CHAPTER 6
THE PRODUCTION AND TRADE STRUCTURE
Overview:
Since 2009, the Obama administration has imposed high tariffs on imports of Chinese tires and solar panels
into the United States and challenged China at the World Trade Organization (WTO) over its unfair subsidies to
domestic car manufacturers and its tariffs on imported U.S. steel and cars. During the 2012 U.S. presidential
campaign, Republican candidate Mitt Romney attacked China for engaging in unfair trade practices such as
currency manipulation and theft of U.S. patents and technology.
International trade is one of international political economy’s oldest and most controversial subjects. To
review, the production and trade structure is the set of relationships between states and other actors such as
international businesses that determine what is produced, where, by whom, how, for whom, and at what price.
Together with the international financial, technological, and security structures, trade links nation–states and other
actors, furthering their interdependence, which benefits but also generates tension between states and different
groups within them. Controversies about international trade stem from the compulsion of nation-states and business
enterprises to capture the economic benefits of trade, while limiting its negative political, economic, and social
effects on producer groups and society in general.
This chapter surveys developments and changes that have occurred in the post-World War II production
and trade system in which officials in the Northern industrialized developed nations have sought ways to liberalize
the international trade system—that is, to reduce the level of protectionist barriers. The United States and its allies
created the General Agreement on Tariffs and Trade (GATT) to promote liberal trade values and objectives
commensurate with U.S. political and military strategic objectives. In an effort to further liberalize world trade, in
1995 the WTO replaced and incorporated the GATT. Despite some successes these organizations have had in
bringing down protectionist barriers and promoting free trade, the result is an impasse of sorts whereby
simultaneously both protection and free trade are promoted by a growing number of actors with an interest in trade
policy.
The chapter concludes with a survey of a number of other important trade problems and issues including
the role of developing nations in international trade and the growing number of regional trade blocs or alliances.
Throughout the chapter we raise the issues of increasing criticisms of economic liberal ideas when it comes to trade
and the impact of the current global financial crisis on global trade.
Learning Objectives:
• To explain and discuss how mercantilists, economic liberals, and structuralists differ in their outlook about
international production and trade.
• To define the theory of comparative advantage and explain how economic liberals see differences in
opportunity cost as a determinant of mutually advantageous international trade.
• To discuss how the terms of trade determine who benefits from transnational exchanges of production.
• To explain the history and function of the GATT and WTO and discuss the principles they are based on.
• To explain why protectionism rose among industrialized nations in the 1960s and 1970s.
• To examine how strategic trade policy differs from classical mercantilist protectionism.
• To explore the main issues of the Uruguay and Doha Rounds and discuss the impacts of their agreements not
only on trade but the economies of trading states.
• To discuss and explain a number of controversies surrounding the WTO today.
• To describe and explain special provisions in multilateral trade negotiations for LDCs.
• To define and discuss the regional trading blocs phenomenon and discuss why they are so controversial.
• To examine how, why, and under what circumstances some nations have used trade as a foreign policy tool.
Chapter Outline:
INTRODUCTION
a) The economics of production and trade cannot be separated from its politics.
b) The number of actors outside of the nation-state that influence and manage the international production and
trade structure has increased dramatically since the end of World War II.
c) The production and trade structure is the set of relationships between states, international organizations
(IOs), international businesses, and nongovernmental organizations (NGOs) who together influence and
manage international rules and norms related to what is produced, where, by whom, how, for whom, and at
what price.
d) Recent changes in the production and trade structure have been more dramatic than those preceding the
Industrial Revolution.
e) In conjunction with the popularity of economic liberal ideas and policies many trade experts and officials in
the Northern industrialized developed nations have sought ways to liberalize (open) the international trade
system—that is, to reduce the level of protectionist barriers that limit or distort trade. The United States and
its allies created the General Agreement on Tariffs and Trade (GATT) in 1947 to promote liberal trade
values and objectives commensurate with a variety of its economic, political, and military-strategic
objectives. In 1995 the World Trade Organization (WTO) replaced the GATT.
f) The chapter concludes with a survey of other important trade issues, namely: the growing role of
developing nations in trade, regional trade blocs, and North-South trade relations. These issues make trade
one of the most complex and politically contentious areas in the international political economy.
g) The chapter presents three major theses:
1) Controversies about production and international trade stem from the compulsion of nation- states (rich
and poor alike) and businesses to capture the benefits of production and trade while limiting their
negative effects on producers and society.
