Jeffrey Ding – Resident Policy Wonk

Written by Jeffrey Ding, undergraduate at the University of Iowa

As the resident policy wonk of Economics Forum (mostly due to my lack of technical knowledge in finance rather than any particular expertise in politics), I will be contributing articles at the margin (see what I did there?) of politics and the economy. But in some ways, it’s not a margin at all. It’s just one big blob, and there’s different ways of viewing that blob. One way to view that blob: all economics is political.

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Trade policy sits at the intersection of politics and economics. On the one hand, economic models and theories – from Ricardo to Heckscher-Ohlin –seem to generally conclude that free trade results in overall gains for the countries involved. But for political scientists, protectionism seems like the reasonable norm so as to protect domestic factors and the electorate. Then one would predict an impasse, or a pendulum that swings back and forth over time, and one would be right for much of history. Yet, for the past 30 years, the overwhelming trend in trade policy has been the widespread liberalization of trade policies, resulting in economic interdependence with even more widespread effects on the part of both the global economy and global politics.[1] Milner argues for an explanation based on democratization and internationalism, but others offer a more cynical view.

 

Giovanni Facchini from the University of Illinois at Urbana-Chamapaign writes in an article, entitled, “The Political Economy of International Trade and Factor Mobility”:

 

In turning our attention more specifically to the distortions which arise in international trade, we have noticed the emergence of a paradigm, in which trade policy is modelled as the result of influence driven contributions by organized groups. Although this framework faces some theoretical challenges, it has found strong and robust evidence in the empirical tests performed so far, conducted using both US and international data.

 

The role of influence driven contributions is especially noticeable in a post-Citizens United World. Organized interest groups donate exorbitant amounts, often to both candidates, in an election to buy influence. Grossman and Helpman (1996), who wrote the seminal paper on the subject, argue that these interest groups continue to lobby after the election in order to influence policy choices.

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With this background context, let’s examine the hot button trade issue at the moment – the Trans-Pacific Partnership (TPP). The difficulty of examining the explanations behind the TPP is that negotiations are being kept secret to the public, but not to the 600 lobbyists who are involved in the TPP negotiating process as “corporate trade advisors”. Leaked texts show key tenets – expanded patent rights for pharmaceutical companies and private enforcement actions which would allow corporations to sue governments for regulations – would serve the interests of corporate entities.[2] These “gains from trade” may end up as a net disservice to the general population. Recent estimates show the total U.S. economic gains from the TPP may only be .13% of GDP by 2025. The Center for Economic and Policy Research has found the median wage earner will probably lose as a result of the TPP, while those with the highest wages will gain more as they are more protected from international competition and gain from the expansion of terms and enforcement of copyrights and patents. [3]

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I’ll be back with more, but that’s a little aperitif in the meantime; and keep in mind, for the sake of my role here, that all economics is political.

 

[1] http://web.stanford.edu/class/polisci243c/readings/v0002017.pdf

[2] http://www.theguardian.com/commentisfree/2013/nov/19/trans-pacific-partnership-corporate-usurp-congress

[3] http://www.cepr.net/index.php/publications/reports/net-effect-of-the-tpp-on-us-wages