Rarely do I have the opportunity to report on experimental evidence about trade. Here’s Erik Kimbrough, Bart Wilson, and Vernon Smith in the AER on Historical Property Rights, Sociality, and the Emergence of Impersonal Exchange in Long-Distance Trade:

This laboratory experiment explores the extent to which impersonal exchange emerges from personal exchange with opportunities for long-distance trade. We design a three-commodity production and exchange economy in which agents in three geographically separated villages must develop multilateral exchange networks to import a good only available abroad. For treatments, we induce two distinct institutional histories to investigate how past experience with property rights affects the evolution of specialization and exchange. We find that a history of unenforced property rights hinders our subjects’ ability to develop the requisite personal social arrangements to support specialization and effectively exploit impersonal long-distance trade.

There’s little need to subsidize industrial clusters, at least in France.

FT:

The distinction between “offshore” and “onshore” financial centres has been dropped by the International Monetary Fund, in a victory for more than 40 small countries that complained they had been unfairly stigmatised in the fight against financial crime.

The IMF said the distinction between on- and offshore centres “had been blurred by globalisation”, which had increased the range of cross-border transactions in many countries, as well as the launch of new financial centres catering to non-residents in countries such as Botswana, Brunei, Dubai and Uruguay.

Protectionism becomes more likely during economic downturns, and Emmanuel notes that public support is headed that way:

The most recent Pew Global Attitudes survey found that, in a sample of twenty-four countries, the United States came dead last in terms of viewing trade favourably… “Support for international trade continues to decline in the United States – 53% of Americans say trade is good for their country, down from 59% last year and 78% in 2002. Support for trade is lower in the U.S. than in any other country included in the survey.”

Addendum: See Ben Muse (1,2), who is on top of this topic.

I just stumbled across an interesting 2006 Dartmouth publication profiling its trade economists, including Andrew Bernard, Doug Irwin, Matt Slaughter, and Nina Pavcnik.

Fred Bergsten on Chinese global economic engagement in Foreign Affairs:

On trade, China has been playing at best a passive and at worst a disruptive role. It makes no effort to hide its current preference for low-quality, politically motivated bilateral and regional trade arrangements rather than economically meaningful (and demanding) multilateral trade liberalization through the WTO. Since China is the world’s largest surplus country and second-largest exporter, this poses two important challenges to the existing global regime.

First, China’s refusal to contribute positively to the Doha Round of international trade negotiations has all but ensured the talks’ failure. Beijing has declared that it should have no liberalization obligations whatsoever and has invented a new category of WTO membership (“recently acceded members”) to justify its recalcitrance. Such a stance by a major trading power is akin to abstention and has practically guaranteed that the Doha negotiations will go nowhere. And since the global trading system does not stay in place, but is always moving either forward or backward, a collapse of the Doha Round would be quite serious: it would represent the first failure of a major multilateral trade negotiation in the postwar period and place the entire WTO system in jeopardy. China is not the only culprit in the Doha drama, of course. The United States and the EU have been unwilling to abandon their agricultural protectionism, other important emerging economies have been unwilling to meaningfully open their markets, and several poor countries have resisted contributing to a global package of reforms. But China, with its major stake in open trade, exhibits the sharpest contrast of all the major players between its objective interests and its revealed policy.

Second, China’s pursuit of bilateral and regional trade agreements with neighboring countries is more about politics than economics. Its “free-trade agreement” with the Association of Southeast Asian Nations (ASEAN), for example, covers only a small share of its commerce with the countries in question; it is simply an effort to calm their fears of being swamped by their huge neighbor. Again, it is true that the United States and other major trading powers also factor foreign policy considerations into their selections of partners for regional and bilateral trade agreements. But they also insist on economic standards that largely conform to the WTO’s rules. China is able to escape legal application of those rules by continuing to declare itself a “developing country” and by taking advantage of “special and differential treatment.” But for a major global trading power to hide behind such loopholes provokes substantial international strains.

China is also hurting the global trading system by supporting the creation of a loose but potent Asian trading bloc. The network of regional agreements that started with one between China and ASEAN has steadily expanded to include virtually all other possible Asian permutations: parallel Japanese-ASEAN and South Korean-ASEAN deals; various bilateral partnerships, including perhaps a Chinese-Indian one; a “10 + 3” arrangement that brings together the ten ASEAN countries and all three Northeast Asian countries, and possibly even a “10 + 6” agreement that would broaden the group to include Australia, India, and New Zealand. All this activity is likely to produce, within the next decade, an East Asian free-trade area led by China.

