Referencing Styles : APA Write a 4page (12 point font, double-spaced) essay evaluating the role of governments in assuring that developing countries obtain a fair and adequate share of the benefits of international grade. In so doing, critically assess claims that "the answer" lies in untrammeled market activity versus government intervention. Drawing on Carbaugh's discussions in Chapter 6 and 7Carbaugh's Chapter 6 provides an excellent historical overview and account of trade policy within the United States and also of attempts to establish international and global agreements to liberalize trade multilaterally (by obtaining agreements among a large number of trading nations). Be sure to take away from the readings a basic understanding of the following events, actions, and agreements along with a broader perspective on how the ups and downs of free trade throughout history led to attempts to liberalize trade multilaterally, and how these attempts have led to uneven progress toward free trade at a global level. • Protectionism in the early national period in the U.S. with the objectives of gaining revenue for the government and protecting domestic industry • The Tariff of Abominations and North-South differences with respect to tariffs versus liberalized trade • The McKinley and Kingley Tariffs and the argument that cheap foreign labor caused inflows of goods that were not beneficial to the national economy • The Smoot Hawley tariff and why this was a bad idea during a recession-depression • Restoration of trade with the 1934 Reciprocal Trade Agreements and associated wave of trade liberalization • Movement toward systematic multilateral liberalization under the General Agreement on Tariffs and Trade (GATT) beginning in 1947 and the World Trade Organization (WTO) beginning in 1995 International trade today is largely governed by the WTO, which provides an ongoing framework for negotiating and formalizing agreements among member states, a dispute resolution process, and limited enforcement capability. The Doha round of trade negotiations which began in 2001 and continue to the present day, has been effectively stalled in its efforts toward trade liberalization by the inability to bring about any sort of consensus between advanced country exporters of large bulk commodities (big "agribusiness") which continues to enjoy lavish protection and subsidies, and smaller and less-developed countries characterized by subsistence farming. Carbaugh's Chapter 6 investigates some of the broader issues and controversies surrounding the WTO and the associated structure of global free trade, which some critics argue is dominated by the most powerful nations and multinational business. Other critics argue that the WTO does not embody adequate power to secure agreements among members and obtain compliance one agreements are in effect. Carbaugh offers three primary criticisms of the WTO system of free trade. Click each tab to learn more. 2. Industrial Policies Among the most prevalent challenges to the dictum that free trade is always best is the notion that domestic industries and the domestic economy as a whole can be made better off by the strategic implementation of trade restrictions. The strategic attempt to use trade policy to strengthen key industries in the national interest is calledindustrial policy. Economists acknowledge that attempts by (economically) liberal states such as the United States to use macroeconomic policies (such as fiscal and monetary policies) along with subsidies for infrastructure and other public goods is necessary and beneficial, even in a free market world, and so do not qualify as industrial policy. A proper definition of industrial policy would include attempts by governments to use restraint of trade and (direct or indirect) subsidy to favored industries in order to shape and benefit the national economy. Carbaugh cites as a classic example of industrial policy actions by the Japanese government, especially during its early years of rapid development, to use protection and generous subsidy to launch what have become the country's key industries: semiconductors, telecommunications equipment, fiber optics, and machine tools. A large and compelling body of revisionist literature has come to the fore since the early 1980s to argue that industrial policies have similarly been key and essential components of the rapid growth of the so-called Asian Newly Industrialized Economies (NIEs), Taiwan and South Korea in particular, and to a lesser but significant extent for Singapore and Hong Kong. Industrial policies, including sector-specific interventions, selective protection, financial and fiscal incentives and subsidies, have been highly significant, even decisive factors in the economic performance of those countries (Amsden, 1985; Amsden, 1989; Amsden, 1990; Johnson, 1982; Wade, 1990). 3. Trade Policies for Developing Nation In addressing the trade policy needs of developing countries, Carbaugh notes some important distinctions between the trade characteristics of less-developed versus advanced capitalist economies that often bring the policy needs of the two types of countries into conflict. Instability of Markets for Primary Goods Developing economies continue to emphasize and export primary goods (agricultural goods, raw materials, and fuels) although less-developed economies have shifted significantly toward manufacturing during the past decades. Most economists agree that the pursuit of the self-sustaining and rapid growth necessary for developing countries to achieve self-sustaining economic growth and bring their people out of poverty depends to a great extent on taking advantage of international trade. But at the same time it is realized that dependence on export of primary products can create instability for these countries as the prices of these commodities tend to vacillate on international markets. This is especially significant insofar as the elasticities of demand for primary commodities tend to be low, meaning that changes in price do not bring about equivalent changes in the quantity demanded. So when prices fall sharply, revenue follows suit. Worsening Terms of Trade and Limited Market Access During the 1950s, it came to be widely believed that the dynamics of unrestrained trade between the developing and developed world would necessarily work to the disadvantage of the former through either of