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For more than three decades the goal of becoming “the factory of the world” has been at the core of China's development strategy. This strategy, in combination with high rates of domestic investment and low rates of consumption, has made Chinese production the most manufacturing intensive in the world. But as its wages have risen, China's competitiveness in the most labor‐intensive manufacturing industries has eroded. Its ability to assemble products remains a major source of its exports, but it has also tried to shift toward more sophisticated value‐added production domestically. Chinese domestic spending has shifted away from investment toward consumption as citizens' income has grown. Like Americans, Chinese are also spending more on services than on manufactured goods. All of these changes are fundamentally altering the structure of China's production, reducing the role of manufacturing and increasing the skill levels of workers in manufacturing. This paper reviews the challenges posed by these developments for China's long‐term goal of achieving more inclusive growth. It presents evidence that the commonly held perceptions that Chinese manufacturing employment growth is robust are wrong. In fact, such growth has peaked and China is now following a pattern of structural change that is typical of a more mature emerging economy, in which the share of employment in manufacturing declines as workers are increasingly employed in services.

Donald Trump has sought to change US trading relationships by raising protection at home and taxing the offshore activities of US companies abroad. These measures, which both use and violate trade rules, have provoked retaliation from other countries. Such friction has restricted and distorted trade and investment, undermined the rules‐based trading system and perhaps permanently damaged global value chains that depend on stable rules for market access. Trump has justified some of his measures as a response to China's alleged unfair practices and indeed, China has adopted industrial and technology policies that are formally neutral between domestic and foreign firms but in practice have led foreign firms to complain about discriminatory practices that favor Chinese firms. The US friction with China is unfortunate because instead of trying to bully China into submission in a tariff war, the US could have dealt with many of its concerns more effectively by cooperating with other countries and taking actions that are consistent with maintaining the rules‐based system. While the US has undermined its leadership role, the overall damage to the trading system could still be limited if other countries, especially China, take actions that sustain and strengthen it.

Many countries have launched industrial policy programs to improve their manufacturing competitiveness based on the idea that countries with larger trade surpluses or smaller deficits in manufacturing will have higher shares of manufacturing employment. And as countries try to generate a recovery from the COVID-19 crisis, these programs are being enlarged. But while the higher productivity in manufacturing that these programs generate may initially increase manufacturing output and expand trade surpluses in manufacturing, it will also reduce the manufacturing jobs required to manufacture those goods for domestic spending and generating the larger trade balances. As a result, the impact on employment is likely to be substantially smaller than might be expected. Improved productivity implies that goods can be manufactured more cheaply using fewer workers, so unless there is high enough demand at home and abroad for the lower-priced or new products that productivity growth generates, any additional jobs created could be substantially lower than might be expected. This is not just a theoretical possibility. Using data from a sample of 60 countries, this paper shows that between 1995 and 2011, on average countries with trade surpluses in manufacturing experienced declines in manufacturing employment shares that were slightly larger than the declines in countries with manufacturing trade deficits. Additionally, the declines in manufacturing employment shares were as large in countries where the manufacturing trade balance moved in a positive direction as in those where it declined. This suggests that even if industrial policies generate larger trade surpluses in manufacturing, they may not succeed in reversing the trend declines in manufacturing employment shares that have persisted in many countries for several decades.

This Paper challenges two widely held views: first that trade performance has been the primary reason for the declining share of manufacturing employment in the United States and other industrial economies, and second that recent productivity growth in manufacturing has actually been quite rapid but is not accurately measured. The paper shows that for many decades, relatively faster productivity growth interacting with unresponsive demand has been the dominant force behind the declining share of employment in manufacturing in the United States and other industrial economies. It also shows that since 2010, however, the relationship has been reversed and slower productivity growth in manufacturing has been associated with more robust performance in manufacturing employment. These contrasting experiences suggest a tradeoff between the ability of the manufacturing sector to contribute to productivity growth and its ability to provide employment opportunities. While some blame measurement errors for the recently recorded slowdown in manufacturing productivity growth, spending patterns in the United States and elsewhere suggest that the productivity slowdown is real and that thus far fears about robots and other technological advances in manufacturing displacing large numbers of jobs appear misplaced.

