Political Economy of European Integration Nikos Koutsiaras Lecture II: On international trade, globalisation and EU trade policy and strategy Key concepts and issues: The geography of international trade, trade patterns, economic logic – fundamental economic motivations and enabling (economic) forces – global economic restructuring, distributional effects and the domestic political economy, protectionism, preferential trade agreements and regional groupings (FTAs), governance of international trade and investment (GATT, WTO, dispute settlement), EU and common commercial policy, RTAs and EPAs, 2007-08 financial crisis: effects on trade, (protectionist) policies and global trade and regulation prospects A. 1850-1930: Traditional trade paradigm, the first wave of the first unbundling (till 1914, R. Baldwin), Capitalism 1.0 (D. Rodrik), Prewar globalisation

Global and regional, but not regionally concentrated, trade in goods and factors, industrial and agricultural goods and raw materials, comparative advantage, industrial revolution (steamships and railroads, falling transport costs)

Spatial separation of factories and consumers (unbundling) – agglomeration forces

Unilateralism, bilateralism – Liberal economic order (Adam Smith)

Industrialisation in the North (US, Europe), Deindustrialisation in the South (China, India)

Growth take-off (industrial revolution) and global income divergence (North-South)

Urbanisation in the North

World wars, depression and protectionism (the Smoot-Hawley Tariff Act, 1930)

The changing domestic political economy (social state, New Deal…) B. 1950-mid1990s(?): Traditional and new trade patterns, EU trading power, the second wave of the first unbundling (till post 2000, R. Baldwin), Regionalism> Globalism, Capitalism 2.0 (D. Rodrik)

International trade in goods and factors, intra-industry trade in the North, FDI, services, imperfect competition and increasing returns, MNFs (within firm trade)

Further unbundling of the production-consumption bundle and spatial reorganization of the supply chain (international restructuring)

The EU – European regional integration – Common commercial policy (common tariff, but also VER, safeguard clauses, antidumping, retaliations) – Common commercial policy II, GSP, Bilateral agreements (3 generations – ‘sensitive products’ and agriculture – trade policy as development policy – RTAs and EPAs)

GATT (MFN, Kennedy 1963-7, Tokyo 1973-9, Uruguay 1986-94 rounds) – multifiber agreement – WTO

Embedded liberalism (Smith and Keynes) – industrial policies, the welfare state etc.

Industrialisation in the South, esp. East Asia (yet, the growth convergence Western club)

The skilled – unskilled wage differential in the US and (still developing in) Europe – European unemployment

The changing domestic and international political economy – the role of preferential trade agreements

C. (?)mid1990s - ...: Globalisation (and the enlarged EU), the second unbundling (R. Baldwin), Capitalism 2.1 (D. Rodrik), Global Europe (?)

Besides trade in goods, services and factors, trade in tasks, ICT: falling costs of communication, ‘the power of computers’ (information society), falling costs of coordination and information handling and data processing

The great unbundling beyond the sectoral and firm level – internal reorganization of firms – trade in tasks (production and, generally, work processes) – Offshoring …a new trade paradigm and/or a new industrial revolution (A. Blinder) – beyond traditional international commerce, entailing a great deal of communications, business travel, intellectual property rights, infrastructure services incl. export services (e.g. finance, insurance), FDI as well as exports and imports of parts and components

The enlarged EU and increased intra-EU trade (the euro effect), the EU does matter to international trade and its market share has largely been stable – but… (a), (b), (c)

BRICs and China (mutlipolarity and in WTO), (a)

International trade governance: WTO inadequately providing for the credible provision and observance of things like right of establishment, intellectual property rights etc. – much relying on national law – at the same time WTO, incl. dispute settlement (judicialisation of the trading system), constraining trade and development policies and thus EU leverage in trade negotiations (e.g. Doha development round) and in regard to wider global ambitions (?) (b) – besides as emerging economies participate in FDI their interest in market access declines relative to other areas (c)

Deep free trade agreements between rich and emerging nations – the spaghetti bowl of preferential trade agreements – new thinking on bilateralism and regional FTAs (the domino effect from trade diversion, R. Baldwin); yet, the risk for ignoring WTO

EU and multilateralising regionalism

(Adam Smith)²

Global income convergence between the ‘globalisers’ (?)

The relative decline of the middle classes – Polarisation of job opportunities esp. in US (highest and lowest income occupations)

The changing domestic political economy of international trade reconsidered – social safety nets (and the EU?), need for Capitalism 3.0 (D. Rodrik), also …

… the crisis: deep fall in trade caused by a fall in demand, but not ‘beggar-thy-neighbour’(all you need is cash), yet, murky protectionism – recovery programs, bailouts and state aids (banks and car industry) and the EU internal market – green protectionist calls – but this time is different? macroeconomic stabilisation policy but also currency wars – back to the need for Capitalism 3.0 (?)