Download Class 10: Economic Globalization 5

Class 10: Economic
Globalization 5
Sociology 2
Copyright © 2008 by Evan Schofer
Do not copy or distribute without
permission
Announcements
• First midterm coming up: May 6
• Midterm review sheet handed out previously
– Available on course website
• Section this week: Midterm review
• Midterm week: NO SECTION!!! (May 5-May 9)
• Today:
• Wrap up economic globalization
• Discuss some readings relevant to the midterm.
Review: Participation in Globalization
• Issue: Economic globalization presents dangers
• Economic crises, loss of state autonomy, etc.
• Given the dangers, why do some countries want
to participate in globalization?
• Answer: International trade and capital flows
can increase economic growth
• Trade allows countries to specialize in their comparative
advantage, resulting in greater production efficiency
• Investment is a major ingredient in economic growth.
Review: Barriers to Trade
• Strategies for protectionism
– 1. Tariffs – taxes on imported goods and services
– 2. Quotas – a government-imposed numeric limit on
imports
– 3. “Non-tariff” barriers – Government regulation that
indirectly limits trade or makes it more expensive
• Subsidies
• Health/environmental regulations, inspections, etc.
– 4. “Foreign ownership” laws – laws that limit the
ability of foreigners to buy companies
– 5. “Capital controls” – laws designed to prevent the
rapid withdrawal of capital/investment.
Review: Barriers to Trade / Investment
• Definition: Protectionism = blocking foreign
imports or capital flows
• Opposite: “Liberalization” or “opening up markets”
• Note: different from typical use of “liberal” in US
• Reasons to pursue protectionism:
– 1. Protect domestic companies or industries from
foreign competition
• Prevent bankruptcies, job loss in inefficient industries
– 2. To reduce risk of financial crises.
– 3. Prevent foreign ownership and/or control of the
companies or the economy
• Example: People get nervous when Chinese companies buy
major US oil or computer companies
Removal of Barriers
• How do trade/capital barriers get removed?
• “Liberalization” or “opening markets”
• Answer: When governments decide to remove
them!
• In direct negotiation with other countries
• Or, via international treaties & organizations
– GATT; NAFTA; WTO.
Removal of Barriers
• Bi-lateral negotiations & treaties:
• When two countries negotiate trade & investment barriers
• Ex: The US negotiates with China, haggling over barriers
– “You reduce tariffs on American cars, and we’ll reduce import
quotas on Chinese textiles”
– Note: Barriers can also be raised as coercion
• Example: US threatens to impose quotas on Chinese steel
products, if China doesn’t lower tariff
– China might respond by threatening to raise tariffs on the US
• Escalation of this is called a “trade war.”
Example: Bi-Lateral Trade Negotiations
• South Korea, U.S. May Hold Farm Trade Talks in March
• SEOUL (Reuters) - The United States and its seventh-largest trading
partner began talks on a free trade agreement in June 2006. It would
be the biggest free trade deal for the United States since the North
American Free Trade Agreement was signed in 1992.
• Agriculture has been one of the toughest sectors to negotiate in a free
trade deal between two countries, especially because of intense
opposition from South Korean farmers to market liberalization.
• South Korea's farm ministry repeated Seoul's position that it would
continue to insist on exempting rice under a bilateral free trade deal.
``Rice should be excluded."
• On the issue of resuming U.S. beef imports, the deputy minister said
beef would not be an issue in the meeting and the country would stick
to its stance of importing only boneless beef from the United States.
• South Korea and the United States recently failed to resolve the
dispute over U.S. beef imports, which Washington said could threaten
the free trade pact.
– Exceprt: New York Times 2/21/07
Free Trade Agreements
• Multilateral agreements
• When many countries negotiate together to reduce barriers
• Ex: NAFTA; also negotiations under GATT, WTO
• Quick review of NAFTA consequences:
– Schaeffer, p. 242
» More info in Stiglitz, Ch 3 and elsewhere
– US:
• Slight increase in exports; 90-160,000 added jobs;
• 140,000 textile jobs lost to Mexico
– Canada
• Lost 500,000 jobs
– Given the size of Canada, this was huge
• Canada imports heavily from US; currency devalued.
