Global Trade and Investment Environment

This chapter discusses global trade and investment.
Key figures/people mentioned include Magdagaong, Lazaro, Malavega, Jumawan, Jimenez, and more.

Access to Products: Countries gain access to products they can't efficiently produce domestically (e.g., Iceland trading fish for oranges).
Specialization: Countries focus on producing and exporting goods they are best at, increasing overall efficiency.
Lower Costs: Imports provide access to cheaper products, benefiting consumers.
Global Resources: Nations utilize their unique resources efficiently (e.g., U.S. aircraft, Bangladesh textiles).
Overall Economic Gains: Trade boosts the entire economy, even if some specific industries face challenges.

There's a lack of consensus on government policy recommendations regarding trade.
Classical Trade Theories (Smith, Ricardo, Heckscher-Ohlin): Advocate for unrestricted free trade; import controls and subsidies are deemed inefficient.
New Trade Theory and Porter's Theory: Support limited government intervention to foster export-oriented industries.
Strategic Trade Policy: Examines the trade-off between government intervention and free market efficiency. (Chapter 7).
Unrestricted trade has both pros and cons. (Chapter 7).

Governments intervene for political, economic, and social reasons.
Key motivations include protecting jobs, national security, consumer safety, and human rights.
Tools for intervention: Tariffs, sanctions, and preferential trade agreements.

Governments protect industries crucial to national security from dependence on other countries.
Example: U.S. support for the semiconductor industry & reducing foreign dependency.
Benefits: Reducing foreign dependency can lead to high costs.

Promoting human rights internationally.
Example: U.S. sanctions on Myanmar illustrates a push for human rights in trade.
Trade interventions can encourage reform, although limited by other nations' trade policies (complex).

Historically, most economists favor free trade, but recent developments have sparked new perspectives on government intervention.

Supporting new industries until they can compete globally.
Example: Brazil's auto industry protection through tariffs.
Criticism: Risk of fostering inefficient industries; access to global capital may reduce the need for intervention.

Enhancing national competitiveness in key industries.
Tools: Export subsidies, research & development (R&D) support, market protection.
Potential Risks: High costs and risks of choosing uncompetitive industries.

Offers challenges to previous strategic trade policies (by Adam Smith and David Ricardo, supported by Paul Krugman).
Retaliation and trade wars can be expensive/pointless if subsidies encourage an arms race.

Refer to government interventions within a country's economy.
Aims: Regulating industries, protecting local interests, or promoting growth.
Impact: Can significantly impact international trade by changing the competitive environment.

Supports European farmers with subsidies and price controls.
Makes European agriculture more competitive but distorts global agricultural trade.

U.S. tariffs on imported steel and aluminum to protect domestic industries.
Potential benefits for U.S. producers, but can lead to trade disputes and high costs for other industries.

The General Agreement on Tariffs and Trade (GATT) aimed to reduce trade barriers and promote free trade (established in 1948).
From Smith to the Great Depression: Smoot-Hawley Act worsened the Great Depression globally by imposing high tariffs on imported goods.
1947 to 1979: GATT and Trade Liberalization: Gradual reduction of tariffs, subsidies, and quotas (8 rounds).
1980 to 1993: Protectionist Trends: Countries found ways around GATT regulations to support their domestic production while still benefiting from world trade.

Arbitration panels for trade disputes are automatically adopted unless rejected by consensus.
WTO has 159 members, accounting for ~98% of world trade.
The Uruguay Round and WTO's establishment: 7 years of negotiations culminating in the WTO's creation (1995).
WTO as a global police force via dispute resolution.
Expanding trade agreements encompassing foreign direct investment (an expansion of prior GATT agreements).

Mercantilism: Encourage exports, discourage imports.
Absolute Advantage: One country produces a product more efficiently than another.
Comparative Advantage: Countries specialize in what they produce most efficiently, even if not the best at producing everything.
Heckscher-Ohlin Theory: Resource availability influences international trade.