2) We maintain that recent criticisms of neoliberalism and globalization, coupled with the impact of the
current global financial crisis, has exacerbated the resistance of many emerging economies to further
liberalization of trade.
3) Third, many state and business officials in the industrialized nations are increasingly resisting some
aspects of free trade and globalization.
GLOBAL PRODUCTION
a) In The Lexus and the Olive Tree, Friedman focuses on how people the world over—but especially in the
developed industrialized nations—are using sophisticated, multifunctional, postindustrial-age products and
services.
b) The quintessential technologies of globalization include “computerization, miniaturization, digitization,
satellite communications, fiber optics and the Internet.”
c) The production process has also become much more fragmented due to vertical specialization and
outsourcing.
d) In his book The World Is Flat, Thomas Friedman shows how the rapid spread of production processes
throughout the world (most recently to India and China) has empowered individuals to collaborate and
compete globally.
e) The transformation and globalization of production processes is occurring not only in manufacturing—it is
also taking place in food, agriculture, and sophisticated national security systems.
f) Changes in where production takes places are frequently tied to changes in patterns of foreign direct
investment (FDI).
g) Because of capital mobility, foreign direct investment has grown—though most of it is still concentrated in
the already developed nations.
h) Africa has seen large inflows of FDI recently, mostly from China.
i) The BRIC countries of Brazil, Russia, India, and China have been producing a rapidly growing share of the
world’s goods and services, while the United States, Europe, and Japan have been producing a smaller
proportion of the world’s output.
j) The world’s poorest countries—roughly 20 percent of all countries—do not contribute any significant
amount of goods and services to world trade.
INTERNATIONAL TRADE
a) International trade has increased both in value and volume dramatically since the 1980s, in part, as a
reflection of the internationalization of production.
b) The expansion in international trade is a reflection of the internationalization of production processes.
c) Trade promotes social, political, and economic interdependence between trading partners.
d) In the absence of comprehensive and binding international trade rules, tensions between trading partners
are likely as states try to maximize domestic gains from trade, often at the expense of the welfare of trading
partners.
THREE PERSPECTIVES ON INTERNATIONAL TRADE
a) Early European mercantilists (see Chapter 2) emphasized the role trade plays in generating national wealth
and power. Exports were encouraged and imports discouraged.
b) Pomeranz and Topik emphasize how states adopted a mix of mercantilist, imperialist, and free trade
policies to advance their interests.
c) There are virtually no examples of any state using “pure” free trade policies to achieve industrialization.
Economic Liberals
a) The economic liberal ideas of Smith and Ricardo concerning trade came as a reaction to the policies of the
early mercantilist period.
b) David Ricardo formalized the law of comparative advantage, which is the basis of liberal ideas about
trade.
c) According to Smith and Ricardo, trade is not based on who can produce the most of any given good
(absolute advantage) because limitations of scarce resources mean that no nation can produce as much as it
wants of all goods and services; opportunity cost must therefore be considered.
d) The theory of comparative advantage holds that a nation should produce those goods that have a lower
opportunity cost than the same goods produced in other countries.
e) Finally, a nation should import goods if the price of the import (terms of trade) is less than the opportunity
cost of home production.
f) For many economic liberals in the late 1800s, the world was supposedly becoming a global workshop
where everyone could benefit from (free) trade guided by the “invisible hand” of the market. Today,
lightly regulated trade is also an integral part of other policies associated with the Washington Consensus
promoted by the United States and other members of the WTO.
g) Today many economic liberals emphasize the need for international rules to maximize the gains from trade.