This Working Paper challenges two widely held views: first that trade performance has been the primary reason for the declining share of manufacturing employment in the United States, and second that recent productivity growth in manufacturing has actually been quite rapid but is not accurately measured. The paper shows that for many decades, faster productivity growth interacting with unresponsive demand has been the dominant force behind the declining share of employment in manufacturing in the United States and other industrial economies. It also shows that since 2010, however, the relationship has been reversed and slower productivity growth in manufacturing has been associated with more robust performance in manufacturing employment. These contrasting experiences suggest a tradeoff between the ability of the manufacturing sector to contribute to productivity growth and its ability to provide employment opportunities. While some blame measurement errors for the recently recorded slowdown in manufacturing productivity growth, spending patterns in the United States and elsewhere suggest that the productivity slowdown is real and that thus far fears about robots and other technological advances in manufacturing displacing large numbers of jobs appear misplaced.

This paper puts forward a strategic view of what South African trade policy should be doing in relation to the future global trading environment. The future is uncertain, but if the past is prologue, South African trade policy needs to be positioned for a continuation of the commodity cycle, and to exploit markets in emerging economies, including Africa, more fully. Simultaneously, it needs policies to spur labour-intensive services and manufacturing exports, both because these will be needed if commodity markets are less robust and because of their employment-creating potential. South Africa's current strategy, however, is inflexible, heavily focused on domestic concerns and is in danger of placing South African exporters at a disadvantage in accessing the growing emerging economies. It also gives rise to an inherent tension between the interests of South Africa and the African region in trade negotiations. Having as the central tenet of trade policy a commitment to deal with tariffs on a case-by-case basis will not serve South Africa well in the global economy that is likely to emerge over the next 15 years. A simpler tariff structure would facilitate the conclusion of free trade agreements and actually make industrial policy more effective.

This paper seeks to review how globalization might explain the recent trends in real and relative wages in the United States. We begin with an overview of what is new during the last 10–15 years in globalization, productivity, and patterns of U.S. earnings. To preview our results, we then work through four main findings: First, there is only mixed evidence that trade in goods, intermediates, and services has been raising inequality between more- and less-skilled workers. Second, it is more possible, although far from proven, that globalization has been boosting the real and relative earnings of superstars. The usual trade-in-goods mechanisms probably have not done this. But other globalization channels—such as the combination of greater tradability of services and larger market sizes abroad—may be playing an important role. Third, seeing this possible role requires expanding standard Heckscher–Ohlin trade models, partly by adding insights of more recent research with heterogeneous firms and workers. Finally, our expanded trade framework offers new insights on the sobering fact of pervasive real-income declines for the large majority of Americans in the past decade.

South African trade policy has exerted a major influence on the composition and aggregate growth of trade. In the Apartheid period, trade protection seriously impeded both exports and imports, and the economy depended on favorable global commodity price trends to avoid running into an external constraint. South Africa developed a comparative advantage in capital-intensive primary and manufactured commodities partly because of its natural resource endowments but also because the pattern of protection was particularly detrimental to exports of non-commodity manufactured goods. High and opaque tariffs seriously impeded export growth. When global commodity markets were weak, in combination with declining gold exports, this seriously constrained aggregate growth and dulled the response of exports to the weaker rand in the late 1980s. On the other hand, surcharges were effective in reducing imports. By contrast, trade liberalization in the 1990s not only increased imports but, by reducing both input costs and the relative profitability of domestic sales, also boosted exports. The growth in non-commodity manufactured sectoral exports as a result of liberalization was actually faster than sectoral imports. This evidence suggests that additional trade liberalization could well be part of the strategy to enhance export diversification. It points to the importance of policies that afford South African firms with access to inputs at world prices as well as a competitive real exchange rate.

