Key Questions

1. How has the importance of trade to the US economy changed over time?

2. What is protectionism? What role has it played in the history of US development?

3. What is the difference between fiscal and monetary policy? How do they relate to one another?

4. How does an industry's size relate to its ability to get protectionist policies?

5. What are the positions of the two major parties been on trade policy? How have they changed over time?

6. What are some of the major changes in immigration policy across US history?

7. How has immigration been a tool of US foreign policy?

Terminology

Trade

Trade: The flow of goods and services between countries

Imports: Goods and services that are consumed within a referent country but produced in another.

Exports: Goods and services that are produced within a referent country for consumption in another.

Aggregation: We can talk about how to group different businesses or products (specific items, technologies, industries, sectors, etc.)

Terminology

Finance and Monetary Policy

Finance: Refers to the flow of capital (cash) within and across borders

• Portfolio Investment
• Sovereign Lending
• Foreign Direct Investment (FDI)

Monetary Policy: Refers to the supply and valuation of currenty

• Interest rates
• Money supply

Historical Background

Historical Background

Trade before 1934

• Protectionism is dominant approach to US economic development

• Northeastern manufacturing interests had substantial political influence and favor protectionist policies

• Southern and Western agricultural interests less influential and favor freer trade polices.

Historical Background

Trade after 1934

• Northeastern and Southern interests align in 1930s and 1940s

• Both groups come to support freer trade

• Protectionist barriers begin to come down

• World War II marks an important turning point

Historical Background

Bretton Woods System

• Partly a reaction to pre-World War II move to autarky

• Three main components

  • General Agreement on Tariffs and Trade (GATT)
  • International Monetary Fund (IMF)
  • International Bank for Reconstruction and Development (World Bank)

Why Does Trade Matter?

Theoretical

• Realism/Mercantilism

  • Trade as a source of national power

  • Trade is a zero-sum game

• Liberal theory

  • Trade can be positive-sum (both/multiple players can "win")

  • Trade has other beneficial effects (e.g. it promotes peaceful relations between states)

Why Does Trade Matter?

Tangible benefits

• Trade creates jobs

• Access to desirable goods (spices, cool cars, technology, media/entertainment)

Less tangible

• Soft power and prestige

• Information, education, etc.

Trade as a Policy Instrument

Trade can be a source of power

• Control over vital resources

• Necessary for survival of the state, everyday life, etc.

• Few substitutes, few alternative suppliers

Trade as a Policy Instrument

Market access

• Producers need markets. Scaling up production requires larger markets.

• Exports bring in money from the sale of goods

• Domestic consumer base is often limited in various ways (money, taste, interests, etc.)

• Provides bargaining power

Trade as a Policy Instrument

Does this mean trade is hurting your economy?

No!

Let's look at how GDP is calculated:

$$GD{P}_{it}=Consumptio{n}_{it}+Investmen{t}_{it}+Governmen{t}_{it}+(Export{s}_{it}-Import{s}_{it})$$

Trade as a Policy Instrument

Protectionism

• Trade creates winners and losers

• Some countries can produce goods more/less efficiently than others

• Domestic producers who are relatively inefficient tend to favor protectionism (i.e. government intervention)

Trade as a Policy Instrument

Forms of Protectionism

• Trade protection can come in a variety of policy interventions

  • Tariffs: Taxes on imported goods

  • Quotas: Limits on how much of a good is imported

  • Subsidies: Government payments to purchase goods or offset costs of donig business

  • Health and safety regulations: Creating different standards between importers and exporters

Trade as a Policy Instrument

Example: Sugar Quota System

• WTO agreements requires the US to import a minimum of 1,117,195 metric tons of raw sugar from global producers

• This is an aggregate figure-it does not have to be distributed evenly across sugar producing states

Trade as a Policy Instrument

What is the benefit to foreign countries?

• Dominican Republic share = 185,050 metric tons

• World raw sugar price (2019) $\approx$ 12.36 cents/lb.

• US raw sugar price (2019) $\approx$ 26.16 cents/lb.

• Difference = 13.8 cents/lb.

So what?

That's about $56.3 million more than world market!

Trade as a Policy Instrument

More recent example: Manufacturing

• Some industries are politically powerful for reasons apart from economic salience

• Manufacturing sector has a lot of influence

• Heavily tied into American image of production and the importance of making things

• Early Trump economic policies focused on "reviving" US manufacturing, but was it even in need of resuscitation?

Monetary Policy

People need money to buy things

• Theoretically, we could use all sorts of stuff!

• A commonly held/used/accepted currency (e.g. "brand") of money helps resolve coordination problems

• US dollar is widely used and valued, making it a great basis for global commercial exchange

Monetary Policy

So what are we talking about here?

For present purposes, let's focus on two key issue areas

• Money supply

• Exchange rates

Monetary Policy

Mr. (money) manager

• Governments manipulate money and its value through a couple of key mechanisms

  • Setting interest rates

  • Buying and selling assets

• People use the dollar, so what?

• Well, when you print your own currency and that currency is used as a global reserve currency, you've got options!

Immigration Policy

A Brief Overview of US Immigration Policy

• Immigration was largely unregulated until the late 1800s
• US government starts keeping track more systematically in 1819 with the Steerage Act
• Immigration Act of 1864 creates positions within the State Department to oversee immigration, but Act is repealed after 4 years.
• Chinese Exclusion Act of 1882
• Immigration Act of 1882
• Immigration Act of 1891

Immigration Policy

Early Quote System

Immigration policy takes a turn in the 20th Century

• Quota Law of 1921
• National Origins Act of 1924

What Drives Immigration?

Lots of things, but for now we'll focus on a basic IPE approach to political economy

• Push Factors

  • Lack of economic opportunity (i.e. jobs)
  • War and conflict
  • Repression and violence
  • Crime

• Pull Factors

  • Basically the same, but the inverse
  • Attracted to job opportunities
  • Less crime/violence
  • More political participation

What Drives Immigration?

Heckscher--Ohlin Framework

• Think of migration in terms of trade theory
• Countries export goods that make intensive use of the factors that are abundant
• Countries import goods that make intensive use of the factors that are scarce

Migration as factor mobility

• Just as investors move capital around seeking a greater return on investment, so too do individuals move trying to find greater returns on their investment (i.e. time, effort, skills, etc.)