Tag: trade

WPTPN: The Rise of Embedded Nationalism

This World Politics in a Time of Populist Nationalism (WPTPN) guest post is written by Moonhawk Kim, who was an assistant professor of political science at the University of Colorado Boulder from 2007 to 2016. His research focused on the politics of international trade institutions. This post first appeared on his blog To Be Analyzed.

Ruggie’s (1982) “embedded liberalism” provided the framework for understanding the nature of the domestic social contract underlying the post-World War II international economic arrangement for the last three-and-a-half decades. As a alternate to the “disembedded liberalism” (Polanyi 1944) model of the gold standard era, this model described and prescribed the importance of domestic political economic stability over maintenance of the liberal international economic order. In the decades since Ruggie’s article, the potential threat to the stability of embedded liberalism scholars anticipated was a return to disembbeded liberalism, the model of hyperglobalization at the cost of domestic political economic stability.

One way to interpret the triumph of Donald Trump is that the long-standing social bargain within the U.S. underlying Pax Americana—and thus the whole post-war international order—has unraveled. The bargain is moving toward hyper-priotization of domestic political economy over a liberal international economy. This interpretation is consistent with the broad observation about the characteristics of voters who voted for Trump (losers from globalization, broadly defined to include those that confront a high level of economic uncertainty if not low income) and Trump’s nationalistic economic policies, now taking the first step in the form of withdrawing from the Trans Pacific Partnership.

Two interrelated components are necessary for maintaining a stable domestic-international bargain. One, the international benefits of a liberal world economy—the gains from trade—has to be domestically distributed. Economists have always recognized that the gains are at the aggregate level. Those who gain from economic globalization (”winners“) need to compensate those who are hurt from it (”losers“) and mitigate the latters’ cost of adjusting to the new economic reality. Two, the domestic population needs to intuitively and/or rationally understand the nature of the domestic-international bargain and continually support to reinforce and sustain the international arrangement.

I have some ideas on why these two components unraveled over time:

  1. A Paradox of Stability: When an international order works—works really well, as it did in the post-war era—it becomes taken for granted. People and states simply come to think “this is how it is” and fail to realize the institutions and the effort underlying it. That’s actually the indication of the most institutionalized institutions, at least according to sociologists. However, when the taken-for-grantedness leads to desires for dismantling the institution in question, it becomes a problem. (This is akin to the vaccination issue—”Oh, I don’t have to vaccinate against pertussis, because pertussis is not a problem anymore!“

    A related aspect of this is that people/leaders also come to disregard the strategic interaction underlying the stability of the existing order. Other countries have been keeping their trade open because the U.S. has been. If the U.S. becomes more protectionist, other countries will not keep their trade open. The U.S. doesn’t just import; it also exports.

  2. Disjuncture from the Historical Moment: Much of the post-war international order was shaped by the experience states endured during the interwar years, in particular the Great Depression. As the length of time between the historical moment and the current period increases, the lessons fade—people/leaders who experienced it die and new ones never learn it. (What about the Great Recession? See #1 above.)
  3. Disembedded Liberalism: #1 and #2 led to an increasing emphasis on the liberal economic order over domestic political economic stability. The gap in real income growth in the U.S. over the last four decades is the best evidence of this. Certainly not all wealth resulted from a liberal international economy alone—technological progress played an important role—but the gains were not distributed in ways to ensure long-term domestic stability.
  4. Complexity of Globalization: I use the term “globalization” as a shorthand for lowering of costs of transportation and communication, thereby increasing the density of interaction among people. These changes are mainly facilitated by technological innovations that lower the costs. As a result of this, the global system becomes more complex in two ways.

    First, causal chains in large-scale outcomes become harder to trace. When causation has to be inferred rather than perceived, people reject both the process of inference (science) and the assertions of causality. This opens up the possibility of phenomena like “alternative facts” to arise.

    Second, differences across individuals, groups, and countries—which have always existed—become revealed and more likely to generate conflicts. Simultaneous with this increased exposure to diversity, the same technology that increases that exposure facilitates individuals and groups to communicate and organize with those that are likeminded (e.g., cable news channels). In short, globalization strengthens intra-group cohesion while increasing inter-group conflicts.

So what happens now? The next four years will be an interesting test of Keohane’s (1984) thesis that international institutions can in fact successfully persist and maintain order after hegemonic decline. Of course, with the current regime in the U.S., we are witnessing less of a decline and more of a willful rejection in alleged service of domestic political economic priorities. The absurdly misinformed protectionist policies by the administration will certainly end up causing a great deal of economic harm to the very groups it is claiming to be helping.

The Duck of Minerva’s WPTPN group is still seeking guest contributions. If you are interested in writing a post and have research expertise in international relations, international political economy, foreign policy, comparative politics, or cognate fields please see this post for more information.