This paper estimates the adjustment costs of the Trans-Pacific Partnership (TPP) on workers and compares these costs with the agreement's benefits. It also estimates the TPP's impact on the distribution of income across US households. Between 2017 and 2026, when most of the adjustment to the TPP occurs, the costs to workers who will be displaced, both from unemployment and lower future wages, will amount to about 6 percent of the agreement's benefits. For the full adjustment period (2017-30) that Peter Petri and Michael Plummer (2016) consider, the benefits are more than 100 times the costs. The benefits from the agreement will be widely shared. The percentage gains for labor income from the TPP will be slightly greater than the gains to capital income. Households in all quintiles will benefit by similar percentages, but once differences in spending shares are taken into account, the percentage gains to poor and middle-class households will be slightly larger than the gains to households at the top. Thus the agreement will confer net benefits to households at all levels of income and will certainly not worsen income inequality. While the United States as a whole would benefit from the TPP, there is a case for an assistance program that would compensate those who lose.

In Fair Trade for All: How Trade Can Promote Development, Stiglitz and Charlton prescribe what a multilateral trade agreement—that promotes development and is fair for all—would include. This review appraises their prescriptions and offers some alternatives. Many of their ideas about what developed countries should do (opening markets, especially of labor intensive goods and services and cutting farm subsidies) are quite familiar and sensible. More controversially, however, they propose that all WTO members (both developed and developing) completely open their markets to all developing countries poorer and smaller than themselves. They also stress the importance of preserving domestic policy space, dropping intellectual property rules from the WTO and keeping restrictive rules off the agenda. Among its criticisms of the book, the review points out that the liberalization proposal contradicts their own arguments favoring individually tailored policies in developing countries and is likely to maximize trade diversion. In addition, their prescriptions for more policy space neglects the more desirable possibility of a WTO in which members accept differentiated commitments.

As shown in the 1930s by Hicks and Robinson, the elasticity of substitution () is a key parameter that captures whether capital and labor are gross complements or substitutes. Establishing the magnitude of  is vital, not only for explaining changes in the distribution of income between factors but also for undertaking policy measures to infl uence it. Several papers have explained the recent decline in labor’s share in income by claiming that  is greater than 1 and that there has been capital deepening. Th is paper presents evidence that refutes these claims. It shows that despite a rise in measured capital-labor ratios, labor-augmenting technical change in the United States has been suffi ciently rapid that eff ective capital-labor ratios have actually fallen in the sectors and industries that account for the largest portion of the declining labor share in income since 1980. In combination with estimates that corroborate the consensus in the literature that  is less than 1, these declines in the eff ective capital-labor ratio can account for much of the recent fall in labor’s share in US income at both the aggregate and industry level. Paradoxically, these results also suggest that increased capital formation, ideally achieved through a progressive consumption tax, would raise labor’s share in income.

