There’s a great, long piece on Somali piracy in the FT by James Blitz and Robert Wright. Here are the trade-related highlights, but follow the link for lots more interesting details.

There have been 95 attacks by Somali pirates on vessels this year, with 39 ships captured and nearly 800 crew held. More than $20m has been paid in ransoms by shipowners and insurers… These pirates of the Horn are worrying governments around the world for several reasons. Their activities are bringing sclerosis to one of the world’s main trade arteries – the Gulf of Aden, which sees the passage of 20,000 ships a year. Shipping companies are beginning to divert their vessels round the Cape of Good Hope, increasing journey times by 30 per cent…

People in the shipping industry have for some time been irritated by the word “pirate” – with its romantic and exotic connotations – and like to remind the public that the hijackers are hardened criminals… In a society stricken by poverty, their boldness, organisation and technical savoir-faire impress one security expert: “They treat this as a business. They’ve upgraded what it means to be a pirate.”…

Attacks during shipping’s last piracy crisis – in the Malacca Strait separating Indonesia from Malaysia and Singapore – were less frequent and limited mainly to armed robbery of crews and ships’ offices. But that problem – which Pottengal Mukundan, IMB director, calls “maritime mugging” – has been largely eliminated since 2006 by improved security co-operation between the three coastal states…

“This Somali piracy problem is going to be on the international security agenda for some time,” says a senior UK official. “It is a highly lucrative business, providing a job-creation scheme in a country with very few other outlets and which also happens to be in a very sensitive part of the global trading system.”

Jeff Sachs makes unpersuasive arguments for bailing out the Big Three in Detroit:

First, this is an opportunity to embark on a major industry restructuring to position the United States to lead the world in producing cars that get 100 miles or more per gallon. This achievement is closer than many suppose, with the pathbreaking plug-in hybrid Chevy Volt set to arrive in 2010 and several new hybrid models on the way. American-made fuel-cell cars may be a large-scale reality within a decade. Success would dramatically improve energy and national security, climate security, and U.S. global competitiveness, and a public-private partnership is needed to bring about this transformation.

Questions for Professor Sachs:

• Why is it important that fuel-cell cars be made in America?
• Why do American-made fuel-cell cars need to be produced at plants owned by domestic parent companies rather than foreign-owned US plants located outside Detroit?
• What does “US global competitiveness” mean in this context?

Mark Koyama is harsher but puts it more succinctly: “Is this article by an economist?“

Thirteen months after reviewing Paul Collier’s The Bottom Billion in the Lancet, Bill Easterly strikes again in the NY Review of Books.

Once again, Easterly largely ignores Collier’s analysis of trade, aid, and governance, focusing on his arguments for military/security interventions. This new column merely fleshes out the objections he raised previously.

HT: Blattman

Ha-Joon Chang is now not only urging developing countries to use trade barriers to promote development but also arguing that the US needs to adopt “forward-looking protectionism.”

Between the 1830s and the 1940s, against superior European competition, the US developed its industries behind literally the highest tariff wall in the world, with the average industrial tariff rate ranging between 35% and 55%… Moreover, the theory that justified such protectionism, namely, the ‘infant industry’ argument, had been first developed by none other than the first Treasury Secretary of the US – Alexander Hamilton.

I’ll leave criticism of Chang’s history of American and European development to Doug Irwin, who notes that:

[T]he United States started out as a very wealth country with a high literacy rate, widely distributed land ownership, stable government and competitive political institutions that largely guaranteed the security of private property, a large internal market with free trade in goods and free labor mobility across regions, etc. Given these overwhelmingly favorable conditions, even very inefficient trade policies could not have prevented economic advances from taking place… [C]orrelation is not causation. Chang produces no evidence that protectionism was responsible for the growth.

Chang then turns to why the US should be protectionist in the present day:

[W]ell-designed and time-bound protection of mature industries can facilitate, rather than hindered, trade adjustment and industrial upgrading… Mr Obama should use protectionism in a similarly forward-looking way. Industries that can be revived through re-tooling of its factories and re-training of its workers should be given protection, but only if they fulfill certain conditions regarding investment and training. Industries that have no future should be given strictly temporary protection to ease phasing-out through orderly liquidation and redundancy.

First, how does a government credibly commit to temporary protection while encouraging the industry to phase out its excess or obsolete capacities? The cases of steel and automobiles are far from encouraging in this respect.

Second, tariffs protect products and industries, not firms. How would the government make protection conditional on investment and training, which do not occur at the industry level?

Third, won’t protection of developed countries’ dying industries in many cases hurt developing countries? Chang’s measures would deter Indian steel and Chinese textile exports.

Fourth, if both growing industries and dying industries should receive protection, then what industry will not? It seems that openness would be the exception rather than the rule in Chang’s preferred trading regime.

A well-designed welfare state with good unemployment insurance and re-training programme can facilitate structural changes by reducing the resistance of the workers to more open trade that exposes them to greater risks… Stronger welfare state is why the demand for protectionism is much weaker in the European economies than in the US, despite the greater acceptance of active role of the government in the former.

Does anyone have quantitative measures to support this claim? We know that the CAP is much worse than US farm subsidies. In what areas is Europe less protectionist?

Ha-Joon Chang has a long way to go before he convinces me of the merits of forward-looking protectionism for the United States.

This briefing on international trade by CSU-Northridge’s Robert Krol looks like a good introduction to estimates of trade’s costs and benefits for political science classes discussing the global economy. It briefly summarizes in plain language the results of Baier & Bergstrand (2001), Bernhofen & Brown (2005), Frankel & Romer (1999), Wacziarg & Welch (2008), Broda & Weinstein (2006), and Robert Lawerence’s Blue-Collar Blues.

For an economics class, I’d recommend that students actually read (some) of those papers.

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