Chapter 4: A Society Centered Approach to Trade Politics §

(F) Day of the week: Wednesday Class: IS302 Created Time: November 25, 2020 8:28 AM Database: Class Notes Database Date: November 25, 2020 8:28 AM Days Till Date: Passed Last Edited Time: June 26, 2021 2:26 PM Type: Presentation Notes, Reading Notes

what determines the specific trade objectives that governments pursue when bargaining within the WTO, when negotiating regional trade arrangements, or when making unilateral trade policy decisions?

A Society Centered Approach: government’s trade policy objectives are shaped by politicians’ response to interest groups’ demands.

• Trump renegotiate NAFA and others
• Brexit

1. Trade Policy Preferences §

Factor Model || Sector Model:

• Raise or lower tariff ⇒ redistribute income
• Income consequence ⇒ dividing society

1.1. Factor Model §

It’s the competition between Capitalists and Workers

Factors of production is moved by the competition

There are two policies that determine the winner and losers:

Winners$\text{Liberalized Trade Policy}\left\{\begin{array}{c}\text{Developed Countries: Capitalists}\\ \text{Developing Countries: Workers}\end{array}\right\}$

Losers$\text{Protectionist Trade Policy}\left\{\begin{array}{c}\text{Developed Countries: Workers}\\ \text{Developing Countries: Capitalists}\end{array}\right\}$

1.2. Sector Model §

Competition between export-oriented and import-competing sectors or industries

Assumption: the immobility across sectors of the economy

Winners laborer and capitalist employed in export-oriented industries

Losers laborer and capitalists employed in import-competing sectors

2. Organizing Interests §

Collective Action Problem: situation where individuals would be better off cooperating but fails to do so because of incentive to free ride

Collective Action: help understand 3 characteristics of trade politics

• Why producers rather than consumers dominate trade politics
• Trade politics will exhibit a bias towards protectionism
• Why government rarely liberalize trade unilaterally, but will do so in negotiated agreements

3. Political Institutions and the Supply of Trade Policy §

$\text{Electoral System}\{\begin{array}{l}\text{Majoritarian}\\ \text{Proportional Representation}\end{array}$

Majoritarian §

Uses First-Past-the Post: electoral system in which candidate or party is elected by achievement of a majority vote.

Proportional Representation §

Electoral system in which parties gain seats in proportion to the fraction of vote casted for them

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3.1. The Electoral System §

• shapes how interest groups organize in politics to pursue their trade policy objectives
• Affect the level of protectionism adopted in the country

3.2. Veto Players §

• A political actor who must agree to have a policy be implemented.
  • In the divided government, two-veto player systems
  • Unified government: one-veto play system
  • Coalition governments: Multi-veto player systems
  • Parliamentary government: single party majority government

The more Veto players the harder to change from the status quo

3 Weaknesses §

• SCA undermine independence of politicians
• SCA overlook motivation from non-governmental organizations

Discussion §

Why in developing countries labor prefer liberal trade policies while owners of capital prefer protectionist trade policies?

• Workers want free trade as it brings in competitions, higher labors, cheaper products
• Capitalists want closed economy because they could be monopoly, deciding the price and wage

What is trade politics? Trade Policy?

• Protectionism: focused on my capitalists
• Liberalization: focused on my labor

Factor Model

• Determined by competition between the labor and capital (Comparative advantage)

  Abundance factor is the winner, scarce factor is the loser