WPTPN: What an “America First” Trade Strategy Gets Wrong

This World Politics in a Time of Populist Nationalism (WPTPN) guest post is written by Layna Mosley,  Professor of Political Science at the University of North Carolina, Chapel Hill. She researches the political economy of multinational production, labor rights, and sovereign debt and can be found on Twitter @thwillow

President Trump’s first days in office have been marked by a continuation of his pledges to fundamentally remake US trade policy. On January 23, the website of the United States Trade Representative, the executive branch agency charged with negotiating and implementing US trade policy, underwent a radical redesign. The site’s front page now touts the “America First Trade Policy,” in which the “landscape of trade policy” is revised “to work for all Americans.” Four days later, the administration announced – with subsequent qualification later — a 20 percent tax on all imports to the US (or, perhaps, on all imports from Mexico).

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WPTPN: The Collapse of Embedded Liberalism in a Time of Populist Nationalism?

This World Politics in a Time of Populist Nationalism (WPTPN) guest post is written by Sean D. Ehrlich, an Associate Professor of Political Science at Florida State University who researches international and comparative political economy, trade policy, and democratic institutions. His first book, Access Points, was published by Oxford University Press in 2011 and he is currently finishing his second book, The Politics of Fair Trade, which is under contract with Oxford University Press. He can be reached on Twitter @SeanDEhrlich.

Since the end of World War II the advanced industrial economies of the West have moved towards freer trade and increased economic integration at a fairly steady clip. While the Great Depression brought the previous era of globalization to a sudden halt, economic downturns after the War led only to temporary and isolated retreats from economic liberalism. The globalized world economy had even seemed to as, despite fears of rising protectionism and the collapse of the European Union, the world entered 2016 with global trade reaching an all-time high (albeit it with sluggish annual growth) and with the economic problems of the previous eight years seemingly mostly resolved. The twin political shocks of 2016—Brexit and Mr. Trump’s victory in the US Presidential election—call this all into question and suggest that the global liberal economic order might begin to retreat in the face of rising economic nationalism and populism.

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What’s at Stake in TPP?

President Obama’s difficulty in convincing Congress to grant him authority to negotiate the Trans-Pacific Partnership without legislative amendment is a serious setback for his foreign policy agenda. Most commentary on the subject has focused on the trade deal’s likely economic impact — which are not negligible, most importantly for Asian partners like Vietnam, but likely won’t impact the US in discernable ways. Others discuss its geopolitical significance in breathless, but vague, tones. Take this recent NY Times article:

“If this collapses, Pacific Rim countries will be aghast,” said Shunpei Takemori, a professor at Keio University in Japan, the largest economy in the would-be trade zone after the United States. “China is pushing, and if the U.S. just stands aside, it would be a tragedy.” …

“If you don’t do this deal, what are your levers of power?” Singapore’s foreign minister, K. Shanmugam, asked in Washington on Monday. “The choice is a very stark one: Do you want to be part of the region, or do you want to be out of the region?”

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Wednesday Linkage

Editor’s note: this post originally appeared on my personal blog. It contains some links to posts that appeared here at the Duck.

1. An interview with Jim Fearon about Ukraine. Lots of good stuff here, both about Ukraine and in general. As you’d expect.

2b. Some thoughts from Branislav Slantchev about Russia’s Cold War Syndrome. c. Anna Pechenkina reacts. d. Slantchev responds.

3. Still want to read more about Ukraine? Okay, check out Taylor Marvin on why it doesn’t make much sense to use force in Syria in order to signal resolve. I agree. Using force in one crisis to influence perceptions about your willingness to do so elsewhere may make sense under certain conditions, but the crises would have to be pretty similar. Unlike some, I’m not convinced that failing to poke out the eyeballs of someone who flipped you off will lead the world to think that you wouldn’t lift a finger to stop someone from beating your children to death with a baseball bat.

4. Also, check out this nice post by Anita Kellog on what the crisis does (or does not) tell us about the impact of economic interdependence. Key quote: “In 2012 total trade with Russia (imports and exports) accounted for 26% of Ukraine’s economic activities, whereas this trade accounted for only 2% of Russia’s GDP.”

5. Assad announces bid for reelection. He’s, um, expected to win.

6. A call for partition of Central African Republic. Key quote: “‘The partition itself has already been done. Now there only remains the declaration of independence,’ said Abdel Nasser Mahamat Youssouf, member of a youth group lobbying for the secession of the north, as he pointed to the flag of what he said would be a secular republic.”

7. This isn’t everything you need to know about Israel and Palestine, the title notwithstanding, but it’s still a nice resource. Fairly comprehensive, but still concise. Worth assigning to students.