Mercantilists
a) Although trade itself makes all nations better off, changes in the terms of trade can make one nation better
off and another worse off.
b) Also, mercantilists view the theory of comparative advantage as incomplete because it does not take into
account other factors that affect trade and national welfare.
c) Many heterodox interventionist liberals (HILs), neomercantilists, and structuralists are critical of the strict
economic liberal outlook about trade.
d) Alexander Hamilton and Friedrich List challenged what became accepted economic liberal doctrine about
trade. From their mercantilist perspective, liberalism and free-trade policies were merely a rationale for
England to maintain its dominant advantage over its trading partners on the Continent and in the New
World.
e) For Hamilton, supporting U.S. infant industries and achieving national independence and security required
the use of protectionist trade measures. List argued that in a climate of rising economic nationalism,
protectionist trade policies such as import tariffs and export subsidies were necessary if Europe’s infant
industries were to compete on an equal footing with England’s more efficient enterprises.
f) More importantly, List also maintained that in order for free trade to work for all, it must be preceded by
greater equality between states, or at least a willingness on their part to share the benefits and costs
associated with it.
g) Many neomercantilists today challenge the assumption that comparative advantage unconditionally benefits
both or all of the parties engaged in trade. People employed in different industries resist being laid off or
moving into other occupations as comparative advantages quite easily shift around to different nations.
h) States can intentionally create comparative advantages almost overnight in the production of new goods
and services simply by adopting strategic trade policies that invest heavily in those projects.
i) New technology, skills, and other resources such as cheap labor can easily help one state’s new industries
gain a comparative (competitive) advantage over the industries of another state.
j) In democratic nations with representative legislatures it is the state’s duty to protect society and its
businesses from the negative effects of trade.
k) Trade protection is also associated with a fear of becoming too dependent on other nations for certain
goods, especially food and items related to defense.
l) Finally, some neomercantilists are concerned that the protectionist trade policies of a regional trade alliance
such as North American Free Trade Agreement (NAFTA) or the EU (discussed below), which are designed
to help local industries, might either intentionally or unintentionally disrupt another country.
Box: The Vocabulary of International Trade Policy
a) This box provides a listing of the main types of trade policies, along with very brief definitions.
b) Tariffs, import quotas, export quotas, export subsidies, currency devaluations, nontariff barriers, strategic
trade practices, dumping, and countervailing trade policies are listed.
Structuralists
a) Structuralists view mercantilist colonial practices as essentially another version of classical imperialism
(see Chapter 4).
b) Trade helped mother countries dominate and subjugate undeveloped colonial territories.
c) Modern structuralists emphasize the extent to which international trade reflects the exploitative relationship
that exists amongst core, semi-peripheral, and peripheral nations.
d) In sum, all three IPE perspectives on trade account for a variety of different values and policy outlooks.
e) Today, a majority of academics and policy officials still favor an economic liberal international trade
system within an order that is supposed to be gradually liberalizing or opening up.
f) In cases such as the recent global financial crisis, most nations tend to behave in a mercantilist fashion and
adopt protectionist measures when their national interests are threatened. More than ever before,
developing and industrialized nations are concerned that trade may be more exploitative than mutually
advantageous.
GATT AND THE LIBERAL POSTWAR TRADE STRUCTURE
a) Until after World War II trade rules largely reflected the interests of the dominant states, especially Great
Britain.
b) During the Great Depression of the 1930s, protectionism spiraled upward while international trade
decreased significantly due to the Smooth-Hawley tariff in the United States. Many trade experts suggest
that protectionism led the erection of trade barriers elsewhere and to economic conditions that brought
Mussolini and Hitler to power.
c) In 1947 the GATT was instituted based on the two basic principles of reciprocity and nondiscrimination,
commonly referred to as the most favored nation (MFN) principle.
d) Eight GATT negotiating “rounds” were fairly successful in lowering trade barriers on manufactured goods,
but not on some good that were attached to security considerations such as agriculture commodities.
e) The GATT rules were not enforced by the trade organization by but depended on the members to fulfill
multilateral trade obligations with one another.
