International Political Economy (I): Trade

1. International Political Economy (I): Trade Lec 16 – 7 April 2011J A Morrison The Custom House, 1755, John Stow’s Survey of London

2. Lec 16: The IPE of Trade • Studying IPE • An IPE Framework • The IPE of Trade

3. Lec 16: The IPE of Trade • Studying IPE • An IPE Framework • The IPE of Trade

4. I hope you’ve noticed that we’re shifting gears again in the course. We’ve just finished Unit 2 and are on to Unit 3…

5. PS 109b International Politics • Unit 1: Studying International Relations✓ • Unit 2: War & Peace✓ • Unit 3: International Political Economy • Unit 4: International Organization • Unit 5: Contemporary Issues in International Politics Batter up!

6. I. STUDYING IPE • What is IPE? • From Security to IPE: Substance • From Security to IPE: Approach

7. So, what is international political economy (IPE)?

8. Obviously, such definitions can be contentious…For our purposes, though, we might define international political economyas the study of the relationship between politics and economics in an international context.

9. How is this different from international economics (IE)?

10. IPE draws heavily on the models and insights developed by IE, but IPE has a different emphasis.

11. IPE is Interested in Policy • Origins and effects of economic policy • Influence of economic constraints placed on policymakers

12. BUT there is a lot of cross-over: We read across disciplinary boundaries; and we talk to one another. Our interests are just slightly different: politics and policy versus economics.

13. I. STUDYING IPE • What is IPE? • From Security to IPE: Substance • From Security to IPE: Approach

14. International security (IS) is quite a different beast from international political economy (IPE).It is specifically different in two ways…

15. First, the stakes in matters of IPE are different than they are in matters of IS.

16. IPE influences the health and welfare of states’ economies. In IS, a state’s very existence hangs in the balance.

17. This contrast may lead to differences in a given state’s willingness to cooperate in security versus economic matters (Keohane).

18. Second, economic matters are far more intricate and complex than are security matters.

19. Policymakers have a much clearer idea what will follow from an increase in military spending than they do from a change in the subsidies given to domestic industry or in the exchange rate regime.

20. There are simply more variables in IPE, more connections between them, and more influences that lie beyond the control of states. Setting foreign economic policy is hard!

21. I. STUDYING IPE • What is IPE? • From Security to IPE: Substance • From Security to IPE: Approach

22. These differences between IS and IPE make studying the latter different from studying the former.

23. For one thing, many of the models developed to understand security policy are not easily applied to the realm of foreign economic policy.

24. Security Theories Misapplied to IPE

25. Other theories—like hegemonic stability theory—apply equally well to IPE and IS.HST posits that a preponderance of power brings political and economic cooperation resulting in security and openness.

26. The barriers to entry to studying IPE are also higher than they are to studying security.

27. The terms and concepts in IPE are generally less familiar (e.g. WMD versus exchange rate regime).Students generally come to IP with a better understanding of the relationship between the key IS variables than the IPE variables.

28. Arguably, the models in IPE are more abstract and complex than those in IS.Consider MAD in IS versus the “trilemma” in IPE.

29. Security is more important than IPE! Benjamin “Jerry” Cohen John Mearsheimer Perhaps, John. But studying bombs is easy-- studying money is hard!

30. Lec 16: The IPE of Trade • Studying IPE • An IPE Framework • The IPE of Trade

31. When we studied IS, we utilized the framework of the security dilemma to organize much of our analysis.

32. The security dilemma specified that a given state (generally) could not make itself more secure without making others less so.

33. Using this framework, we studied… The factors that increase or decrease that rate of trade-off (Jervis) The strategies used to increase security given the dilemma (Waltz; Mearsheimer; Keohane; Axelrod) The role of norms & identities in shaping states’ understanding of security & threats (Constructivists) The influence of domestic institutions on policy responses to the dilemma (Russet; BGW) 33

34. States also face an essential dilemma in IPE: the dilemma of integration versus insulation. Simply put, should states become more or less involved in the global economy?

35. The Benefits of Integration • Greater variety of products • Int’l division of labor increases efficiency and thus total wealth • Greater freedom of movement • Foreign investment opportunities

36. The Costs of Integration • Disruption during transitions • Exposure to external shocks • Dependence on foreign economies for necessities • Limited policy autonomy  Insulation, of course, minimizes these costs.

37. Unlike the security dilemma, however, the dilemma of integration/insulation does not (always) place states in a zero-sum game.

38. A state’s decision to increase its level of economic integration does not necessarily decrease the ability of other states to retain their own economic autonomy.

39. Lec 16: The IPE of Trade • Studying IPE • An IPE Framework • The IPE of Trade

40. III. THE IPE OF TRADE • Why Trade? • What Should we Trade? • Why Restrict Trade?

41. Why trade? “Trade improves the overall welfare of nations by allowing them to make the best use of their scarce productive resources, and to improve their overall consumption by producing certain things themselves and obtaining other goods and services from other nations.” Grieco, Joseph M., and G. John Ikenberry. State Power and World Markets: The International Political Economy. New York: W.W. Norton & Co., 2003. p 21.

42. To understand how trade is able to increase welfare in this way, we need to understand comparative advantage.

43. An entity has an absolute advantageif it can produce a good at lower total absolute cost than another.An entity has a comparative advantageif it can produce a good at a lower opportunity cost than another.

44. Charles Woodson can shovel my walk faster than I can. His absolute cost (in terms of labor hours) is lower than mine.

45. But Charles can only shovel snow at the cost of intercepting passes. The opportunity cost of having Charles shovel his walk and mine is quite high: the Vikings will take the division!

46. Even though Charles could be a better snow-clearer and a better cornerback than I could, we agree that we are both better off if I do the shoveling and he picks off Favre passes.

47. Charles’comparative advantage lies in pass defense.My comparative advantage lies in shoveling. Despite that Charles has an absolute advantage in both!

48. Wood!

49. Why are the Vikings purple?  Because they choke!

50. This same dynamic prevails between states. While some states enjoy absolute advantages in the production of various goods, they can still increase their consumption by specializing in just one of these goods and trading for the others.