International Trade Policy: Understanding Trade History

Deepanshu Mohan

Lecture Outline
Last weeks lecture on First Phase of Globalization and its backlash. Trade History since WWII Regional Integration Rebuilding Europe through deeper economic integration The EU and other Regional Trade Blocs Regionalism vs. Multilateralism Macroeconomic Tri-lemma Institutions and Trade Policy GATT/WTO Trade rounds: A special focus on the importance of Tokyo round, Uruguay Round and Doha Round. Understanding critical issues with the WTO and its Dispute Settlement Mechanism. India and WTO

Last Weeks Lecture

Defining Globalization First Phase of Globalization (1870-1914) - The role of the Industrial Revolution (technological innovations like mechanized cotton spinning, steam power, iron making etc. in pushing bilateral and multilateral trade from England) - International monetary system: The Gold Standard and its first phase regulated by greater central bank co-operation amongst countries and under the hegemon-Bank of England. - Global peace and greater capital movement. Globalization backlash (1914-1944) Protectionist Phase seen globally from WWI The rise of America over England as a hegemonic power The second phase of the Gold Standard (poorly regulated and managed in the presence of the Fed.) The Great Depression of the 1920s Abandoning of the Gold Standard in the 1930s WWII

Trade History since WWII: World Merchandise Exports/World GDP

20 18 16 14 12 10 8 6 4 2 0 1820 1870 1913 1929 1950 1973 1990 2000

Source: Maddison (2001)

GATT and Average Tariff Cuts

Source: WTO published papers(2000)

The Economic Impact of European Integration

The research paper by Barry Eichengreen and Doltho provides us with a lucid, coherent counter-factual analysis looking at the politico-economic impact of the policies undertaken as a part of the European Unification that started after the WWII. Europe after WWII was highly disintegrated and countries like France, Germany and UK had pretty much lost out on their international competitiveness owing to the greater level of trade protectionism and political instability present in the region.

Regional Economic Integration: Rebuilding Europe

Regional integration is commonly viewed as one of the leading processes shaping the development of the European economy since World War II.

Narrative Approach Considered

(Jean Monnet, Robert Schuman, Jacques Delors) Key Events

(-the decision to form the European Coal and Steel Community or ECSC,
-sign the Treaty of Rome, -establish the Single Market)

Underlying Forces (the preference of export and banking interests for trade and financial liberalization, the acquiescence and even support of the United States for European integration

The importance of intra-European Trade: (Share of intra-trade in total)

Year 1938 1950 1970 1990 2008 Intra-Western Europe 52.2 49.3 67.3 72.2 Intra-Total Europe 61.4 58.7 73.9 75.2 76.6 Intra-Americas 33.3 53.9 46.9 47.8 57.2 Intra-Asia Pacific 35.1 47.7 50.1

Source: The Economic Impact of European Integration, B.Eichengreen & Doltho

Research Paper
Research Question: How would economic outcomes have differed in the absence of the policies actually observed?
Hypothesis: The ex-ante hypothesis was that the economic (as opposed to the political)impact of Europan Unification has been limited) The Policies Observed: The European Coal and Steel Community (based on the idea of supra-nationality) The Common Market and the Common Agricultural Policy (CAP) (following the Treaty of Rome to eliminate tariff barriers to foster intra Community trade) European Monetary System (to stabilize exchange rates)

1992 Single Market Program (the rationale was to enhance efficiency and stimulate growth by intensifying product and factor market competition) EMU ( formed in 1999 towards the formation of Euro)

As new growth models endogenize technical change, new political-economy models endogenize policies.

Task
How has the European economic integration as discussed in the research paper helped countries within Europe to grow economically, politically and socially? A class debate on: Regionalism vs. Multilateralism in International Trade.