Mercantilism on the Rebound
a) Protectionism increased among industrial nations in the 1960s and 1970s due in part to declining U.S.
hegemony, the rise of Europe and Japan, and changing patterns of global production.
b) The Tokyo GATT Round attempted to deal with a growing number of non-tariff barriers (NTBs) and
other discriminatory practices such as dumping.
c) In the 1980s trade accounted for an increasingly higher percentage of GDP in the industrialized states,
generating demand for new protectionist policies. This led to the Uruguay Round of GATT multilateral
trade talks in 1986.
d) Strategic trade policies grew in importance, especially in the 1980s and 1990s.
e) The idea of “strategic trade policy” is that comparative advantage is not fixed, but is dynamic. The United
States employed a host of measures to support and punish trade partners. Likewise, Tokyo’s Ministry of
International Trade and Industry (MITI) adopted numerous trade support measures.
f) Many of these measures were aimed at creating comparative advantages, further politicizing international
trade policy
g) Gradually the notion of fair trade gained prominence, where states counteracted the protectionism of
trading partners by creating rules that attempted to level the playing field when it came to acceptable
amounts and types of protection amongst trade partners.
The Uruguay Round
a) The Uruguay GATT Round (1986–1994) attempted to deal with a number of newer trade issues including
services and intellectual property rights (IPRs).
b) The new General Agreement on Trade and Services (GATS) liberalized trade on banking, insurance,
transport, and telecommunication services.
c) Domestic support for agriculture and LDCs was also an issue dealt with in the Uruguay Round that had not
been dealt with effectively (or at all) in previous GATT Rounds.
d) Trade Related Intellectual Property Rights (TRIPs) and Trade Related Investment Measures (TRIMs)
were also on the negotiating table.
e) Agriculture remained an especially sticky issue throughout the negotiations and held up the talks several
times. In 1993 an agreement on agriculture was reached, opening the door to agreements on services, IPRs,
and other issues.
f) While the Uruguay Round did make progress on these and other issues, many of them remain for the WTO
to either deal with or solve.
The WTO
a) The WTO took over the GATT’s role in 1995.
b) Theoretically, decisions are still arrived at by consensus of the membership.
c) Unlike the GATT, the WTO has enforcement power through its Dispute Settlement Panel, which is
empowered to interpret WTO agreements and authorize sanctions on member-states that violate trade rules.
d) Many NGOs and other interest groups have criticized the WTO for its (lack of) rules related to child labor,
low wages (especially in Third World countries) and supposed lack of interest in the environment.
e) Many experts suggest that trade issues in the WTO have become increasingly complex and politicized
given the importance of trade to states.
The Doha “Development Round”
a) Many LDCs depend on trade for economic development and argue that many promises made during the
Uruguay Round went unfulfilled.
b) After the failure of the Seattle Ministerial meeting and 9/11, many trade officials pushed for another round
of trade talks.
c) The Cancun Ministerial talks in 2003 broke down in large part because developed countries refused to
sufficiently reduce the agricultural subsidies paid to their farmers.
d) Also contentious were efforts by the United States, EU, and Japan to promote the “Washington Consensus”
model of opening up developing countries’ markets, as well as the TRIPS agreement, which many
developing nations fear will compromise their access to generic medicines.
e) To restart trade talks, the United States offered to cut agricultural subsidies if the EU followed suit.
However the renewal of the U.S. Farm Bill and the EU’s decision to leave the Common Agricultural Policy
(CAP) unchanged raised questions about the commitment of the United States and EU to agricultural
reform. Both the EU and United States face tremendous domestic political pressure to leave agricultural
protections in place to safeguard local farmers.
f) A G-20 trade group in the WTO has emerged headed by China, India, Brazil, and South Africa that is
critical of U.S. and EU agriculture subsidies.
g) One possibility is a “Doha lite” agreement that would not require nations to give up so much. There is
great fear that failure to reach some agreement will damage the credibility of the WTO as an institution.
h) In the meantime many states are putting new energy into bilateral and regional trade agreements to advance
the objective of trade promotion.
