Doug Irwin has posted the preface to his forthcoming Ohlin Lectures book, Trade Policy Disaster: Lessons from the 1930s, on his website.

• Development Impact: A new blog on impact evaluation from the World Bank.
• People are not property: Michael Clemens on skilled migration.
• Significant: xkcd on publication bias and science journalism.

John McCain got in trouble in some circles for saying that the iPhone is “built in the USA.” Leo Gerard corrected him by saying “the iPad and the iPhone are made in China, they’re not made in America.”

In a world of vertical specialization, what does “made in” mean? The product itself is pretty clear on the issue: “Designed by Apple in California. Assembled in China.”

[Photo by Chen Zhao]

Apple fails to mention that they’re assembling components manufactured in Taiwan, but you can forgive them for that. Maybe labels should just default to “Made in a series of places.”

Previous editions:

• Are iPhones “made in China”? Measuring value added in trade flows
• Globalization & iPods

Trade finance has been a hot topic since the “great trade collapse” began in 2008. We’ve had job-market papers, numerous VoxEU columns, and an AEA session. At the Atlantic, Liam Casey, CEO of a supply-chain services provider, says that trade finance is overdue for innovation:

[M]ost banks still push antiquated trade finance products — most notably, letters of credit. This instrument is based on an old supply chain model that was risky and involved huge amounts of money and long delivery times. Financial institutions had to extend a line of credit against raw materials inventory or decide when to make payments to sellers on behalf of buyers.

Today’s supply chain transaction times are much shorter and transaction amounts are much smaller. Information, product and cash flows are all interconnected. Controlling the flow of information allows you to control the flow of products, which in turn leads to a controlled flow of cash. Such short supply chain cycles make financing much easier. It reduces the working capital required to make a product, and with no inventory stocks, fast transit times and the best inventory visibility in the industry, risk is dramatically reduced. The impact of this new model on global commerce is huge, facilitating more and more startups to get into business with less capital and less risk.

Adapting to change and staying flexible is how businesses stay relevant – especially in the supply chain and technology sector. Chinese mainland banks are well positioned to take advantage of opportunities in trade finance because they understand China, they understand commerce and the supply chain, and they know where to look for risk in the pre-shipment stage of the supply chain. With regards to the post-shipment side of the business, where the Western banks are comfortable, Chinese banks such as China Merchants Bank are rapidly learning global business systems and developing their expertise. Western banks need to move fast to catch up. They need to develop new trade finance products to stay relevant and adapt in today’s market.

[HT: LWS]

Julien Martin and Isabelle Mejean describe quality upgrading by French firms in response to different forms of international competition:

What is the impact of low-wage countries’ competition on the quality of high-wage countries’ exports? To answer this question, we develop a new method that uses firm-level data to measure quality changes in sectoral exports. Over 1995-2005, we measure a 11% increase in the mean quality of France’s aggregate exports, driven by a reallocation of demand in favor of higher quality producers. The phenomenon is significantly more pronounced in markets where the penetration of developing countries has increased while it is negative where firms face increased competitive pressures from high-wage countries. These results are consistent with within-product specialization along the vertical dimension. They suggest that, over the period, France has specialized in the production of higher quality goods. In our data, around one fifth of the measured quality improvement in France’s aggregate exports is attributable to low-wage countries’ competition. In turn, its increasing specialization in higher quality goods has limited France’s market share loss over the period.

They’ve written a VoxEU column summarizing their findings.

Three pieces worth reading in full:

• Simon Lester, refuting Daniel Altman, explains some of the problems with preferential trade deals and why the WTO won’t be made obsolete by the proliferation of PTAs.
• Mike Konczal summarizes a new paper (pdf) by David Autor, David Dorn, and Gordon Hanson that analyzes effect of import competition on U.S. local labor markets that were differentially exposed to the rise of China trade between 1990 through 2007 due to differences in their initial patterns of industry specialization.
• David Warsh discusses Peddling Protectionism: Smoot-Hawley and the Great Depression, Doug Irwin’s new book, in the context of explaining Smoot-Hawley’s role in the Great Depression.

I used to follow ag subsidies more closely than I have in the last two years. Here’s a new NBER working paper on the distribution of ag subsidy benefits:

The U.S. has a long history of providing generous support for the agricultural sector. A recent omnibus package of farm legislation, the 2008 Farm Bill (P.L. 110-246) will provide in excess of $284 billion in financial support to U.S. agriculture over the 2008-2012 period. Commodity program payments account for $43.3 billion of this total. Our paper is concerned with the distribution of these benefits. Farm subsidies make agricultural production more profitable by increasing and stabilizing farm prices and incomes. If these benefits are expected to persist, farm land values should capture the subsidy benefits. We use a large sample of individual farm land values to investigate the extent of this capitalization of benefits. Our results confirm that subsidies have a very significant impact on farm land values and thus suggest that landowners are the real benefactors of farm programs. As land is exchanged, new owners will pay prices that reflect these benefits, leaving the benefits of farm programs in the hands of former owners that may be exiting production. Approximately 45% of U.S. farmland is operated by someone other than the owner. We report evidence that owners benefit not only from capital gains but also from lease rates which incorporate a significant portion of agricultural payments even if the farm legislation mandates that benefits must be allocated to producers.

[HT: Jim]

I’ll be attending the American Economic Association’s annual meetings in Denver this weekend. Be sure to say hello if you spot me.

The (very lengthy) program is online; you can find most of the trade-related sessions by searching for “(F1)”.

Trade economists are very familiar with “most-favored nation” status. The non-discrimination principle lies at heart of the GATT-WTO post-WWII global trading regime, and its history goes back even further. Here’s a 1901 book on MFN clauses in trade treaties.

But trade economists probably aren’t so familiar with the use of “most-favored-nation clauses” in healthcare markets. The term has been appropriated without modification, so “most favored nation” really means “most favored third-party payor” in a contract with a healthcare provider.  And while MFN is largely favored by trade economists, it seems that “MFN” clauses in healthcare contracts may cause lots of trouble.