The loss of manufacturing jobs and hundreds of thousands of service jobs over the past few years, and the threat of the loss of millions more to offshore outsourcing, is a clear call to our business and political leaders that our trade policies simply are not working. At the least, not in the national interest. (1) ********** THE BUSINESS CYCLE recovery of the past few years has been an unusual one. In particular, payroll employment since the trough of the 2001 recession has been remarkably weak compared with previous recessions--a point illustrated in figure 1. (2) The decline in payroll employment from the peak in March 2001 to the trough in November of the same year was modest, but employment continued to fall for the next twenty-one months, ending up just over a million jobs below the trough before starting to recover. This contrasts with most previous recessions, in which job growth following the trough was strong. The aftermath of the previous recession, that of 1990-91, was also characterized by relatively weak job performance, as figure 1 also shows. But the jobs picture since 2001 has been much weaker even than that "jobless recovery." [FIGURE 1 OMITTED] In many press reports and in the minds of many Americans, much of the weakness in the labor market is the fault of foreign competition. As the quotation above indicates, there is uneasiness that manufacturing and services sector jobs have been, or will be, moved abroad. Partly because of technological change and partly because of trade agreements, so the argument goes, U.S. workers now have to compete against a huge low-wage global labor pool, and the sustained weakness in employment since 2000 is a sign that this competition is undermining the great U.S. job machine. Most economists dismiss these concerns as showing a misunderstanding of how international trade works and of the ability of the U.S. economy to reemploy workers displaced by trade. Indeed, most economists would argue that, over the long run, the United States will have to reduce its trade deficit, and that this could create more opportunities for blue-collar workers in export industries. Similarly, the more services the United States imports, the larger U.S. exports of both goods and other services will eventually have to be to pay for them. But economists' reassurances on this point have not carried a lot of weight in the popular debate--or even at times in the policy debate. Putting the role of trade in the U.S. economy in perspective is not simply a matter of setting the record straight. Misperceptions on the part of workers may discourage them from acquiring the skills they need in order to get good jobs. Misperceptions on the part of voters and elected officials can lead to bad policies. In this paper, therefore, we try to put trade and electronic offshoring concerns in the right perspective, in a way that is easily understandable. We estimate the size of the first-round job dislocation that trade and electronic offshoring may have caused between 2000 and 2003. (3) The approach we use, and several assumptions we make along the way, have the effect of exaggerating the impact on trade and offshoring on the U.S. labor market. Nevertheless, the results show that the weakness in U.S. payroll employment since 2000 has not been caused by a flood of imports of either goods or services. It should certainly not be attributed to any trade agreements the United States has signed. (4) Rather, the weakness of employment is primarily the result of inadequate growth of domestic demand in the presence of strong productivity growth. The paper also goes beyond this basic result in several ways and makes the following additional findings: First, to the extent that trade did cause a loss of manufacturing jobs, it was the weakness of U.S. exports after 2000 and not the strength of imports that was responsible--the share of imports in the U.S. market actually declined. …

Used properly, the term 'new e-conomy' is warranted. Since 1995, there has been a wave of innovation associated with both the production and use of information technology that has been translated into improved US economic performance. In particular, there has been a substantial acceleration in trend total factor productivity growth. Most of this acceleration actually took place outside of the computer sector. Almost none of the acceleration was cyclical. There is now clear supportive evidence of an acceleration of productivity in service industries that are major purchasers of information technology such as finance and wholesale and retail trade. These gains reflect not only increased investment in information technology but also complementary innovations in business organization and policy. To be sure, as evidenced by recent financial market volatility, there have been speculative excesses, but these should not obscure the fundamental gains that have been made.

This paper explores the impact of past and future growth in the Association of Southeast Asian Nations (ASEAN)1 Since the mid-1990s, ACI growth has improved the non-oil terms of trade of the developed countries. There have also been strong complementarities between ACI suppliers of intermediate inputs and PRC exports. More developed Asian countries have benefited from PRC capital goods demand. ACI growth has, however, put competitive pressures on other less-developed manufacturing exporters, worsening their terms of trade and constraining their pricing ability. ACI growth has been especially beneficial for oil and minerals commodity producers. On the other hand, net food importers and oil importing countries have been adversely affected by high import costs. , the People's Republic of China (PRC), and India—here referred to as the ACI countries—on aggregate welfare, relative wages, and global emissions in the rest of the world. It outlines several analytical frameworks, considers effects over the past decade and, based on consensus forecasts, the implications of that growth for the rest of the world in the decades to come. Future ACI growth provides opportunities and challenges for the rest of the world. For developed countries the opportunities are for selling high-end services and capital and consumer goods in the ACI markets and enjoying the benefits from intra-industry trade; the challenges will come from increased head-to-head competition in manufactured goods and services that should become more intense in future decades. For medium-income producers currently at between 30% and 60% of US levels, there will be a tougher tradeoff between more intensive competition with the PRC and serving the growing middle classes in ACI countries. For poorer countries, there will greater opportunities for becoming part of global supply chains in manufactured exports. Standard frameworks that assume internal factor mobility suggest continuing pressures for wage inequality in developed countries. But these hinge on the assumption that the ACI and developed countries will continue to produce similar products and that the ACI will specialize in unskilled labor-intensive products. In fact, as their exports become more technology—intensive and developed countries more specialized these pressures could be alleviated. On the one hand, as the “flying geese†process continues, exports from countries with lower incomes than the PRC are likely to displace PRC labor-intensive exports rather than domestic production in developed countries. On the other hand, while it may cause job loss and erode the returns to specific factors, PRC export growth is less likely to be a source of wage inequality in advanced economies.