Such a regional grouping would almost certainly trigger a sharp backlash from the United States and the EU, as well as from numerous developing countries, because of its new discrimination against them. Even more important, it would create a tripolar global economic regime — a configuration that could threaten existing global arrangements and multilateral cooperation.

China’s challenges to the global trading system are most visible in its opposition to the U.S. proposal, launched at the Asia-Pacific Economic Cooperation forum in 2006, for a free-trade area of the Asia-Pacific. The APEC initiative, immediately endorsed by a number of those smaller member economies that fervently want to prevent trade conflict between the group’s two superpowers, seeks to head off the looming confrontation between an Asia-only trading bloc and the United States, which could draw a line down the middle of the Pacific. The initiative would eventually consolidate the many preferential pacts in the Asia-Pacific region and offer an economically meaningful Plan B for widespread trade liberalization if the Doha Round definitively fails. China has led the opposition to the idea, demonstrating its preference for bilateral deals with minimal economic content and its lack of interest in trying to defend the broader trading order.

These criticisms seem a bit unfair, as the US and EU are equally guilty of every charge. Why would a two-bloc world divided between the EU and APEC be more appealing than a three-bloc world? What has China done to hamper the agricultural negotiations at Doha, which are the real stumbling block? What US bilateral trade deal was more about economics than politics? What economic standards is China avoiding in its trade deals, when the WTO has never really disciplined a PTA?

Bergsten is identifying all the problems correctly, but I think he’s a bit strained in trying to distinguish China from the United States and Europe.

Shorter Dani Rodrik: The Auer and Fischer result may be due to productivity gains a la Bernard, Redding & Schott (2007), which means we only need to worry about labor market churn, not Stolper-Samuelson losses.

“Using trade weighted as opposed to consistently aggregated tariffs overstates real income for India by nearly 1%.” — James Anderson, “Consistent trade policy aggregation”

“Trade cooperation is almost surely dependent upon nations’ perceptions of costs and benefits of deviating. Unfortunately, the terms-of-trade approach is focusing on the trees and missing the forest. Its insights as to whether an RTA makes cheating on a tariff more or less attractive misses the point altogether since the main carrots and sticks supporting cooperation have nothing to do with tariffs.” — Richard Baldwin, “Big-think regionalism: A critical survey”

“Suppose that over the next nine years all of inshoring and offshore outsourcing grew at rates experienced during 1996-2005… Then workers in occupations that are exposed to inshoring and offshore outsourcing (1) would switch 4-digit occupations 2 percent less often, (2) would spend 0.1 percent less time unemployed, and (3) would earn 1.5 percent more. These are not annual changes – they are changes over nine years – and are thus best described as small positive effects. ” — Runjuan Liu & Daniel Trefler, “Much ado about nothing: Americans jobs and the rise of service outsourcing to China and India”

Christian Broda writes in the FT on his joint work with John Romalis.

Inflation differentials between the rich and poor dramatically change our view of the evolution of inequality in the US. Inflation of the richest 10 per cent of US households has been 6 percentage points higher than that of the poorest 10 per cent in the period 1994-2005. This means that real inequality in the US, if measured correctly, has been roughly unchanged.

The reason is just as dramatic as the result. Why has inflation for the poor been lower than that for the rich? In large part it is because of China and Wal-Mart.

Poor families in America spend a larger share of their income on goods whose prices are directly affected by trade – such as clothing and food – than wealthier families. By contrast, the higher a person’s income, the more they spend on services, which are less subject to competition from abroad. Since 1994 the price of goods in the US has risen much less than the price of services – and, yes, this includes the recent surge in food prices. Focusing on the past few quarters of high relative food prices misses the fact that the main trend we have observed for decades is exactly the opposite.

This trend can partly be explained by China. Prices of consumer goods in US stores have fallen most heavily in sectors where the Chinese presence has increased most. In canned seafood or cotton shirts, for example, where China’s exports to the rest of the world have increased dramatically this decade, inflation has been negative. In sectors where there is no Chinese presence, inflation has been more than 20 per cent. Moreover, as China produces goods of relatively low quality, sectors that have a strong Chinese presence are disproportionately consumed by the poor.

The expansion of superstores – such as Wal-Mart and Target – has also played an important role in accounting for the inflation differentials between rich and poor. Superstores sell the same products as traditional shops but at much lower prices. Today the poor buy roughly twice as much of their non-durable goods in these stores as the rich do. Poor consumers have therefore been the biggest beneficiaries of Wal-Mart’s coming to a town.

I’m special:

[P]eople rarely learn a lot about international trade purely because they think that “trade is fun.”