8. The Marshall Islands is suing the world’s nuclear powers (h/t Holly Gerrity). Key quote: “While the suit seems unlikely to end in any country being compelled to disarm, it will at the very least highlight the fact that while existing nuclear powers frequently invoke international law to argue for why countries like Iran shouldn’t have nuclear weapons, they tend to gloss over the other part of the deal—that they will work to fully eliminate their own arsenals.”

9. A trade spat between the US and Mexico over sugar (h/t Rebecca Johnson). Key quote: “John W. Bode, the president of the Corn Refiners Association, ‘The political influence of the US sugar industry is legendary…. They may be only 4 percent of US agriculture but when you look at political contributions, they account for a third.'”

10. Writing a great abstract (h/t Brent Sasley). A lot of good advice. Key quote: “The ideal abstract…has three parts. 1. statement of the area of concern or disputation 2. statement of the thesis or argument 3. implications for further research.”

11. Interview with GRRM. The whole thing is worth reading, but I found this quote to be of particular interest: “The war that Tolkien wrote about was a war for the fate of civilization and the future of humanity, and that’s become the template. I’m not sure that it’s a good template, though. The Tolkien model led generations of fantasy writers to produce these endless series of dark lords and their evil minions who are all very ugly and wear black clothes. But the vast majority of wars throughout history are not like that. World War I is much more typical of the wars of history than World War II – the kind of war you look back afterward and say, ‘What the hell were we fighting for? Why did all these millions of people have to die? Was it really worth it to get rid of the Austro-Hungarian Empire, that we wiped out an entire generation, and tore up half the continent? Was the War of 1812 worth fighting? The Spanish-American War? What the hell were these people fighting for?'”

11. John Oliver on India’s election.

Classroom Activity: Comparative Advantage

Editor’s note: this post previously appeared on my personal blog.

This fourth activity comes after students are to have listened (slides) to a lecture on how states are currently leaving a lot of money lying on the ground by failing to cooperate more fully. The examples I used all concern economic cooperation—specifically, how there’d be a whole lot more stuff to go around if states changed their trade, exchange rate, and immigration policies—though I discuss other areas where states fail to reap all the available benefits of cooperation in other lectures. Look below the fold for details.

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What Patterns of Trade Might Tell us About the Democratic Peace

Stop me if you’ve heard this one: it appears that wars between pairs of democracies are relatively rare compared to wars between other pairs of states.  Some people even think this relationship might be causal.

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The All New, New Transatlantic Pivot – Trade

This is a guest post by Sean Kay. Professor Kay is chair of the International Studies program and professor of politics at Ohio Wesleyan University.  He is also Mershon Associate at the Mershon Center for International Security Studies at The Ohio State University.  He has written extensively on NATO and Europe, with his most recent book, Global Security in the Twenty-first Century:  The Quest for Power and the Search for Peace (2011).

In a recent Washington Post editorial, David Ignatius reported on a “big idea” that could “revitalize the U.S-European partnership for the 21st century.”  The concept focuses on an “economic NATO” – a US-European Union comprehensive agreement to free up trade in goods, service, investment, and agriculture.  Ignatius reports that this concept is advancing through the American and European bureaucracies while citing a German Marshall Fund study (PDF) showing that a 50 percent reduction in non-tariff barriers could boost GDP by $160 billion in Europe and $53 billion in the United States – higher for the US if all barriers were lifted.

The NATO motif is instructive because the foundations of the transatlantic relationship need new thinking.  NATO’s military utility is increasingly in decline – and pressures are coming for deep American troop reductions in Europe.  Yes, NATO is sending Patriots to Turkey to hedge against Syrian missiles and has embraced an innovative ballistic missile defense system.  But these deployments do not require tens of thousands, or even thousands, of American troops.  A structural legacy of European dependence on American military power was exposed in the 2011 Libya war where even “leading from behind” required a major American contribution to the air war and increased American concerns about burdensharing (already heightened over Afghanistan).

America is rightly pivoting its military priorities away from Europe to save money and focus on other global concerns.  This is logical and should be taken to the next level as part of a new transatlantic bargain.  A clear presidential statement declaring America’s goal to help the allies so they they can fight a Libya-style air war and maintain a Balkans-style peace operation without the United States can facilitate European defense cooperation which better compliments American power.  Limiting America’s role in NATO as a strategic reserve, emphasizing Article 5 collective defense commitments, will keep the foundations of the alliance alive and place Europeans rightly responsible for their own regional security concerns.

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Walmart still isn’t green

Luftverschmutzung in Liaoning China
Photo credit: lhgszch on Flickr.

Back in December 2009, I wrote a post for the Duck called “Wal-mart Isn’t Green.” Jared Diamond had written a provocative op-ed about various green business initiatives for the NY Times and Steve Walt had blogged about it too.