Under review here is a single-author work and four collections comprising no less than 48 contributions by some 61 authors, not counting commentators and panel discussants. This richness is but a small indication of the unflagging interest the North American Free Trade Agreement (nafta) has spawned among academics, researchers, and analysts. If nothing else, nafta has certainly proven that interactive and integrative forces do carry with them interesting spill-over effects on the research agendas of universities and foundations, thereby con

There is a broad consensus among US opinion leaders that our economic problem is largely one of failures of international competition -- that trade deficits have eroded our manufacturing base, that inability to sell on world markets has been a major drag on economic growth, and that imports from low-wage countries have caused a widening of income inequality. This paper summarizes recent evidence on these issues, and shows that while there may be a grain of truth to each complaint, in each case the effect is quantitatively minor. The arithmetic of 'competitiveness' just doesn't work.

Lesotho and other least developed African countries responded impressively to the preferences they were granted under the African Growth and Opportunities Act with a rapid increase in their clothing exports to the US. But this performance has not been accompanied by some of the more dynamic growth benefits that might have been hoped for. In this study we develop the theory and present empirical evidence to demonstrate that these outcomes are the predictable consequences of the manner in which the specific preferences might be expected to work. The MFA (Multi-Fiber Arrangement) quotas on US imports of textiles created a favorable environment for low value-added, fabric intensive clothing production in countries with unused quotas by inducing constrained countries to move into higher quality products. By allowing the least developed African countries to use third country fabrics in their clothing exports to the US, AGOA provided additional implicit effective subsidies to clothing that were multiples of the US tariffs on clothing imports. Taken together, these policies help account for the program’s success and demonstrate the importance of other rules of origin in preventing poor countries from taking advantage of other preference programs.But the disappointments can also be attributed to the preferences because they discouraged additional value-addition in assembly and stimulated the use of expensive fabrics that were unlikely to be produced locally. When the MFA was removed, constrained countries such as China moved strongly into precisely the markets in which AGOA countries had specialized. Although AGOA helped the least developed countries withstand this shock, they were nonetheless adversely affected. Preference erosion due to MFN reductions in US clothing tariffs could similarly have particularly severe adverse effects on these countries.

El Tratado de Libre Comercio de América del Norte (TLC) tiene como objetivo reducir, y en última instancia eliminar, la mayoría de las barreras al comercio y a la inversión entre Canadá, México y Estados Unidos. Aunque se puede interpretar como la continuación de una tendencia anterior hacia una mayor integración económica entre estos tres países, el TLC simboliza un cambio de mayor envergadura, particularmente en las relaciones económicas entre México y Estados Unidos.

Este artículo es muy informativo y cumple con su intención. Brown no sólo resume los resultados de los diversos modelos, sino que además ofrece al lector algunas ideas útiles en cuanto a la razón de sus diferencias. Aclara particularmente el grado importante hasta el cual las presuposiciones relativamente inocentes en la creación de los modelos pueden afectar sus resultados. De hecho, al presuponer que se distingue entre los productos por su país de destino o de origen, o ambos, y que los rendimientos a escala son constantes, se reducen los efectos del TLC. Al aunar estas suposiciones se limita el grado de especialización de los países causado por el aumento de las oportunidades comerciales. Esto produce resultados que sugieren que el TLC tendrá efectos limitados sobre el bienestar e, implícitamente, sobre el ajuste, incluso en el caso de México. Sin embargo, como lo señala Brown, los análisis que se basan en sucesos teóricos recientes captan características más realistas, como flujos de inversión, competencia imperfecta, economías de escala, diferenciación de productos, crecimiento endógeno e incertidumbre, y producen efectos considerablemente más importantes.

