9Trade

Globalization and Trade : 

Globalization and Trade Rise in volume/value of global exports of goods and services over 50 years

Globalization and Trade: 

Globalization and Trade World trade as a percent of GDP has grown from 25% in 1960 to 58% in 2001

Trade and the Environment: 3 Schools of Thought: 

Trade and the Environment: 3 Schools of Thought 1. Trade promotes better environmental conditions 2. Trade harms the environment 3. Managed trade promotes better environmental conditions

1. Trade is ultimately good for the environment : 

1. Trade is ultimately good for the environment View of market liberals, grounded in theory of comparative advantage (David Ricardo, 1817) Theory If all countries specialize in product of comparative advantage, then trade it to get other items, then efficiency rises & more goods can be produced. Such free trade creates competition; fosters innovation & further efficiencies.

Arguments revolve around 3 areas:: 

Arguments revolve around 3 areas: a) Efficiency b) Economic growth c) Technologies and standards

A. Efficiency: 

A. Efficiency Efficiency means less resources needed to produce goods (which improves human welfare). Trade liberalization can enhance efficiency, improve environment as trade barriers distort markets and create waste and inefficiency.

B. Economic growth: 

B. Economic growth Trade is an engine of growth, as seen by rising GDP per capita. More growth, higher incomes, higher political will, greater state capacity to regulate and enforce, better environment in long-run.

C. Technology and Standards: 

C. Technology and Standards Transfers more advanced technology, knowledge, and environmental standards to less developed countries. Evidence: Protected industries have little incentive to adopt technologies that are more efficient and environmentally friendly (e.g., N Korea) Structures of trade (WTO, NAFTA, EU) facilitate cooperation on env standards

2. Trade harms the environment: 

2. Trade harms the environment Critical of theory of comparative advantage Original theory assumes goods are mobile, but capital & labor are static Critics, Herman Daly, argue that because capital is now highly mobile, specialization can distribute harm unevenly i.e., 3rd World exports natural resources, makes products that create more harm

2. Trade Harms Environment: 

2. Trade Harms Environment Critical of efficiency gains: may result in more use of resources. Why? Because demand can rise, such as for paper, once it is made more efficiently (and is therefore less expensive) Because the expansive nature of trade far exceeds efficiency gains (e.g., cars now more efficient, but far more)

2. Trade Harms Environment: 

2. Trade Harms Environment Argue free trade externalizes environmental and social costs e.g. tropical logs Argue trade can harm the env because need to transport products over long distances: flying, shipping, trucking—waste resources and contributes to pollution through oil spills and transportation fumes

2. Trade Harms Environment: 

2. Trade Harms Environment Trade encourages gov’ts and firms to compete by lowering env standards Creates pollution havens (will discuss in next lecture)

3. Managed trade is good for the environment: 

3. Managed trade is good for the environment Initially, debate dominated by arguments over whether trade is good or bad for the environment Last decade, growing middle position dominated by institutionalist thinkers, advocating controlled trade

3. Managed Trade: 

3. Managed Trade Argue international trade is no more harmful to the environment than regional or local trade Global agreements are seen as a way to produce positive outcomes for both trade and the environment Such cooperation is vital because a healthy environment is critical for efficient trade and trade is essential for env

3. Managed Trade: 

3. Managed Trade See little problem with controlling the global trade in hazardous wastes or dangerous chemicals At the same time these thinkers advocate trade liberalization in other areas e.g., removal of subsidies on fuel to raise prices and promote greater efficiency

3. Managed Trade: 

3. Managed Trade Support global efforts to internalize environmental and social costs into prices of goods Believe here that market incentives, like eco-labelling, is usually better than trade barriers

Conclusion: 

Conclusion Important to note arguments for and against trade But also important to see how these two sets of arguments have evolved into compromise Still great debate on how to manage trade