I recently thought about that exchange because the December issue of The Atlantic included an interesting article by the Asia Society’s Orville Schell called “How Walmart Is Changing China.” Much of the article considers burgeoning environmental initiatives involving Walmart and China:

The world’s biggest corporation and the world’s most populous nation have launched a bold experiment in consumer behavior and environmental stewardship: to set green standards for 20,000 suppliers making several hundred thousand items sold to billions of shoppers worldwide. …one thing is already clear: how Walmart and China interact with each other over the next decade will be critical to the fate of the planet’s environment.

Schell mentions three very ambitious green goals Walmart has established for itself:

1. To be supplied 100 percent by renewable energy.
2. To create zero waste.
3. To sell products that sustain our resources and environment.

I’d encourage everyone to read the piece to get a feel for the scope of the problem and for interesting discussion of the various initiatives underway.

I’m primarily interested in the article’s conclusion. Will this work?

On the final page, Schell finally comes to the question that has been nagging at me for some years — as my 2009 blog post accusing Walmart of “greenwashing” made clear:

However smart, prescient, and successful Walmart’s sustainability efforts actually turn out to be, just how “sustainable” is the whole bloody global-retail proposition that lies at the heart of the company’s amazing progress?

For the first cut at an answer, Schell quotes Pulitzer Prize-winning journalist Edward Humes, who recently wrote a book about Walmart’s environmentalism:

“When I started, I didn’t imagine I would be convinced that Walmart was green. And actually, they are not green, but they are a lot better than they were. And the efforts they are making are influencing not only their suppliers, but other businesses as well. Now Walmart is acting something like a private regulator. Nonetheless, the nature of their outsourced business model is not, ultimately, sustainable.”

And Schell’s final thoughts about both China and Walmart are certainly pessimistic:

In fact, one could say the same thing about China, which—after so many decades of defiant proletarian opposition to capitalism, consumerism, and American imperialism—has embraced the American-style market and is ardently following the Walmart path to prosperity. Indeed, allowing, even encouraging, people to consume as much as they want, or can, has become one of the Chinese Communist Party’s key strategies for political legitimacy and social stability. Party leaders may label their version of development “scientific” or “sustainable,” but it’s still development. The bitter reality is that even if unrestrained consumerism becomes less environmentally destructive per unit of production than it was in the past, it is still unsustainable in the long run. So even as this most innovative of corporate and statist green strategies may represent an environmental breakthrough and good business for Walmart, and good politics for the Chinese government, it may nonetheless end up being very bad business for humankind.

In the long-run, consumers and businesses alike must figure out ways to operate sustainably. I suspect the phrase “global supply chain” isn’t going to fit into that plan very well given the inherently large volume of energy and other resource usage associated with moving and consuming products around the world, including food.

The Transit Trade Agreement

Although the story has garnered relatively little attention in the US, the Afghanistan-Pakistan Transit Trade Agreement (APTTA) is probably one of the most important developments impacting the medium-term economic and political health of Afghanistan. As the US State Department correctly noted,

“This agreement is one of the most important, concrete achievements between the two neighbors in 45 years and represents the most significant bilateral economic treaty ever signed between Afghanistan and Pakistan. It will undoubtedly bring great benefit to the people of both countries and is also a major milestone in promoting regional trade.”

The 2010 APTTA, which has been in the works for several years, was pushed through with strong pressure from the US last Sunday. Basically, in exchange for Pakistan’s cooperation, the US has provided Pakistan with…

“… significant investments in health, water, agriculture, government-to-government partnerships, support for the private sector, energy, security, gender equality, and a wide range of programs to help those who have been displaced by the ongoing fighting in Pakistan.”

The 2010 APTTA replaces an “outdated” agreement from 1965. Under international law, states bordering landlocked countries are required to provide transit facilities, however legitimate Pakistani fears of smuggling corroded the 1965 agreement. The new agreement is actually a reciprocal agreement that permits Afghanistan to export products duty-free through Pakistan to India, while allowing Pakistan to conduct transit trade through Afghanistan to states in Central Asia. Pakistan objected to Afghanistan’s request to be allowed to import products overland from India via Pakistan (nominally because India has not extended Pakistan transit rights to landlocked Nepal). Nevertheless, Afghanistan is permitted to import products from India (and any other country) via Pakistani seaports. Of course, India will soon have the ability to transit its exports to Afghanistan via Iran. So Pakistan’s objection to Indian exports to Afghanistan will become largely irrelevant as road (and some rail) links from Iran’s Chabahar port to Delaram are completed.

The new APTTA is carefully designed to limit opportunities for smuggling which corroded the old agreement. In the past, imported duty free goods (e.g. tea, tires) that were supposed to be sold in Afghanistan ended up flooding the Pakistani market. Smuggling of duty free goods resulted in major losses of customs revenue for the Pakistani government. Hence, the new agreement lays down precise measures to counteract those practices. According to the Associated Press of Pakistan,

“… Afghan trucks will be allowed to carry Afghan Transit Export Cargo on designated routes to Pakistani seaports and [one of the only India-Pakistan border crossing points at] Wagah.

