Two apparently contrasting claims:

“Since lowering import barriers typically exerts a downward pressure on prices, evolving trade liberalisation represents a structural break from the inflation forecasting perspective.” – Aron & Muellbauer

“Inflation isn’t transmitted via spores in the air. It’s a monetary phenomenon, and as such, starts and ends on native shores.” – Caroline Baum

I believe Mark Thoma succeeds in reconciling them:

[W]hether or not the movement of prices from one level to another in response to shocks should be called inflation is a matter of definition, some monetary economists reserve the term inflation for a continual run-up in the price level, not a one-time change to a new level, but whatever such movements in prices are called there’s still a role for central banks to play in response to shocks that cause short-run movements in the price level.

What does Dani Rodrik think of this?

China will curb exports of cheap labor-intensive products to force manufacturers into making higher-quality goods… The Ministry of Commerce will expand its catalogue of processed goods subject to export limits in the second half of 2007… Manufacturers can be exempted from the exports limit if they shift their production to inland provinces including Shaanxi, Xinjiang and Gansu further away from the Chinese coast, part of a plan by the government to close the income gap between the wealthy coastal cities and the interior.

[HT: Setser]

Martin Wolf has plenty of kind words for Erik Reinert and Ha-Joon Chang, but he’s critical too:

Reinert argues: “US industrial policy from 1820 to 1900 is probably the best example for Third World countries to follow today until these countries are ready to benefit from international trade.”… Yet this example makes no sense for most, if not all, contemporary developing countries. The technological gap between the UK and the US in the 19th century was trivial by comparison with that between, say, the US and Ethiopia today. Even so it took more than half a century for the US to close it.

The US was also a vast continental country, capable of attracting a huge immigrant workforce, much of it educated, and so generate a domestic market large enough to exhaust the economies of scale offered by the technology of the time, while still permitting strong domestic competition. That proved not to be the case even for India, a giant among developing countries. This is, to put it mildly, hardly a model for Ethiopia, let alone Chad.

Few (I would argue, no) contemporary developing countries are big or technologically sophisticated enough to make a decent job of the 19th-century protectionist model.

Moreover, as Douglas Irwin noted in reviewing Chang’s previous book:

[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.

Nonetheless, Wolf concurs with the globalization dissidents that developing countries ought to have the freedom to err (“policy space” as they say, to explore potentially constructive forms of protectionism). In some areas, such as intellectual property, this is the professional consensus and the only disagreement comes from industry lobbyists. In other areas, the debate will rage on.

Another earthquake in Asia, another test of its implications for the global supply chain. Japan’s quake last week was not as troublesome as Taiwan’s in December, but it did paralyze Toyota’s plants for 36 hours.

Greg Mankiw asks easy questions:

Congress is about to consider expanding Trade Adjustment Assistance, according to the Washington Post. I have two questions about the program:

Can you really tell whether worker is losing his job due to trade or due to other forces, such as technological change?

Is a worker who loses a job due to trade deserving of a more generous safety net than a worker who loses his job due to other forces, such as technological change?

Attacking from the other side, Dean Baker makes the fair point that TAA is more political grease than economic compensation:

[W]orkers who lose their job directly due to trade are a small minority of the workers who are harmed by trade. The vast majority of workers who are harmed by trade are workers who earn lower wages as a result of the patterns of trade promoted by recent trade agreements. These are disproportionately workers who do not have college degrees. The proposals for trade adjustment assistance do nothing to help these workers.

Alex Tabarrok is probably comfortable with that expediency.

Viewing globalisation as an overwhelmingly negative force, citizens of rich countries are looking to governments to cushion the blows they perceive have come from the liberalisation of their economies to trade with emerging countries.

Those polled in Britain, France, the US and Spain were about three times more likely to say globalisation was having a negative rather than a positive effect on their countries. The majority was smaller in Germany, with its large export base.

See the FT article for detailed poll results.

Viewing globalisation as an overwhelmingly negative force, citizens of rich countries are looking to governments to cushion the blows they perceive have come from the liberalisation of their economies to trade with emerging countries.

Those polled in Britain, France, the US and Spain were about three times more likely to say globalisation was having a negative rather than a positive effect on their countries. The majority was smaller in Germany, with its large export base.

See the FT article for detailed poll results.

Viewing globalisation as an overwhelmingly negative force, citizens of rich countries are looking to governments to cushion the blows they perceive have come from the liberalisation of their economies to trade with emerging countries.

Those polled in Britain, France, the US and Spain were about three times more likely to say globalisation was having a negative rather than a positive effect on their countries. The majority was smaller in Germany, with its large export base.

See the FT article for detailed poll results.

Some free traders like to challenge industrial policy advocates by asking – “if tariffs are so great, doesn’t the Interstate Commerce Clause impede Tennessee’s economic development?” Dani Rodrik explains why the 50 states aren’t merely the world’s most successful free trade area.

Almost two weeks late, here are some NBER abstracts that caught my eye:

The Two Crises of International Economics – In this essay, we argue that key assumptions in international macroeconomic theory, though useful for understanding the economic relationships among developed countries, have been pushed beyond their competence to include relationships between developed economies and emerging markets. The Achilles heel of this extended development model is the assumption that threats to deprive the debtor countries of gains from trade provide incentives for poor countries to repay more than trivial amounts of international debt. Replacing this assumption with the idea that collateral is required to support gross international capital flows suggests that the pattern of current account balances seen in recent years is a sustainable equilibrium.

Zeros, Quality and Space: Trade Theory and Trade Evidence – Product-level data on bilateral U.S. exports exhibit two strong patterns. First, most potential export flows are not present, and the incidence of these “export zeros” is strongly correlated with distance and importing country size. Second, export unit values are positively related to distance. We show that every well-known multi-good general equilibrium trade model is inconsistent with at least some of these facts. We also offer direct statistical evidence of the importance of trade costs in explaining zeros, using the long-term decline in the relative cost of air shipment to identify a difference-in-differences estimator. To match these facts, we propose a new version of the heterogeneous-firms trade model pioneered by Melitz (2003). In our model, high quality firms are the most competitive, with heterogeneous quality increasing with firms’ heterogeneous cost.

Trade Growth under the African Growth and Opportunity Act – This paper explores whether one of the most important U.S. policies towards Africa of the past few decades achieved its desired result. In 2000, the United States dropped trade restrictions on a broad list of products through the African Growth and Opportunity Act (AGOA). Since the Act was applied to both countries and products, we estimate the impact with a triple difference-in-differences estimation, controlling for both country and product-level import surges at the time of onset. This approach allows us to better address the “endogeneity of policy” critique of standard difference-in-differences estimation than if either a country or a product-level analysis was performed separately. Despite the fact that the AGOA product list as chosen to not include “import-sensitive” products, and despite the general challenges of transaction costs in African countries, we find that AGOA has a large and robust impact on apparel imports into the U.S., as well as on the agricultural and manufactured products covered by AGOA. These import responses grew over time and were the largest in product categories where the tariffs removed were large. AGOA did not result in a decrease in exports to Europe in these product categories, suggesting that the U.S.-AGOA imports were not merely diverted from elsewhere. We discuss how the effects vary across countries and the implications of these findings for aggregate export volumes.