REGIONAL TRADE BLOCS
a) The US has signed more than 300 bilateral agreements and belongs to a number of Regional Trade
Agreements (RTAs) like NAFTA and APEC.
b) RTAs are often easier to form because fewer states are involved, which means fewer interests to reconcile.
c) Intraregional trade blocs like the Asian Economic Community attempt to integrate state from different
regions of the world.
d) Many economists theorize that RTAs are a stepping-stone to global free trade, by strengthening economic
integration between the bloc’s members.
e) However, other economists oppose RTAs as obstacles to world free trade, because they increase tariffs and
preferences between the bloc’s members that become durably institutionalized.
f) Mercantilists argue that RTAs are created in consideration of state security and wealth generating interests
and objectives.
g) The motives behind the new Trans-Pacific Partnership (TPP) appear to be more political than anything else;
for the United States to counter the influence of China in Asia.
North–South Trade Issues
a) Trade generates a good deal of tension between the Northern and Southern nations.
b) The BRIC countries are playing an increasingly bigger role in international trade negotiations all the time.
c) In the 1970s, a coalition of developing nations in the UN called the Group of 77 led the call for a new
international economic order (NIEO) with conditions more favorable to LDC trade— including greater
access for their primary commodities into developed countries’ markets, and a code of conduct for
transnational corporations.
d) Structural Adjustment Policies by the IMF and World Bank have made assistance to LDCs conditional on
the transformation of their economies in line with the “Washington Consensus”—a set of economic liberal
policies.
e) Many LDCs also view the WTO as a body whose role is to pressure LDCs into bringing down their tariff
barriers, thereby exposing LDC infant industries to the more competitive imports of industrialized
countries.
f) Many structuralists point out that while trade has generated economic growth, the benefits to developing
countries have been distributed very unevenly, promoting greater inequality.
g) Other economists argue that the most successful developing economies and nearly every current
industrialized country insulated themselves from the international market during their economic ascent,
which calls into question the Washington Consensus’s demand that developing countries completely
abandon protectionist measures.
Structuralist and Neomercantilist Versions of Trade and Globalization
a) Many structuralists (and some mercantilist-realist types) are critical that the gains from trade do not reflect
a clear understanding of the consequences of economic liberal trade policies.
b) Many structuralists argue that the WTO has perpetuated the exploitative relationship of the North to the
South and recommend that developing countries insulate themselves from the Northern developed
countries.
c) Robert Wade has calculated that while trade has raised per capita incomes in many states, especially China
and India, it has also generated significant inequality between and especially within the developing nations.
d) The vast majority of developing nations still account for only about one-fifth of the world’s trade in
manufactured goods. Some 40 percent of those exports came from emerging economies (especially the
Asian Tigers) in the last quarter-century. Many African and Latin America states suffer chronic trade
deficits and have large international debt.
e) The recent financial crisis has worsened these tendencies. The crisis has also contributed to increased LDC
deficits and increased dependency on external financing of the debt of poorer states in particular. Likewise,
demands for trade protection have increased in most developing nations as they have in developed states.
f) Countries that are highly trade-reliant are more likely to be affected by volatility in prices of exports and
imports due to protectionist measures and changes in global demand.
g) When it comes to the effects of trade, Walden Bello and others claim that new trade rules for agriculture
have hurt small rice farmers in Malaysia and rice and corn farmers in the Philippines.
h) Trade liberalization and globalization have served the interests of the U.S. agricultural “dumping lobby”
and a “small elite of Asian agro-exporters.
i) A supporter of managed globalization, Dani Rodrik points out that many of the world’s faster growing
economies, such as China, Vietnam, and Malaysia, insulated themselves from the international economy
during the recent Asian crisis and now in response to the global financial crisis (see Chapter 8).
j) According to Rodrik, in the past, high-tariff countries grew faster than those without tariffs. The developed
states want to “kick away the ladder” (take away protection) from under the developing nations. Rodrik,
Chang and Bello argue that protection serves a variety of “socially worthy objectives such as promoting
food security for society’s low income people, protecting small farmers and biodiversity, guaranteeing food
security, and promoting rural social development.