The Afghan transport units, on return, will be permitted to carry goods from Pakistan to Afghanistan under the same expeditious procedures and conditions as Pakistani transport units.

It was also decided that all Afghan transit goods will be exported in containers of international specifications. For a period of three years, the cargo will be allowed to be transported in internationally acceptable and verifiable standards of sealable trucks while the oversize and bulk cargo which is not imported in containers – shipload will be transported in open trucks or other transport units. It was also agreed that export of perishable goods in transit will be transported in open trucks or other transport units.

According to the record note signed, the drivers and cleaners will be allowed to enter/exit the two countries on permits, identified by the biometric devices installed at the entry points.

It was also agreed that an arbitrator tribunal will be established bilaterally. In case of failure to agree on a common name of third arbitrator, two names of non-nationals and non- residents will be proposed by each side and the third arbitrator will be selected by drawing lots from the four proposed names.

To tackle the issue of unauthorized trade, it has been agreed that tracking devices on transport units will be installed and a mechanism for custom to custom information sharing (IT data and others) will be established. In this context, it has also been agreed that financial guarantees equal to the amount of import levies of Pakistan have to be deposited by authorized brokers/custom clearing agents to check the unauthorized trade and these deposits will be released after the goods exit the country.

In case, the goods do not exit the country within specified time, the guarantees will be encashed by the custom authorities.”

The agreement is significant for Afghanistan because it provides Afghans with access to a vital emerging market and reduces its economic and hence political dependency on Pakistan. The government of Pakistan’s exercise of hegemony over Afghanistan prior to 2001 and its clear preference for shielding certain Taliban elements even after 2001 provide ample reason for Afghanistan to seek to break free of its dependence on Pakistan.

The government of Pakistan potentially also benefits from the agreement for two reasons. First, the new agreement may reduce some smuggling of duty free goods into Pakistan. Second, Pakistan gains access to the landlocked states and resource rich states of Central Asia via Afghanistan.

Given the massive corruption in both Afghanistan and Pakistan, one must remain skeptical that this new agreement with its high tech tracking and biometric provisions will successfully curb smuggling over the long run. Nevertheless, the agreement can be seen as a medium-term “win-win” for both countries and for South Asia as an artificially divided economic region.

Any long term solution for sustainable transit trade would require building stronger states in South Asia that are less dependent on customs duties for revenue and capable of generating greater revenue from their better-off citizens. Although tax reform initiatives have been seriously debated (for example in India), unifying and widening the tax base to cover the emerging middle class (and thus creating space for lowering customs duties on imports) in South Asia will probably take many years. Faithfully ratifying and implementing the South Asian Free Trade Area (SAFTA) agreement would also be a major prerequisite. At the moment the political will and mutual trust necessary for removing barriers to intra-regional trade are weak, but the APTTA is a step in the right direction.

[Cross-posted from my Afghan Notebook]

Hamiltonian Failure?

Yesterday, my class on U.S. Foreign Policy considered Walter Russell Mead’s Hamiltonian School — ostensibly an American realism grounded in the aligned interests of the state and business.

The Hamiltonians have their roots in Alexander Hamilton. They have always believed that the American national strategy should be modeled on the British system: use your trade to make money through commerce; government should support large business; your trade policy should be an instrument of your economic development, however that benefits you most; and then, the revenues from your international trade will support your military expenditures and interests while preserving political stability at home.

For most of U.S. history, argues Mead, Hamiltonians were mercantilists — favoring “open door” trading policies over “free” trading policies. However, after World War II, the Hamiltonians became free traders and thus embraced GATT, then WTO, NAFTA, etc.

After outlining Mead’s arguments to the class, I also presented some data that questions whether the new laissez-faire Hamiltonians have made the right call. Does the free trade system they’ve helped create build American wealth?

Dan Drezner might disagree with the limited analysis I provided, but many of the students shared the concerns I was raising.

I started the challenge with the question famously raised by Robert Reich: “Who is us?” Then, I asked the students to consider (from the Hamiltonian position) if the American state has perhaps gone too far in removing itself from global capitalism — effectively benefiting transnational corporate interests (and mercantilist states) at the expense of U.S. interests.

Essentially, the U.S. trade deficit has ballooned to historic levels, a substantial portion of that deficit is linked to trade with China. A huge problem is the loss of America’s manufacturing base:

the U.S. manufacturing sector never emerged from the 2001 recession, which coincided with China’s entry into the World Trade Organization. Since 2001, the country has lost 42,400 factories, including 36 percent of factories that employ more than 1,000 workers (which declined from 1,479 to 947), and 38 percent of factories that employ between 500 and 999 employees (from 3,198 to 1,972). An additional 90,000 manufacturing companies are now at risk of going out of business.