Many claim that although formal trade barriers have been removed at the border, Japanese markets remain unusually closed because of non-tariff barriers. After describing Japan's development strategy and the debate over the sources of Japanese growth, we consider current trade barriers. Recent research has made some headway investigating the impact of one of the alleged “invisible” barriers. In particular, efforts have been made to test if the behavior of Japanese corporate groups, known as keiretsu, creates a barrier to trade. Finally we consider whether private sector trade restrictions warrant a public response; what, if anything, should be done about keiretsu?

While exports of clothing from Africa to the United States responded impressively to the preferences they were granted under the African Growth and Opportunity Act (AGOA), this performance was not accompanied by some of the more dynamic benefi ts that might have been hoped for. Benefi ciary countries still do not have viable internationally competitive industries that could survive without the preferences, or that have diversifi ed horizontally into new products and markets or vertically into greater domestic value addition. In this paper we demonstrate that this outcome is a predictable consequence of incentives under the Multi-Fiber Arrangement (MFA) quotas and the AGOA trade preferences. Th e paper fi rst extends standard trade models and predicts that, in equilibrium, the MFA encouraged exports of low quality and low value added products by AGOA countries and higher quality and higher value added products by quotaconstrained countries. AGOA preferences further encourage specialization in clothing products with high fabric cost shares in the least developed countries receiving the preference. Th e paper then tests these theoretical predictions using diff erence-in-diff erences estimations by looking at changes in the value-added and fabric intensity of AGOA apparel exports in response to the ending of the MFA in January 2005 and the granting of AGOA preferences from 2001. Th e results show that MFA quotas and AGOA preferences caused least developed AGOA recipients to specialize in fabricintensive products with low value added as well as rising fabric content.

Conventional trade theory, which combines the Heckscher-Ohlin theory and the Stolper-Samuelson theorem, implies that expanded trade between developed and developing countries will increase wage inequality in the developed countries. This theory is widely applied. It serves as the basis for estimating the impact of trade on wages using two-sector simulation models and the net factor content of trade. It leads naturally to the presumption that the rapid growth and declining relative prices of US manufactured imports from developing countries since the 1990s have been a powerful source of increased US wage inequality. In this study we present evidence that suggests the presumption is not warranted. We highlight the sensitivity of conventional theory to the assumption of incomplete specialization and find evidence that is not consistent with it. Since 1987, although US domestic relative effective prices in industries with relatively high shares of manufactured goods imports from developing countries have declined, effective unskilled worker-weighted prices have actually risen relative to skilled worker-weighted prices. If anything, this suggests pressures for increased wage equality. Also in apparent contradiction to theory, the (six-digit North American Industry Classification System [NAICS]) US manufacturing industries with high shares of manufactured imports from developing countries are actually more skill intensive than the industries with high shares of imports from developed countries. Finally, applying a two-stage regression procedure, we find that developing-country import price changes have not mandated increased US wage inequality. While these results conflict with standard theory, they are easily explained if the United States and developing countries have specialized in products and tasks that are highly imperfect substitutes. If this is the case, the impact of increased trade with developing countries on US wage inequality is far more muted than standard theory suggests. Also methodologies such as the net factor content of trade using US production coefficients and simulation models assuming perfect substitution between imports and domestic products could be highly misleading.

