Current Events:
Obama and Free Trade: Q&A With Jagdish Bhagwati
ReasonTV — April 09, 2010 — Free trade is never more necessary - or vulnerable - than in times of economic distress. The current global downturn is no exception. Protectionist barriers have shot up all over the world, including the United States.
Last year, Congress killed a pilot program allowing Mexican trucks to transport goods across America and included Buy America provisions in the stimulus bill banning foreign steel and iron from infrastructure projects funded by the legislation.
More disturbingly, President Barack Obama, after chiding Congress for flirting with protectionism, initiated his own ill-advised affair by imposing a 35 percent tariff on cheap Chinese tires.
If the world manages to avoid an all-out trade war of the kind that helped trigger the Great Depression after the U.S. imposed the Smoot-Hawley tariffs in 1930, it will be in no small part due to the efforts of one man: Jagdish N. Bhagwati, an ebullient and irreverent 76-year-old professor of economics at Columbia University.
Bhagwati has done more than perhaps any other person alive to advance the cause of unfettered global trade. A native of India, Bhagwati immigrated to the United States in the late 60s after a brief stint on the Indian Planning Commission, where he learned first-hand the insanity of an economic approach that tried to modernize a country by cutting it off from world trade.
Since then, he has devoted his efforts, both in academia and in the popular press, to showing that there is no better way of improving the lot of both advanced countries and the developing world than through free trade. His path-breaking contributions to trade theory have put him on the short list for a Nobel Prize in economics.
Though a dogged trade advocate, Bhagwati is anything but dogmatic. He is a free spirit who draws intellectual inspiration from many disparate ideological camps. A self-avowed liberal, he is also something of a Gandhian social progressive, though Gandhi himself supported economic autarky. Bhagwati works with numerous Third World NGOs on a host of human rights issues. Yet he has no problem taking on these groups - or his famous student, Nobel laureate Paul Krugman - when they question the benefits of trade.
In fact, he devoted his 2004 magnum opus, In Defense of Globalization, to a point-by-point rebuttal of these critics. Although he doesn't vote Republican because he dislikes the party's nationalistic jingoism, he readily declares that Democrats pose a far bigger threat to international exchange than Republicans.
Last summer, Shikha Dalmia, a senior analyst at the Reason Foundation, interviewed Bhagwati in his New York office. For a transcript of that interview, go to http://reason.com.
This video interview was filmed on the same day and conducted by Dalmia, Reason Associate Editor Damon W. Root, and Reason.tv's Dan Hayes, who shot and edited the video.
The 50 Question Ch. 20 Multiple Choice Test will be Wednesday, the 21st.
This chapter presents the analysis of absolute and comparative advantage and employs supply and demand analysis to explain the determination of the terms of trade. Arguments regarding free trade and globalization are discussed. The chapter concludes with a section on the dynamics of trade as illustrated by trade in cashmere.
Chapter Outline
National Defense Argument
Globalization Concerns
Globalization and Inequality (www.cgdev.org), 2:10
Nancy Birdsall, President of the Center for Global Development gives a brief overview of the issues and concerns surrounding the growing global Inequality resulting from Globalization.
Milton Friedman - Free to Choose 1990 - 1 of 5 The Power of the Market PL 2/5
Trade and Domestic Employment
Trade and the Environment
Trade and Its Effect on Working Conditions in Developing Nations
Checkpoint: Arguments Against Free Trade
The Dynamics of Trade: Cashmere
Ideas for Capturing Your Classroom Audience
Chapter Checkpoints
The Terms of Trade
Question: When the government imposes a quota on a specific imported product,
who benefits and who loses?
The point is to check that students can: understand the costs and benefits of
restraints on trade and compare the effects of tariffs and quotas.
Arguments Against Free Trade
Question: “The biggest gains in export, imports, employment, and wages all
occurred during the 1990s, which was one of our greatest periods of economic
growth. Thus it is clear that trade benefits both consumers and the economy.”
Evaluate this statement.
The point is to check that students can: understand that trade benefits some and
imposes costs to others. This discussion also highlights the importance of context
in evaluating situations and policies (meaning, what gets attention in a recession
may not get attention when the economy is stronger).
Extended Examples in the Chapter
Examples Used in the End-of-Chapter Questions
Question 4 references a study by Scott C. Bradford, Paul L. Grieco, and Gary Clyde
Hufbauer titled “The Payoff to America from Global Integration,” in C. Fred
Bergsten and the Institute for International Economics, The United States and the
World Economy (Washington: Institute for International Economics, 2005), Chapter
2. A follow-up article is available on the Institute’s site at http://www.petersoninstitute.
org/publications/papers/paper.cfm?ResearchID=738.
For Further Analysis
Comparing the Welfare Effects of Tariffs and Quotas
This example, as presented in the student handout at the end of this chapter, can be used as a small group exercise or as an individual exercise. It is designed to complement the text’s material on the effects of tariffs and quotas. It requires students to employ the welfare analysis used in previous chapters (you may want to assign the review from Chapter 13 in conjunction with this assignment. The handout focuses on calculating changes in consumer surplus but it is not difficult to extend it to calculations of producer surplus and deadweight losses if you wish.
Web-Based Exercise
The following assignment sends students to the Web site of the World Trade
Organization to learn more about it, particularly its functions. You can choose
whether or not to include the third part of the assignment depending on how extensive you would like the assignment to be.
Learn more about the World Trade Organization (WTO). Visit its Web site (at
http://www.wto.org) and answer the following:
1) What is the WTO?
2) Who belongs to the WTO and when was it started?
3) Choose a dispute in which the WTO was involved. Explain the issue, the
steps involved, and whether or not the issue was resolved.
Tips from a Colleague
Students tend to want simple statements like “free trade is a good thing,” and
sometimes are frustrated with having to weigh the costs and benefits. They also
may not appreciate that the degree of “protectionism” in the United States waxes
and wanes with changing circumstances, particularly having to do with jobs. You
may wish to have students investigate the positions on trade of different members
of Congress by way of making comparisons depending on the interests of the
states they represent.
References
Milton Friedman - Free to Choose 1990 - 1 of 5 The Power of the Market PL 2/5
Email HW to gmsmith@shanahan.org
2. Ch. 25
The following assignment sends students to the Web site of the World Trade
Organization to learn more about it, particularly its functions. You can choose
whether or not to include the third part of the assignment depending on how extensive you would like the assignment to be.
Learn more about the World Trade Organization (WTO). Visit its Web site (at
http://www.wto.org) and answer the following:
1) What is the WTO?
2) Who belongs to the WTO and when was it started?
3) Choose a dispute in which the WTO was involved. Explain the issue, the
steps involved, and whether or not the issue was resolved.
3. As review for HW, typical questions that you may encounter on the actual AP Economics Macro Test are included daily:
Review Questions (Princeton):
a) demand curve
b) Phillips curve
c) production possibilities frontier
d) aggregate supply curve
e) Lorenz curve
10. The aggregate demand curve is
a) a horizontal summation of market demand curves
b) a horizontal summation of firm demand curves
c) a simple aggregation of demand curves for individual goods
d) a vertical summation of firm demand curves
e) not found by adding product demand curves horizontally or vertically
11. Assuming there is no statistical discrepancy, a trade surplus must be offset elsewhere in the
a) current-account balance only
b) capital-account balance only
c) current-account or capital-account only
d) current-account or capital-account only
e) merchandise balance of trade or current-account only