The “continental realist” John Mearsheimer argues that the U.S. has had a flawed China policy for a very long time. Yet, as the data reveal, the U.S. is helping to make China a stronger future great power competitor.

In the long run, the U.S. might be able to survive the loss of its manufacturing base — thanks perhaps to its innovative information technologies. However, in the midst of a deep recession (with real unemployment at near 20%) and huge trade deficits, the current situation seems troubling — at least it should for Hamiltonians worried about American national interests.

Multipolarity versus Hegemony: Is this really the right question?

Dan recently commented on how the decline in US economic power will likely lead to a rewrite of the post-war global order. Additionally, there are reports that a new intelligence assessment by US agencies is set to be released after the upcoming elections which notes the coming relative decline of US predominance, particularly in the economic realm, by 2025. Now, there have been numerous predictions of US decline that, like the death of Mark Twain, have been greatly exaggerated. But the current panic in the US economy is on par with the very worst crises we’ve seen since the Great Depression (e.g. Stagflation, Black Monday, post-9/11, etc.), and there seem to be real structural problems that are unlikely to abate any time soon. That combined with the true rise of new economic players (e.g. China, India, and the continued productivity of the EU) means that for the first time since WWII we are seeing even more economic parity on the world stage.

Let’s assume for a moment that we will finally see a significant decline in US economic predominance and the rise of a more multipolar world order–is this necessarily a good thing? The answer I think is that polarity isn’t really the most important factor.

There has long been a debate in IR circles on what types of great power systems create the most stability–from a military and economic perspective. Balance of Power theory suggests that stability is dependent on the relative parity of great powers, as power imbalance between the great powers provides opportunities for both defensive and offensive balancing actions that can lead to war. There are only two possible systems, bipolar and multipolar–depending on who you ask, one or the other is preferrable from a stability standpoint. Hegemonic Stability Theory predicts an opposite scenario, where a single predominant economic and military power creates conditions necessary for peace and for an open economic trading order (Peter has certainly provided insightful commentary on HST in this space). The two theories are difficult to reconcile–however, Ed Mansfield tried to do just that in “Power, Trade, and War“. The book was based on his dissertation and was an attempt to determine which theory had it right–was the world more peaceful and prosperous when there was a more even distribution of power amongst great powers, or when there was a high imbalance of power with a single great power dominating the system?

The data suggests the answer was, well, yes. Mansfield found that in addition to looking at the polarity of a system (how many great powers exist in a system) it is equally important to examine the concentration of power in the system, where concentration is a combination of the number of great powers as well as the relative inequality of economic and military capabilities among those powers.

Mansfield finds a U-shaped relationship, rather than a linear relationship, between the concentration of power and openness of trade, and an inverse-U relationship between the degree of concentration and the outbreak of war [see figure below for a representation of both relationships].

What is most interesting is that the most dangerous times in terms of war and the least prosperous times occur in systems where the concentration of power appears in flux, or in a middle state–stability in trade and peace comes when power is most concentrated or most evenly dispersed.

I bring this up because if we are seeing the emergence of a more multipolar order (and that is debatable), whether or not this is a good outcome will depend more on how this effects the concentration of power in the system. The rise of new great powers and their effect on the relative concentration of power in the global system may have a net negative effect on peace and stability if we transition into that middle state. US economic power will decline in a relative sense, but militarily speaking it should remain predominant. Yes, China is growing economically and would like to convert those gains into military power, but the gap is large and a global economic slowdown will no doubt hamper those plans. Same with Russia–with global oil and gas prices dropping, Putin is less likely to catch up (if that is even the goal) with the US. And I will believe that Europe is dedicated to seriously enhancing their military aresenal when I see it. However, more important is the US’s ability to actually use that power and convert it into influence. While our spending will remain high (regardless of who is elected, just check the historical data), we have serious issues with our ability to translate that power to favorable battlefield outcomes as well as diplomatic victories. The main reason of course is the damage done and the vulnerability demonstrated since 2003 with the Iraq escapade. Not only did it stretch resources too thin, but it also demonstrated that a large budget doesn’t easily translate into dominance in practice.

I don’t have a prediction as of yet, but the economic and military trends do worry me–not because I am only comfortable with the US being a global hegemon, but depending on how dispersed power becomes in the next 20 years we could see far more turbulence in the system than we have for decades.

Just a thought.

Romeny on immigration: “don’t ask, don’t tell”

A quick note on the CNN/YouTube Debate.

Although the point is rather obvious, I think it is worth reflecting on how whe exchange between Rudy Giuliani and Mitt Romney about illegal immigration encapsulates fundamental tensions in this country, and within the Republican party, on the issue.

