Can you name a worthy PTA?

Ben Muse thinks that we ought to reconsider the potential for regional and bilateral trade deals to be the engine of trade liberalization in light of the Doha round’s stall. I’m doubtful of that strategy.

The FTAA isn’t moving because the US is insisting upon the inconclusion of non-trade issues while Brazil is demanding that agricultural subsidies be addressed. The recently announced Korea-US PTA will cause significant trade diversion and is worth pursuing “only if agricultural reforms are an integral part of the deal,” which are quite unpopular in Korea (pdf).

For a menu of potential PTAs, Muse highlights Jeffery Schott’s Free Trade Agreements: US Strategies and Priorities. Ben, which FTAs do you think the US ought to pursue?

Transnational investment is a two way street

Hamish McRae: “Globalisation is fine, unless it means Dubai”

A Dubai company seeks to buy a British one that happens to operate a string of ports in the US – much to the annoyance of some US congressmen. An international steel group headed by an Indian family seeks to buy a French/Luxembourg steel company, much to the chagrin of President Chirac. A Russian energy group is said to be trying to buy a British gas company, which would certainly cause the fur to fly here. Welcome to globalisation, 2006-style. [Independent]

Dan Drezner has a nice round-up of reasons not to worry about DPW’s buyout of P&O. The most important is that P&O doesn’t do security at ports.

UPDATE: Drezner has more cases of backlash against FDI.

Wikipedia on infant industry

At the moment, the Wikipedia entry says that “Among theoretical academic economists, the infant industry argument is often derided, whereas applied economists and economic historians are generally more charitable.”

Contrarily, most articles I read usually say something along the lines of “At a theoretical level, the infant industry exception to the proposition that free trade is optimal has always been noted” (Krueger & Tuncer 1982).

When does infant industry protectionism work?

What elements must be present for protectionism a la the infant industry argument to improve national welfare? Here’s a brief sketch:

(1) Firms can dynamically improve their productivity through learning-by-doing or economies of scale.

(2) There must be a domestic market failure and the first-best governmental intervention to remedy that failure must be unavailable. (Bhagwati & Ramaswami 1963)

(3) The bureaucracy must be technically competent so as to identify the industries that may benefit from protection as well as the degree and duration of protection that would be optimal. (Krueger 1997)

(4) The bureaucracy must be sufficiently insulated so as to resist capture by special interests. Otherwise, the industry will likely receive protection until it is a senile elder in diapers. (Krugman 1987)

(5) The protection must not merely bring later entrants forward in time, which would actually hurt the pioneering firm (Baldwin 1969).

(6) The gains from protection must not be countered by the potential for immiserizing growth when productivity increases in the protected sector, as described by Johnson (1967).

What other circumstances (market or government) are relevant to the potential for infant industry protection to be good policy?

I, for one, welcome our anonymous overlord…

This story isn’t about international or development economics, but it’s too impressive for me to pass up:

Here is what Senator George Allen of Virginia, who is considering a bid for the Republican presidential nomination in 2008, said when asked his opinion of the Bernanke nomination.
“For what?”

Told that Mr. Bernanke was up for the Fed chairman’s job, Mr. Allen hedged a little, said he had not been focused on it, and wondered aloud when the hearings would be. Told that the Senate Banking Committee hearings had concluded in November, the senator responded: “You mean I missed them all? I paid no attention to them.”…

[Sen. John McCain (R-Ariz.)], who joked during a 2000 presidential debate that if Mr. Greenspan died, he would “prop him up and put a pair of dark glasses on him,” in a repeat of a prank in the movie “Weekend at Bernie’s,” said he did not know too much about Mr. Bernanke, but was comforted to know that Mr. Greenspan had a high opinion of him.

“It hasn’t gotten a lot of attention,” Senator McCain said, “but I think he’ll be carefully scrutinized in his hearings, and the view that other people have of him will carry a lot of weight in the financial world, particularly Greenspan.”

Mr. McCain was asked if he would be surprised to learn that the hearings were over. He paused, his eyes widening, before giving the verbal equivalent of a knock on the forehead: “You’re right, you’re right, you’re right. Duuuuuh.”

[Hat tip: Hit & Run]

A response to critics regarding my Bulletin letter

My writing is “surprisingly naive and highly superficial,” to such a degree that it is obvious that I have “limited knowledge of global economics,” according to a pair of Canadian fair trade activists. They’re responding to a fairly conservative piece on the WTO that I published in my college newspaper in December. I find their tone disrespectful, but it would be unwise to fail to respond to published criticism of my opinions, so here are a few excerpts from their posts and my rebuttal.

Continue reading →

Indian-Americans score jobs

Interesting tidbit in the Hindu Business Line:

Guess what Ashok Leyland’s Managing Director, Mr R. Seshasayee, believes to be the company’s most formidable challenge? Getting skilled engineers. “There is a dearth of engineers for the middle and senior levels,” he told Business Line. But that the company for sure has a plan to meet the challenge. “Our team is going to the US this summer to recruit engineers,” he said.

Why are so many US imports from China?

Dan Drezner points to a NYT article that contains an important point regarding our growing trade deficit with China:

But often these days, “made in China” is mostly made elsewhere — by multinational companies in Japan, South Korea, Taiwan and the United States that are using China as the final assembly station in their vast global production networks.

Analysts say this evolving global supply chain, which usually tags goods at their final assembly stop, is increasingly distorting global trade figures and has the effect of turning China into a bigger trade threat than it may actually be. That kind of distortion is likely to appear again on Feb. 10, when the Commerce Department announces the American trade deficit with China. By many estimates, it swelled to a record $200 billion last year. [NYT]