Understanding Winners & Losers in Political Controversies on Globalization & Free Trade, Quizzes of International Business

Download Understanding Winners & Losers in Political Controversies on Globalization & Free Trade and more Quizzes International Business in PDF only on Docsity! TERM 1 Why is globalization in general, and trade in particular, so politically controversial and contentious? DEFINITION 1 It creates winners and losers (ex: compare outcomes for consumers and producers under autarky and free trade. TERM 2 What determines a countrys comparative advantage (need to be able to beyond the idea of opportunity costs) DEFINITION 2 Comparative advantage is the ability of someone (a country in this case) to specialize in a good in relation to itself. So, if a country can produce paper more efficiently than plastic bottles they have a comparative advantage in paper because that is what they produce at a lower rate of cost. TERM 3 What kinds of claims, predictions, or implications are associated with the Hecksher-Ohlin and Stolper-Samuelson Theorems? DEFINITION 3 The Heck Sher-Onlin Theorum states that land, labor, and capitol are what determines a countries comparative advantage/factor endowment-the relative abundance or scarcity. Also countries should specialize in the production of goods which intensively use those factors with which they are abundantly endowed. Increases aggregate welfareNow looking at the Stopler-Samuelson Theorum it states that free trade raises the income of the owners of a country's abundant factor of production, and free trade reduces the income of the owners of a countrys scare factors. Some of the political implications include the abundant factor of benefits from and supports free trade. The scarce factor is hurt by and opposes free tradeAlso the political conflict is within groups in a country, not between countries. TERM 4 Why does trade raise (lower) the income of owners of a countrys abundant (scarce) factor of production? DEFINITION 4 The scare factor is able to command a higher price under autarky because of its relative scarcity. Once the economy is opened up, that factor is no longer scarce. Because the owner of labor and capital are now competing directly with counterparts in other countries...FACTOR PRICE EQUALIZATION TERM 5 How do proponents of free trade (e.g., liberal economists) respond to the fact that some factors or sectors in the economy will lose out from trade and can therefore be expected to oppose free trade? What is their solution to this problem? DEFINITION 5 The gains from trade necessarily outweigh the summed losses to owners of scarce factorsThe victims can be fully compensated without removing all of the winners gainsMoreover, the need for civil peace & the costs of repression dictate that the losers should be compensated TERM 6 Through what kinds of mechanisms is compensation delivered to the victims of free trade? How is this reflected cross-nationally in the relationship between the openness of an economy (as measured by the importance of trade to that economy) and the size of government? DEFINITION 6 The welfare state Particularly unemployment insurance & retraining programs, financial compensationMore open economies tend to have bigger governmentsE.g., small European states TERM 7 How do the factor and sector models differ in their predictions about how trade divides societies politically? DEFINITION 7 Trade politics will pit import competing sectors against export- oriented sectors. What critical assumption separates the two models?1.The Factor Model assumes perfect factor mobility whereas The Sector Model acknowledges that factors are sector specific (certain jobs require certain skills- the skills and machinery used to make textiles cannot be used make computer software) TERM 8 What does the convergence hypothesis predict? DEFINITION 8 Catch up hypothesis it is inevitable that poorer countries will increase growth rates from the diffusion of capital, technology and know-how from richer countries, therefore the income gap (between countries) will eventually close. TERM 9 Why are most mainstream, professional economists in favor of sweatshops and against efforts to impose global standards, particularly wage standards on such industries? DEFINITION 9 Because they feel that to insist on a global wage standard is to deprive countries and therefore its workers of their comparative advantage- cheap labor. TERM 10 What are the two most heavily protected industries in American history? DEFINITION 10 Agriculture and Textiles TERM 21 What kinds of factors account for the political success of the textile and apparel industry in obtaining protection for itself? DEFINITION 21 The size of the manufacturing base (large employment base), the voice of the employment base, and the way the textile industry is clumped together and therefore has more influence on the congress representative from that area, whereas the retail industry is more spread out. TERM 22 Be able to describe/explain how the logic of collective action applies to both the retail and textile/apparel industries? DEFINITION 22 Logic of Collective Action helps explain the following outcomes:1. Why protectionist interests have traditionally/historically dominated trade policy?2. Why governments rarely liberalize trade unilaterally, but instead through reciprocal trade agreements?Reciprocal Trade Agreements: Ill lower my trade barriers if you lower yours. This overcomes the collective action problem1. Exporters benefitb. Consumers benefit from free trade and constitute a majority however no one want to fight against protectionist The smaller the group, the larger is each members incentive to engage in collective action1. Costs/Benefits = concentrated for smaller iii. Free riding increases the larger the group a public good1. Costs/Benefits spread out more diffusely for larger3. Why the WTO dispute resolution system authorizes retaliation, and how this promotes compliance with WTO rulings?a. Create concentrated costs for exporters i. More incentive to lobby the govt for liberalism TERM 23 What kind of trade policies do large retailers (e.g., Wal-Mart, Sears, JC