Recall that Romnney attacked Giuliani for running a “sanctuary city.” Giuliani rejected the the label but also went on the offensive:

It’s unfortunate, but Mitt generally criticizes people in a situation in which he’s had far the — worst record.

For example, in his case, there were six sanctuary cities. He did nothing about them.

There was even a sanctuary mansion. At his own home, illegal immigrants were being employed, not being turned into anybody or by anyone. And then when he deputized the police, he did it two weeks before he was going to leave office, and they never even seemed to catch the illegal immigrants that were working at his mansion. So I would say he had sanctuary mansion, not just sanctuary city.

Romney denied that he employed illegal immigrants, but also responded:

Are you suggesting, Mr. Mayor — because I think it is really kind of offensive actually to suggest, to say look, you know what, if you are a homeowner and you hire a company to come provide a service at your home — paint the home, put on the roof. If you hear someone that is working out there, not that you have employed, but that the company has.

If you hear someone with a funny accent, you, as a homeowner, are supposed to go out there and say, “I want to see your papers.”

Is that what you’re suggesting?

But, of course, many of those concerned about illegal immigration–the very constituency Romney’s targeting in his attacks on Giuliani–want the government to engage in behavior that Romney labels “racist”: conduct sweeps of hispanic laborers, and hispanics in general, because of their accents and appearances.

Indeed, Romney’s implicit claim, that individuals have no positive obligation to comply with immigration laws, highlights some broader inconsistencies in the current political environment. Romney, I imagine, employed the company in question because it offered to do the job he wanted at a competitive price. How did it get its prices sufficiently low to secure a contract with Romney? Presumably because it employed low-wage illegal immigrants.

Romney made the same choice that, I’d wager, at least tens of thousands of Americans make every day: to adopt a “don’t ask, don’t tell” policy when it comes to accepting cheap goods and services made possible by, at least as the employment market currently works, illegal immigrants.

Romney’s position may be particularly hypocritical because, after all, he seeks to exploit the current wave of anti-illegal immigrant sentiment even as he may have directly gained in material terms from illegal immigration. And unlike Fred Thompson, he doesn’t even express some regret from possibly having done so. But like not a few other Americans, Romney wants to have it both ways: to take a strong stand against illegal immigration without assuming the kind of personal responsibility that would reduce the size of his bank account.

Romney’s inconsistency reflects a more abstract dilemma. Most political elites support free trade on the grounds that the open flow of capital, goods, and services contributes to economic efficiency and aggregate economic growth. But many of these same elites draw the line at labor. If we should import other production factors, such as rubber, from wherever they are cheapest, why shouldn’t we enjoy the unrestricted ability to import cheap labor as well? The answer involves, ultimately, distributional and cultural politics. But similar considerations also apply in the context of debates over “free trade.” So those who want to restrict the flow of cheap labor to this country but not of other production factors, let alone finished goods, have some explaining to do.

Sea of boxes

By now, you have probably heard about the recall of Thomas the Tank Engine toys, which are decorated with lead paint. While Lead-Foot Thomas is getting a lot of media attention right now, it’s only the latest in a string of serious safety problems associated with products imported from China. Over the last few years, there have been repeated recalls on children’s toys and jewelry due to lead contamination–all produced in China. Then there was the pet food debacle, in which wheat gluten tainted with melamine–a chemical that makes the protein content of the product appear higher and therefore more valuable– was associated with the deaths of hundreds–perhaps even thousands of pets. Less notice has been paid to another chemical contamination that is deadly to humans–the substitution of diethylene glycol, the primary ingredient in antifreeze, for pharmaceutical grade glycerin in toothpaste and cough syrups. Both are sweet, but poisonous diethylene glycol is cheaper than glycerin. The diethylene glycol-contaminated products were primarily destined for the Third World (Latin America and Bangladesh), though some tainted toothpaste has been found in dollar stores in the US. And today, there’s yet another recall, this time on imported tires, which are apparently missing an important safety feature that prevents tread separation.

All these products have something in common: made in China. Although the vast majority of products made in China seem to be perfectly safe, China’s lax regulatory environment means that the market can do what it wants. And the market wants cheap products, often with no questions asked. Scrupulous producers are at risk of being undercut by the unscrupulous, who have an incentive to shave off pennies by any means possible. Sure, they might get caught, but the chances are slim. You can thank Upton Sinclair, Ida Tarbell and the other muckrakers for the fact that it’s so much harder to get away with these tricks in the US.

Some people seem to have taken these incidents as evidence that one shouldn’t buy products made in China. On one parenting board, a poster admonished members to “know where the products they buy come from.” I nearly laughed out loud when I read that. Unless you are buying toys made by the Amish, it’s pretty much impossible to avoid “Made in China.” Low skill, labor-intensive jobs have almost entirely been exported to countries with abundant cheap labor–and China has become the largest world supplier of cheap labor.

