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Free Trade and Globalization

Free Trade and Globalization. I. Historical Context A. Leaders B. Mission II. Free Trade Arguments A. Comparative Advantage B. Libertarianism IV. Organizing Globalization A. Treaties B. Institutions V. The Development Gamble A. Hypocrisy B. Tradeoffs.

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Free Trade and Globalization

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  1. Free Trade and Globalization I. Historical Context A. Leaders B. Mission II. Free Trade Arguments A. Comparative Advantage B. Libertarianism IV. Organizing Globalization A. Treaties B. Institutions V. The Development Gamble A. Hypocrisy B. Tradeoffs

  2. The Radicalism of Free Trade Targets: State religion Anglicanism Monopolies Hudson Bay Co. Empire Ireland India Slavery Landed gentry Tenant farming Tariffs Corn Laws, 1815-46 John Bright and Richard Cobden

  3. Irish Potato Famine, 1846-50 • 1 million die • 2 million flee Irish Peasants being evicted by police

  4. Free Trade Precepts • Comparative Advantage. Specialization, inter-dependency. • Libertarianism. Tariffs, taxes, and inherited privileges are unfair and inefficient. Free market best expresses the will of the people.

  5. Comparative Advantage • Different from absolute (competitive) advantage. • Nations should do what they do best. • Limited number of workers, hours, and investment dollars. • Need to utilize these resources efficiently. • Countries should produce more than they need and trade the extra for the goods they do not make.

  6. Wine Bread Poorland 5 hours per btl. 10 hours per lf. Richland 3 hours per btl. 1 hours per lf. Richland v. Poorland • Richland has the absolute advantage in both areas. • But Poorland has the comparative advantage in wine. • Poorlanders exchange one loaf of bread for two bottles of wine. • Richlanders exchange six loaves for the same two bottles of wine. • The differing ratios create an opportunity for trade. • For every bottle of wine the merchants of Poorland export to Richland, they receive three loaves of bread. These three loaves of bread would have taken the bakers of Poorland 30 hours to bake. But the bottle they sold only took them five hours to produce. Net gain: 25 hours of labor per bottle exported. Thus, it makes sense for Poorland to specialize and trade.

  7. Shaquille O’Neal Age: 31 Height: 7’1” Weight: 355 lbs. Occupations: Basketball Music Film Advertisements John Deere, Jr. Age: 16 Height: 5’7” Weight: 150 lbs. Occupations: School Landscaping Fast food Should Shaq mow his lawn?

  8. Government and Trade • Tariffs • Nation taxes imports to protect certain industries. • U.S. Customs Service • Debt • Cycle of debt, rising interest rates, recession. • Currency • Nations tempted to devalue currency to escape debt. • Results in inflation. • Supply and demand. • Weak currency means fewer imports. • Subsidies • State offers direct payments to politically potent sectors. • e.g. Pay farmers to keep their land fallow.

  9. Organizing Globalization • Treaties • North American Free Trade Agreement • Institutions • European Union • World Bank • International Monetary Fund • World Trade Organization

  10. The Development Gamble • Hypocrisy– The nations promoting free trade often maintain tariffs on certain products (e.g. agriculture). • Tradeoffs—Investors insist developing nations lower debt burdens, forcing them to dismantle the governing institutions that will help them become competitive (e.g. education) and manage the inevitable unemployment.

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