Pennys, Target, etc.) prefer? Why? DEFINITION 23 Retailers want more free trade so that they can import cheaper goods to sell, they want to give customers the cheapest price possible they outnumber the textile and apparel producers X have as much influence b/c retailers are all spread out but textiles and apparel have more of a bond. Also textile and apparels are more concentrated under one congressman, the congressman has more of an incentive to look out for those constituents than the hundreds of retailers. TERM 24 Do retailers outnumber textile/apparel producers? DEFINITION 24 Yes TERM 25 How does geography interact with the logic of collective action to explain political outcomes such as continuing protection for textile and apparel producers? Where is the retail industry located? Where are textile and apparel producers located? DEFINITION 25 The retail industries are spread out more diffusely and retailers like Target and walmart will always be there. Textile and apparel producers are concentrated in certain areas like NC, AL, etc. This means they have more of an influence over a congressman. A large number of the congressmans constituents would be in the area, so he is more responsible to them. TERM 26 What is the wink and nod pattern which characterizes the relationship between American presidents and the representatives of textile and apparel producers? DEFINITION 26 The presidents wink and nod by offering crumbs to the textile industry to try to get their votes without making any promises or major changes to free trade. TERM 27 What are voluntary export restraints (VERs)? With which country did the US first negotiate VERs? Who did the VERs help? Did they help domestic textile producers? What were the consequences of the fact that VERs applied only to cotton imports? DEFINITION 27 Informal quotas - Ex: so that Japan limits how much it will export to the US, to help domestic producers, but x really helped. It helped Japans competitors to export more to the USAll of these policies have unintended consequences TERM 28 What were the Multi-Fiber Agreements (MFAs) DEFINITION 28 The ACMI (turned ATMI) began an intensive campaign to extend the LTA (restricting import of certain categories of cotton textiles) to other fibers (beyond cotton i.e. wool, synthetic fibers, blends etc.). Eventually it was signed by 50 countries and covered approximately 75% of US textile and apparel imports. TERM 29 Why is Congress ill-suited to make trade policy? Why is it an unnatural act for Congressmen to vote for free trade? DEFINITION 29 Congressmen x suited for trade policy because of politics, theyre too easily influenced by politicsCongressmen get things passed by supporting other congressmens policiesYou vote for my legislation and Ill vote for yoursLogrollingTrade policy Ill vote for your trade policy if you vote for mineEx: Smoot-Hawley Tariff act of 1930 Raised tariffs to highest ever in American historyOne set of interests were pressing for own protectionist policies and the only way to get them passed was to support similar policies of other congressmen Logrolling TERM 30 Why is the political logic of protection which leads to protection all around? DEFINITION 30 Members of Congress seeking election or reelection are often forced into protectionist postures but can obtain protection for their interests only by offering the same to their congressional colleagues. because Congresss natural tendency is a spiraling protectionism extending trade barriers into the districts of each congressperson. (so basically because congressmen need other congressmen to vote for their protection policies for their districts, they have to agree to return the favor the same way hence protection all around) TERM 31 Why is the president better-suited for making trade policy (assuming free trade is the preferred policy outcome)? DEFINITION 31 Because they think of the country as a wholeMuch larger constituency TERM 32 Why (and when) did the American Apparel Manufacturers Association (AAMA) become the enemy of the domestic textile and apparel producers lobby? DEFINITION 32 They made a clean break in 1990. They left because to continue to produce apparel in the US, access to cheaper and more fashionable foreign fabrics was a necessity. By limiting their access to foreign fabrics, trade restrictions were making it more difficult to keep production in America. Also, they left because of the increasing quality and price competitiveness of the Asian producers. TERM 33 What was the significance of the AAMAs eventual name change (aside from the fact that they now were aligned with footwear companies)? DEFINITION 33 Not only does it reflect the merger but the new generation of US apparel firms were hesitant to belong to the apparel firm associated with manufacturing because it is almost as archaic as a cotton farmer with a mule TERM 34 Explain the following puzzle: Between 1990 and 2007, the US textile and apparel industry lost half its workforce, yet production output remained steady? DEFINITION 34 Capital and technology have replaced labor in textile production, jobs such as the piece up (yarn tying) and doffing (removing full bobbins) are gone now not because of competition from China but because of technological progress and mechanization. TERM 35 If textile and apparel manufacturing has nearly vanished in the US, then why are trade barriers still in place? Who do such barriers protect? DEFINITION 35 Today, these protections mostly protect Americas customers and its friends. The trade agreements create a captive market for US made yarn and fabrics, so the US yarn and fabric makers have an interest in supporting their customers by maintaining trade barriers for apparel from other countries. Most importantly, the barriers serve as a tool to reward the United States friends and allies. Countries who enjoy free access to the US market have a cost advantage over those that do not. Those who have the advantage want to keep their club as small as possible, and therefore they influence Washington to keep tariffs applied to their competitors; In short, the trade barriers protect the apparel industries of the US friends.