Once upon a time, though, the relative cost of labor was not the primary determinant of the location of production. Sure you might be able to produce a product more cheaply overseas than in the US, but the cost of moving it to market was so high that it just wasn’t worth it. Instead, most products were produced locally–and imports were often luxuries rather than discount goods.

Over Memorial Day weekend, I actually managed to polish off a book I’ve been working on for a while: The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger. Most people, when asked about what drives globalization, would probably talk about the internet and McDonald’s and Coca Cola and American movie blockbusters. But if you really want to contemplate globalization, start looking at the labels in your clothing. The shirt I’m wearing was made in Indonesia, my pants in India. My daughter’s shirt was made in Guatemala. I have clothing made all over the world: Vietnam, Sri Lanka, even Kazakhstan. My computer was “assembled” in China, though heaven knows where each of the component parts where made. The phone sitting next to me was made in Malaysia.

As I said, it wasn’t always like that. It used to be that the vast majority of things you bought were made close to home. New York City, for example, had a thriving garment industry because it was close to both the designers and the customers. Why? Because it cost a fortune to move things around. Remember “On the Waterfront?” In the “old days”, longshoremen loaded and unloaded ships’ cargo piecemeal. It often took over a week to unload and reload a ship during a port call, and it was easy for valuable cargo to “walk”. The bulk of the cost of transporting goods from one place to another was incurred as labor costs in port.

Containers, on the other hand, are efficiently loaded on and off ships and easily transferable to land-based transportation (rail or truck). The labor efficiencies are enormous. Container shipping has transformed the world economy by reducing the cost of shipping products to the point where shipping is a tiny fraction of the overall cost.

The transition to container shipping didn’t happen overnight, and it was punctuated with false starts and bad decisions. Arriving at a standard for containers–their size, their crane couplings, etc.–took years, and in the meantime, shipping companies invested in ships, containers, and port cranes that would become useless if and when standards were ever agreed upon. The longshoremen also suffered–though Levinson argues that the unions largely managed to negotiate deals that smoothed the transition (The Wire notwithstanding). It is telling, though, that the older, more established ports, where the unions fought hardest and most successfully to hold back the transition to container traffic, are also ports that died: New York, San Francisco, Boston. On the other hand, those older ports were also poorly situated for container traffic: old cities, with narrow streets that are difficult for tractor trailers to negotiate.

For the most part, The Box is a fascinating book (though my attention did wander during the lengthy and detailed discussion of the various labor negotiations and the extended wrangling over the standardization of container sizes). The explanation of the impact of the shift from traditional shipping to container shipping is, I think, extremely important to building an comprehension of the true drivers of globalization. I know it’s unoriginal to trash Tom Friedman, but having suffered through The World Is Flat last year, I was struck by the fact that nowhere in his pontification on the “global supply chain” did he mention container shipping. Large metal boxes, I guess, aren’t as sexy as open source software–nor is “Maersk Sealand” as compelling a brand name-drop. But the reason why it makes economic sense to make “Virgin of Guadelupe” statues in China and ship them to Mexico is that it’s so bloody cheap to ship them, and the reason it’s so bloody cheap to ship them is the container. If the shipping weren’t so cheap, it wouldn’t matter that labor is marginally cheaper in China than in Mexico.

By reducing shipping costs to a footnote, container shipping has made shipping itself into a footnote rather than a limiting factor. Instead, production decisions are made according to factor input costs–the relative costs of labor and capital. Container shipping has made classical trade theory (basically) true by reducing shipping costs to the point where they can be nearly assumed away, as typical in trade models. No wonder (orthodox) economists love the modern era of “free trade”–it makes them look right. But the dropping of trade barriers isn’t what drives globalization, it’s shipping, shipping, shipping.

So why is Thomas made in China? Because it’s cheaper to ship him here than to produce him here. The fundamental premise of the market, as my favorite econ professor liked to intone, is “buy low, sell high.” The logic of the market means that production of anything that is low-skill labor intensive will flow to a low-skill labor abundant market–China effectively exports its cheap labor to our expensive labor market. Buy low, sell high. And safety will continue to be a concern for these imported products until we can figure out how to effectively internalize the external cost of ensuring higher safety standards. Don’t think for a minute that the recall-associated costs to the owner of the Thomas franchise are higher than the profits associated with long-term production in China–this recall is merely a “cost of doing business”. Safety problems with products imported from China will not resolve themselves unless there is a genuine economic incentive placed on the producers (presumably by the American importers). The toothlessness of Chinese officialdom in face of the imperatives of market is on display in this account by a New York Times reporter who attempted to visit the factory producing the tainted Thomas toys. Don’t expect a robust regulatory regime to appear on its own, folks.

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