Trading Blocs (Washington D.C.: Institute for International Economics, 1997), Ch. 4 and 5.
   
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8. WTO Negotiations and the Doha Round
   
   J. Schott, The Uruguay Round: An Assessment, Washington, D.C.: Institute for International Economics, 1994.
   
   J.M. Finger and Julio Nogués, "The Unbalanced Uruguay Round Outcome: The New Areas in Future WTO Negotiations," The World Economy, March 2002, pp. 321-340.
   
   WTO, Trade Policy Review Body, Overview of Developments in the International Trading Environment, Annual Report by the Director General, Nov. 15, 2002 (WT/TPR/OV/8).
   (http://www.wto.org)
   
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9. Trade Policy and Economic Development
   
   Anne Krueger, Ch. 3 in Economic Policies at Cross Purposes, the U.S. and Developing Countries (Washington, D.C.: Brookings, 1993)
   
   Sebastian Edwards, Ch. 5 in Crisis and Reform in Latin America (Washington, D.C.: The World Bank, 1995)
   
   *Ha-Joon Chang, "Kicking Away the Ladder - Tariffs and Economic Development," Challenge, Sept./Oct. 2002, pp. 63-97.
   
   Robert Baldwin, "The Case Against Infant Industry Protection," Jouranl of Political Economy, Ma/June 1969, pp. 295-305.
   (available from Jstor)
   
   *Douglas Irwin, "Tariffs and Growth in Late Nineteenth Century America," The World Economy, January 2001, pp. 15-30.
   
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10. The World Trade Organization to New Issues: Labor Standards & Agreements
    
    G. Grossman and A. Krueger, "Environmental Impacts of a North American Free Trade Agreement," in P. Garber (ed.) The Mexico-U.S. Free Trade Agreement (Cambridge: MIT Press, 1993) pp. 13-56.
    
    WTO Panel report on the U.S. import prohibition of certain shrimp (http://www.wto.org/english/tratop_e/dispu_e/dispu_subjects_index_e.htm#bkmk117)
    
    *D. Brown, "Labor Standards: Where Do They Belongon the International Trade Agenda," Journal of Economic Perspectives, Summer 2001, pp. 89-112.
    
    *D. Esty, "Briding the Trade-Environment Divide," Journal of Economic Perspectives, summer 2001, pp. 113-130.
    
    K. Elliott, "The ILO and Enforcement of Core Labor Standards,"
    (http://www.iie.com/policybriefs/news00-6.htm)
    
    
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11. The World Trade Organization and New Members
    
    Y. Yang, "Completing the WTO Accession Negotiations: Issues and Challenges," The World Economy, June 199, pp. 513-534.
    
    C. Keuschnigg, M. Keuschnigg and W. Kohler, "The German Perspective on EU Enlargement," The World Economy, April 2001, pp. 513-542.
    
    and updated information at the following web sites:
    http://www.wto.org
    http://europa.eu.int
    http://www.europarl.eu.int