two related mechanisms: the inability of the developed world to absorb increased imports from the developing world or through a decline of the less-developed economy'sterms of trade (the prices of primary commodities exported from the periphery relative to those of manufactured goods from developed world) due to the higher productivity of the latter. Contrary to the classical theory of trade that asserts free exchange will necessarily benefit both trading parties, these hypotheses implied that unfettered international trade could in fact be responsible for underdevelopment. Carbaugh points out that the terms of trade thesis has been challenged throughout the last half century and remains controversial. With respect to the less-developed world's ability to export to the advanced capitalist countries, Carbaugh points out that protectionism among the latter, especially among agricultural products, has been a major hindrance for the developing world. Agricultural Export Subsidies of Advanced Countries Advanced countries support their farmers and large agricultural corporations with generous subsidies. The justifications for agricultural subsidies are largely noneconomic and range from preservation of rural communities and the rural landscape to food self-sufficiency. Aside from being a drain on developed world wealth, agricultural subsidies in the developed countries harm developing countries in several ways. Two of the most important are the following: • Limits or closes export markets to developing world agriculture • Leads to overproduction and reduction of global food prices, further harming developing world farmers Classical economists are not comfortable with the argument that industrial policy may be not only a viable strategy, but also a necessary component of economic growth and development. They argue with some justification that government planners are extremely unlikely to successfully "pick winners" in the contest among enterprises to obtain government support, but are more likely to direct government support to industries that are most influential rather than those that might be best for the country. The question of the viability and efficacy of industrial policy is particularly trenchant with recourse to the trade policies by and toward less-developed countries, which is the topic of Carbaugh's Chapter 7 and the next page of this module. 4. The World Bank and International Monetary Fund: Aiding the Developing Countries? Originally created to help stabilize the international monetary system and help countries maintain their balance of payments (between monetary outflows and inflows), the World Bank andInternational Monetary Fund (IMF) have come to have an increasing importance for the developing world. An overview of the origins and functioning of these two institutions can be found in Carbaugh's Chapter 7. With respect to developing countries, the World Bank provides loans and some grants specifically for development projects, such as hospitals, schools, highways, and dams. The IMF lends money to developing countries to finance balance of payments deficits. Loans from the IMF are predicated on conditionality. In Carbaugh's (2013) words: ...to obtain a loan, a deficit nation must agree to implement economic and financial policies as stipulated by the IMF.... The IMF has sometimes demanded that deficit nations undergo austerity programs including severe reductions in public spending, private consumption, and imports.... (p. 251). Similarly, loans from the World Bank are increasingly conditional on liberalization of domestic economies. The World Bank and other multilateral lenders have been accused of performing a highly interventionist and anti-democratic function, which has led to massive human displacement from traditional sectors that are not easily absorbed by the modern exporting sector. Conditionality is designed to serve the dual purpose of compelling developing countries to "put their economic houses in order" while serving the interests of the lending institutions that want to assure loans are paid back. Critics of conditionality argue that the burden of austerity falls primarily or entirely on the poorest in society. Moreover, IMF mandates to slash spending can hamper governments' abilities to implement Keynsian policies (such as spending to stimulate a depressed economy), possibly leaving some countries worse off as a result of IMF loans. 5. Import Substitution versus Export Led Growth A common belief during the early post-war and decolonizing period was that the particular circumstances of the less-developed countries tended to preclude self-sustaining growth because of a chronic and structural inability to accumulate sufficient capital. The Third World's lack of saving and investment capital, it was believed, would lead to "dualism" (a condition under which a large and stagnant precapitalist sector coexists with a small, elite modern sector), or to "vicious circles" and "low-level equilibrium traps" whereby development would be chronically stalled at a constant ratio of income to population. The associated policy regime was import-substituting industrialization (ISI) by which industries producing goods that would have been imported are protected from foreign competition to facilitate growth in the protected and industrialization more broadly. It was felt that interventionist promotion of rapid industrialization was the only way for less-developed countries to break out of the existing pattern of specialization and obtain large-scale manufacturing, which was viewed as the key to sustained growth. Import substitution was practiced by virtually every developing country during the early post-war period and generally began with the protection of primary goods. As capital accumulated, protection tended to shifted to consumer durables, intermediate goods, and capital goods. The import substitution strategy was often successful to a point, but production eventually came to outstrip the local market's ability to absorb it. This, coupled with the need to import capital goods and manufactures, tended to create balance of payments deficits and the need to increase exports of primary commodities (at first), and then basic manufactures, in order to facilitate capital inflows. concerning industrial policies, strategic trade policy, the trade problems of developing nations, import substitution, and export-led growth.