Free Trade Agreements
• Impact of NAFTA (cont’d)
– Mexico
• 600,000 new textile jobs; offset by other job losses
• Imports from US increase
– This was one factor leading up to the crisis in 1994
– Other losers?
• Organized labor (Unions)
– From commanding heights video:
– Other winners?
• Consumers (who didn’t lose jobs)
• Multi-national corporations
• Possible long-term increase in efficiency, growth.
Problems With Trade Agreements
• Rich/powerful countries have big advantages in
negotiating trade agreements
– See: Stiglitz, Chapter 3
• 1. Rich/powerful countries have a huge advantage
in bi-lateral negotiations…
• Often, those turn out worse for poor countries than large
multilateral agreements
Problems With Trade Agreements
• 2. Rich/powerful countries disproportionately
control the agenda of agreements
– They created them, after all…
– “The United States and Europe have perfected the art of arguing for
free trade, while simultaneously working for trade agreements that
protect themselves against imports from developing countries.” p. 78.
• Topics addressed by FTAs benefit rich countries
– Ex: focus has been on removing barriers for high-value goods &
investment, not farm products or low-tech stuff
• And, righ countries are savvy at using dispute resolution
procedures
– They have lots of lawyers, using technicalities to block imports.
Problems With Trade Agreements
• 3. Government trade negotiators are often
influenced by powerful groups
• Rather than negotiating for terms that will benefit everyone in
a country, negotiators may cater to big corporations
• Example: Suppose Guatemala is negotiating over a tariff that
limits big business, but protects jobs?
– Companies may push the government to get rid of the tariff, even if
many workers will be harmed…
Stiglitz: Making Trade Fair
• Stiglitz, Chapter 3: Recommendations
– 1. Developing countries should be treated differently
• Previously, most trade agreements focused on equal treatment
• But, poor countries can’t compete on equal footing…
– And, rich countries have little to lose by treating them better
– A. So, rich countries should simply open their
economies to the poorest countries
– This would have a much bigger effect than providing direct aid
• NOTE: Europe has started moving in this direction
– B. Poor countries should be allowed to use subsidies to
support “infant industries”
• Again, rich countries have little to lose… but benefits are big.
Stiglitz: Recommendations:
• 2. Agricultural subsidies: Rich countries should
stop the MASSIVE subsidies to their farmers
• Rich countries give huge amounts of money to (mainly)
industrial farms
• Result: Farmers in poor countries can’t compete
– Their farm products cost more because they don’t have subsidies
• Result: Global prices are kept down, hurting farmers around
the entire world.
Stiglitz: Recommendations
• 3. Escalating tariffs should be ended
• Escalating tariffs: taxing manufactured products at higher
rates than raw materials
– Ex: Having no tariffs on raw agricultural goods, but high tariffs on
higher-value processed goods
– No tax on apples; high tax on applesauce
• Issue: This prevents poor countries from industrializing
– They are stuck farming
– While rich countries have cheap source of produce for their highvalue industries.
Stiglitz: Recommendations
• 4. Remove barriers to unskilled services &
migration
• Rich countries have pushed to remove barriers for high-tech
services (banking, accounting, software)
• Barriers remain in low-skill services
– Example: Shipping/trucking. Foreign companies aren’t allowed
• This is one area that poor countries could actually compete…
• Also, allowing more labor flows would provide a huge
benefit to poor countries.
Stiglitz: Recommendations
• 5. Restrict the use of non-tariff barriers
• There are legitimate reasons for having them…
• BUT, more often they are used by rich countries to protect
their own markets (despite claims of supporting free trade)
• 6. Restrict bi-lateral agreements
• They are rarely advantageous to poor countries
– Due to asymmetry in power between negotiators
• And, they tend to undermine multilateral agreements
Stiglitz: Recommendations
• 7. Reform governance
• Change the rules of international organizations like the WTO
• Issues (p. 97):
–
–
–
–
How decisions get made
What gets put on the agenda
How disagreements are resolved
How rules are enforced
• Currently, rules favor rich countries
• System should be more open/transparent, more democratic,
with better enforcement for small countries.
• This is the topic we will address next week, after
the midterm!