Iowa’s Michael Waugh says trade costs are very asymmetric (pdf):

Poor countries import a larger volume of goods from rich countries, than rich countries
import from poor countries. Furthermore, there is little difference in comparable price indices
for tradable goods between rich and poor countries. Standard empirical implementation of the
gravity model with distance and other symmetric relationships for trade costs cannot account for
both of these facts. To account for these facts, I argue that trade costs must be systematically
asymmetric with poor countries facing higher costs to export relative to rich countries. I then
demonstrate that asymmetry is quantitatively important accounting for at least a third of the
variation in bilateral trade—on par or more important than distance and other symmetric
relationships.

The IHT is giving you a chance to ask Jagdish Bhagwati a question about foreign aid.

See two good posts over at Reason on American farm subsidies and barriers to genetically modified rice.

Brad Setser reports that Chinese exports to India grew by 67.5% in the first three quarters of 2007:

The impact of the RMB’s depreciation (yes, depreciation – the RMB hasn’t appreciated enough v the dollar to offset the dollar’s depreciation against many other currencies) on a host of other emerging economies has been an under-reported story.

Brad Setser reports that Chinese exports to India grew by 67.5% in the first three quarters of 2007:

The impact of the RMB’s depreciation (yes, depreciation – the RMB hasn’t appreciated enough v the dollar to offset the dollar’s depreciation against many other currencies) on a host of other emerging economies has been an under-reported story.

Brad Setser reports that Chinese exports to India grew by 67.5% in the first three quarters of 2007:

The impact of the RMB’s depreciation (yes, depreciation – the RMB hasn’t appreciated enough v the dollar to offset the dollar’s depreciation against many other currencies) on a host of other emerging economies has been an under-reported story.

Preferential trade played a bigger role in history than I knew. From a new book chapter (pdf) by Douglas A. Irwin, Petros C. Mavroidis & Alan O. Sykes:

Continue reading →

Clive Crook reports on the IMF’s World Economic Outlook:

The IMF splits globalisation into two components of economic openness: trade and foreign investment. Trade openness actually tends to reduce inequality and financial openness tends to increase it, the report finds. For the developing countries, the two roughly cancel out: their net effect is slightly pro-equality. For the rich countries, the balance is anti-equality: the disequalising influence of cross-border investment outweighs the equalising influence of trade. So although these numbers do provide a rationale of sorts for curbing cross-border flows of investment – harmful as that would be for growth – they offer no support for trade barriers. There is nothing here for the anti-trade lobby. Trade barriers inhibit growth and worsen inequality, in rich countries and in poor countries, says this report.

Read the full column, titled “End global inequality: become a Luddite,” to learn of Crook’s frustration with coverage of reactions to the report.

The dollar is falling. Everyone knows it needs to fall even further. But there are worries that it could suffer a sudden plunge when currency traders realize it’s not falling fast enough. In a comment in the FT, Jeffrey Garten says betting on a weaker dollar is “nearly a risk-free proposition.” And that makes him unhappy:

At an opportune moment, they [central bankers] could make a sharp and powerful co-ordinated intervention in the currency markets to buy dollars. This surprise move would not change long-term trends, but it would show speculators that shorting the dollar is not always without consequence. The intervention could therefore bolster prospects for an orderly dollar decline and demonstrate that the US and the European Union are capable of jointly using powerful policy levers.

What? How would that help?

Doug Irwin estimates the Anderson-Neary trade restrictiveness index for a century of US trade policy to calculate the costs of historic protectionism:

As Paul Krugman (1997, 127) has written: “Just how expensive is protectionism? The answer is a little embarrassing, because standard estimates of the costs of protection are actually very low. America is a case in point… The combined costs of these major restrictions to the U.S. economy, however, are usually estimated at less than half of 1 percent of U.S. national income.”

However, what has been true for the past few decades has not always been true. In the heyday of America’s high tariff policy in the late nineteenth century, the static welfare cost was closer to one percent of GDP, although the associated redistribution of income was much higher, about eight percent of GDP according to estimates by Irwin (2007). This large redistribution and associated deadweight loss may be one reason why the political debate over trade policy was much more intense a century ago than today. By the mid-twentieth century, the deadweight loss was only about one-tenth of one percent of GDP, which not only makes the historical figures of one percent of GDP seem much larger, but partly explains why, after the early 1930s, trade policy was no longer a leading political issue in the country as it had been in the late nineteenth century…

A fundamental reason for the relatively low cost of protection in the United States is that it has always had a large domestic economy that was not very dependent upon international trade. Another reason is that for most of its history the United States used import tariffs as opposed to more distortionary trade policy instruments, such as import quotas and import licenses. For example, the cost of U.S. trade restrictions was much higher in the 1970s and 1980s than decades before or after because quantitative restrictions and voluntary export restraints were used to limit imports of automobiles, textiles and apparel, iron and steel, semiconductors, and other products (de Melo and Tarr 1992, Feenstra 1992). Foregone quota rents are generally orders of magnitude larger than the tariff-induced distortions to domestic resource allocation.