Critics of Globalization and Outsourcing
a) In the 1990s, a growing number of NGOs, many with structuralist views and closely connected to the anti–
globalization movement, have focused attention on the connection between trade and issues such as the
environment, global labor conditions, drugs, and even terrorism.
b) Constructivist theorists (see Chapter 5) posit that these civil groups are responsible for changing the way
the general population of developed countries thinks about globalization and “free trade.”
c) Polls in the United States indicate that support for free trade has gradually decreased without a consensus
about its benefit to the U.S. economy. Outsourcing and the loss of jobs by middle-age people have
contributed the most to this trend.
d) In the early 1980s many corporations began shifting their production facilities overseas. They argued that
outsourcing was more efficient than paying high wages for labor in the industrialized nations, which would
result in cheaper goods and services for consumers in developed and developing nations.
e) Many realists and mercantilists question the benefit of outsourcing to the United States and other nations as
well risk losing some of the intellectual property
f) A new development is insourcing or the return of corporations to their home countries.
CONCLUSION: THE INTERNATIONAL PRODUCTION AND TRADE STRUCTURE IN REPOSE
a) Many economic liberals applaud the GATT and WTO for fulfilling many of the dreams of officials who
favor further opening up the international production and trade system.
b) Even so, a number of counter trends co–exist with this objective.
c) While many officials and interest groups support free trade and the policies of the WTO, others, especially
in developing nations, are increasingly more critical.
d) Difficulties in multilateral negotiations reflect tensions between the North and the South but also the
developing nations argument that trade regulations reflect predominantly the interests of the Northern
industrialized nations.
e) Developing countries now have increasing influence in multilateral negotiations, based on their importance
to developed states as markets and sources of labor for TNCs.
f) Anti-globalization groups and NGOs have challenged the assumed benefits of free trade and other policies
associated with globalization.
g) Many RTAs simultaneously support both economic liberal and mercantilist trade policies.
h) The liberal trade structure appears to be giving way to a managed trade system that mixes liberal,
mercantilist, and structuralist practices.
i) Paradoxically, globalization has been undermined by economic forces and policies that have generated
more demand for protection in the developed and developing nations.
j) Without more reforms, the current system could easily return to one of strong demand for more trade
protection.
Key Terms:
• Specialization
• Outsourcing
• Foreign Direct Investment (FDI)
• Law of comparative advantage
• Strategic trade policies
• General Agreement on Tariffs and Trade (GATT)
• Reciprocity
• Nondiscrimination
• National treatment
• Most Favored Nation (MFN)
• Nontariff Barriers (NTBs)
• Super 301
• Fair trade
• General Agreement on Trade and Services (GATS)
• Trade Related Intellectual Property Rights (TRIPs)
• Dispute Settlement Panel (DSP)
• Regional Trade Agreements (RTAs)
• Intraregional trade blocs
• Structural Adjustment Policies (SAPs)
• Insourcing
• Managed Trade System
Teaching Tips:
1. The first part of this chapter provides an opportunity to review the ways that the three IPE perspectives view
trade. If your students have done well on their exam over this material in chapters 2-4, it is possible to skip over
this material. If not, this is a good place for a quick review.
2. It is important to note, however, that these chapters aim to go beyond a simple recital of
mercantilist/liberal/structuralist analyses of various issues. Each chapter in this section also tries to provide
theoretical, historical, and policy analysis of the structures that connect states and markets in the IPE. The four
structures—production and trade, money and finance, security, and knowledge and technology—overlap to an
enormous extent, and references within each of these chapters provides links to the other structures in other
chapters. If you are aware of this, you can point out linkages to students, to help them understand how the
various structures are related.
3. It is important to cover the theory of comparative advantage, as it is the foundation upon which economic
liberals and economists understand international trade. Many instructors, however, are accustomed to analyzing
comparative advantage using arithmetic examples (perhaps because this is how Ricardo presented the idea in
his textbook). It is our experience that comparative advantage is best understood as a concept, as it is presented
in this chapter, and not as a math principle. It is too easy to get confused in a numerical example, and students
seldom retain this for very long. Try using the concepts (opportunity cost) and user-friendly examples given in
the text.
4. This chapter contains many examples and ideas, so the instructor’s problem is necessarily one of focus. The
Uruguay Round is a good topic for focused study since it brings up North–South and North–North trade issues
and provides a nice link to Chapter 10 by studying the issue of intellectual property rights.
