POLI 243 Chapter Notes - Chapter Milner: Voluntary Export Restraints, Uruguay Round, Free Trade
27 Apr 2018
School
Department
Course
Professor
Political Economy of International Trade
Helen V. Milner
• Move toward freer trade since 1980
• This "rush to free trade" is a political anomaly
• Vast literature on free trade from economists and political scientists but differ
o Economists --> focus on explaining trade flows (why country import and export particular
goods to certain countries)
• Heckscher-Ohlin Model
• Also focus on trade barriers
• Mai theor is that free trade is est poli for ost outries ost of the tie… so
why employ protectionist policies?
• Preferences of domestic actors for protection
▪ Stopler-Samuelson Model
• Have been pushed into studying politics of trade
o Political scientists --> protectionism seems reasonable
• Protection as the norm and puzzled as to why a country would ever liberalize trade
• Would have predicted the opposite of the rush to free trade
• Four issues central to understanding trade politics:
o What do we know about preferences of domestic groups for protection or free trade?
o How do political institutions affect the ways in which preferences of actors are translated
into policy?
o What factors at the international level shape trade policy choices?
o How does international trade itself affect states and the international political system?
What do we know about trade and trade policy?
• Since WWII, tariffs have been reduced to insignificant levels
• Non-tariff barriers (quantitative restrictions, price controls, subsidies, voluntary export restraints)
proliferated
o Uruguay Round slowed or reversed this though
• For most part of post-war period, less-developed countries (LDCs) have used trade barriers for
import-substituting industrialization (ISI)
o After Uruguay round adopted export-oriented policies as barriers dropped
o Change from communist economies to market-based economies also accelerated trend
toward global trade liberalization
• Growth of trade has outpaced growth of world output
• Growth in intra-industry trade and in intra-firm trade
o Intra-industry --> Toyota for BMW is b/w 55% and 75% of trade in advanced countries
o Intra-firm --> trade within country across borders is 40% of US imports
• This type of trade has less conflict and less distributional issues
• Also increase in intra-region trade thanks to regional integration agreements
o EU, NAFTA, Association of South East Asian Nations (ASEAN), Mercosur
Trade Policy Preferences
• Pressure group politics: recourse to protection by gov'ts as a function of the demands made by
domestic groups
o Such policies increase the groups' incomes
• Distributional consequences of trade policy become explanation for its cause
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o Subversion of national interest
• Extent of protection and demand for it vary across industries and countries
o If all domestic groups favored protectionism this divide wouldn't exist
• Preferences made as a result of potential income changes from policies
• Factoral theories --> Stopler-Samuelson theorem
o When FOPs can move freely, change to protection will raise income of FOPs that are
relatively scarce in a country and lower income of abundant FOPs
o Scarce factors will support protection
o Rogowski --> class conflict or urban-rural conflict exasperated by factor endowments
• Sectoral and firm-based theories --> Ricardo-Viner model
o Bc at least one factor is immobile, all factors attached to import-competing sectors lose
from trade liberalization while those in export-oriented sectors gain
o Labor, capital, and landowners from import sector pitted against those who export their
production
• Degree of factor specificity (how tied factors are to their sectors) differentiate the two models
• Others have looked at how particular characteristics of industries affect pattern of protection and
ability to induce policy makers to provide it
o Low-skill, labor-intensive industries w/ high and rising import penetration associated w/ high
protection
o Export-oriented and multinationals favor freer trade
• Some argue that exogenous changes have brought a reduction in costs of trade and so has made
trade more important relative to any domestic economy, increasing costs of protection
• Reductions in the cost of trade have thus heightened the opportunity cost of protection -->
pressure for freer trade
• How have proponents of trade liberalization gained political advantage though?
1. Various exogenous conditions created new actors who preferred trade
• In many LDC's trade liberalization came w/ reform packages
• Changes eliminated many import-competing firms and put a premium on creating exporting
firms that could generate foreign exchange
• Created new groups in favor of free trade and eliminated groups against
• In advanced economies, exogenous change in the form of technological change
2. Preferences of other domestic actors
• Trade policy depends on median voter's preferences which depends on his factor
endowments
3. Preferences of policy makers themselves
• Constituents rarely have strong preferences and even more rarely communicated these to
politicians
• Ideational factors are more important than material factors
• Some scholars attribute trade policy reform to crises and economic downturns
• Bad economic times a prelude to rising demands for protection and increasing levels of
protection
• Policy makers respond to the rising demands
• New literature shows that bad economic times allow policy makers more freedom to maneuver so
that they can overturn existing protectionist policies by blaming them for bad times though
• The effect of economic crises on countries' decisions to liberalize trade seems contingent on other
factors then
• Factors such as prevailing ideas about trade, extent of openness existing at the time, and
influence of international factors
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Since wwii, tariffs have been reduced to insignificant levels: non-tariff barriers (quantitative restrictions, price controls, subsidies, voluntary export restraints) proliferated, uruguay round slowed or reversed this though. Intra-industry --> toyota for bmw is b/w 55% and 75% of trade in advanced countries. If all domestic groups favored protectionism this divide wouldn"t exist: preferences made as a result of potential income changes from policies. Ideational factors are more important than material factors. Support of societal groups favoring free trade is an essential element of reform process. Short-term --> leaders can change preferences and bad economic conditions can change: also, resource endowments haven"t changed significantly. Ldc"s actually have reduced their exposure to trade and some opposed to it. Institutions aggregate preferences, each institution doing so differently, leading to different trade policies: domestic side: institutions empower different actors, concentrating trade-policy making capabilities in executive branch seems to be associated w/ adoption of trade liberalization in many countries.