5. One topic that doesn’t get enough attention in this chapter is transnational corporations (TNCs), which are
covered in chapter 17. Some instructors will choose to have students read the TNC chapter along with this
chapter, but there are advantages, we think, to waiting until after the finance, technology, and LDC topics have
been discussed, as these allow a richer analysis of MNC behavior and impacts.
6. One suggestion for a paper topic or class research project is to follow one trade item through the global
economy. Many students find it fascinating to look at not only the producers of such items as cars and
computers, but also what kinds of trade policies affect these and other items. What advantages or disadvantages
do certain producers and states face given international terms of trade or the trade policies of certain states.
What measures or options exist to reconcile differences between states and/or producers of these goods?
7. Spend some time discussing with students the idea of globalization and then discuss elicit different views
discussed in the chapter about its continued worth and application to issues like global trade. What contributes
most to increasing protection and intransigence when it comes to solving trade issues?
8. Likewise, do the same when it comes to the issues surrounding the current global financial crisis. You may need
to have students read Chapters 7 and 8 first before tackling this question. Essentially, how much has the
financial crisis damaged economic liberalism and the policies that flow from it?
Sample Essay-Discussion Questions:
1. Discuss and explain the role of trade in the international production structure. Why is the issue of production
and trade so controversial?
2. The economic liberal view of trade as a positive sum game is based in part on the theory of comparative
advantage. Define comparative advantage and discuss its relationship to international differences in opportunity
costs? Why do all nations supposedly gain when trade takes place according to comparative advantage?
3. Outline the basic ways that mercantilists, economic liberals, and structuralists view trade. (Note: think about the
tension between the politics and economics of trade.)
4. Which of the three IPE approaches best accounts for the relationship of the Northern industrialized nations to
the Southern developing nations when it comes to trade? Explain and discuss.
5. Outline the reasons for increased trade protection since the 1970s. Do you expect this trend to continue? Why?
Why not?
6. Discuss the most important issues of the GATT Uruguay Round. Do you expect these problems to be resolved
in the Doha Round? Why? Why not? Explain.
7. In the Doha Round, discuss the extent to which the inability to resolve these trade issues are related to
inadequacies in the institution itself or to the complexity of issues? Explain.
8. What is it about globalization and the current financial crisis that adds to the complexity and politicization of
global trade issues?
Sample Examination Questions:
1. According to a World Bank study, which groups of countries accounted for which percentage of the world’s
GDP in 2011?
d) none of the above
2. According to the theory of comparative advantage, mutually advantageous international trade is based on
differences in
d) the effective use of trade barriers and export subsidies.
3. When it comes to production, _____ has seen a bigger inflow in recent years, partly due to _____ interest in
commodities in the continent.
a) Vietnam, Japan’s
4. Which of the following statements about trade is false?
a) Trade generates political, economic, and social interdependencies between nations.
5. Which kinds of trade policies are most associated with mercantilism?
a) free trade policies.
6. Which of the following statements about trade is false?
a) For mercantilists, trade is an instrument states often use/tried to use to enhance their wealth, power, and
prestige in relation to other states.
7. Which of the following is incorrect?
a) mercantilists believe that the biggest gains from trade have gone to the largest industrialized countries.
8. Measures that restrict the quantity of an item a nation can export, with the effect of limiting the number of
goods imported by another country, is called
a) a tariff.
9. The basic principles of the GATT are
a) freer trade in services and protection of agriculture.
10. Which of the following points about the Doha Round is incorrect?
a) It is nicknamed the “Development Round.”
11. This body is sanctioned to adjudicate disputes and trade issues between WTO members.
d) none of the above
12. Which of the following is NOT currently on the Doha Round agenda?
13. One important trend of recent years has been the growth of regional trade blocs. Which of the following is NOT
a regional trade block?
d) CAFTA
14. APEC is an example of?
d) a TRIP
15. This development expert and professor is known for his work that demonstrates that increased economic growth
has led to an increase in inequality within and between states.
a) T. Friedman