Concerns that (1) growth in developing countries could worsen the US terms of trade and (2) that increased US trade with developing countries will increase US wage inequality both implicitly reflect the assumption that goods produced in the United States and developing countries are close substitutes and that specialization is incomplete. In this paper we show on the contrary that there are distinctive patterns of international specialization and that developed and developing countries export fundamentally different products, especially those classified as high tech. Judged by export shares, the United States and developing countries specialize in quite different product categories that, for the most part, do not overlap. Moreover, even when exports are classified in the same category, there are large and systematic differences in unit values that suggest the products made by developed and developing countries are not very close substitutes--developed country products are far more sophisticated. This generalization is already recognized in the literature but it does not hold for all types of products. Export unit values of developed and developing countries of primary commodity-intensive products are typically quite similar. Unit values of standardized (low-tech) manufactured products exported by developed and developing countries are somewhat similar. By contrast, the medium- and high-tech manufactured exports of developed and developing countries differ greatly. This finding has important implications. While measures of across product specialization suggest China and other Asian economies have been moving into high-tech exports, the within-product unit value measures indicate they are doing so in the least sophisticated market segments and the gap in unit values between their exports and those of developed countries has not narrowed over time. These findings shed light on the paradoxical finding, exemplified by computers and electronics, that US-manufactured imports from developing countries are concentrated in US industries, which employ relatively high shares of skilled American workers. They help explain why America's nonoil terms of trade have improved and suggest that recently declining relative import prices from developing countries may not produced significant wage inequality in the United States. Finally they suggest that inferring competitive trends based on trade balances in products classified as "high tech" or "advanced" can be highly misleading.

Concerns that (1) growth in developing countries could worsen the US terms of trade and (2) that increased US trade with developing countries will increase US wage inequality both implicitly reflect the assumption that goods produced in the United States and developing countries are close substitutes and that specialization is incomplete. In this paper we show on the contrary that there are distinctive patterns of international specialization and that developed and developing countries export fundamentally different products, especially those classified as high tech. Judged by export shares, the United States and developing countries specialize in quite different product categories that, for the most part, do not overlap. Moreover, even when exports are classified in the same category, there are large and systematic differences in unit values that suggest the products made by developed and developing countries are not very close substitutes-developed country products are far more sophisticated. This generalization is already recognized in the literature but it does not hold for all types of products. Export unit values of developed and developing countries of primary commodity-intensive products are typically quite similar. Unit values of standardized (low-tech) manufactured products exported by developed and developing countries are somewhat similar. By contrast, the medium- and high-tech manufactured exports of developed and developing countries differ greatly. This finding has important implications. While measures of across product specialization suggest China and other Asian economies have been moving into high-tech exports, the within-product unit value measures indicate they are doing so in the least sophisticated market segments and the gap in unit values between their exports and those of developed countries has not narrowed over time. These findings shed light on the paradoxical finding, exemplified by computers and electronics, that US-manufactured imports from developing countries are concentrated in US industries, which employ relatively high shares of skilled American workers. They help explain why America’s nonoil terms of trade have improved and suggest that recently declining relative import prices from developing countries may not produced significant wage inequality in the United States. Finally they suggest that inferring competitive trends based on trade balances in products classified as "high tech" or "advanced" can be highly misleading.

Biofuels have become big policy and big business. Government targets, mandates, and blending quotas have created a growing demand for biofuels. Some say that the U.S. biofuels industry was created by government policies. But recently, biofuels have become increasingly controversial. In this paper Lawrence argues that the growing list of concerns about the impact of biofuel targets and mandates - are the predictable result of a failure to follow the basic principles of good policy-making. Good policy-making requires developing a policy goal or target (i.e., reducing greenhouse gas emissions, reducing oil consumption, or increasing rural economic development) and designing an instrument to efficiently meet that particular goal. The more precise the goal, the better. In addition, for each target, there should be at least one policy instrument. You cannot meet two goals with only one instrument. Lawrence argues that the current U.S. biofuels mandates do not represent the most efficient or precise instrument to meet any of the policy’s stated goals. While this paper argues against mandates, it should not be understood as an attack on all biofuels policies. Three are especially worthy of consideration. First, there are good reasons for the government to subsidize research on different alternative sources of energy such as biofuels. Second, there may be a role for government coordination and investment in biofuels infrastructure which are essentially public goods that private actors cannot undertake on their own. And third, there are also good reasons for removing the tariffs that are imposed by both the European Union and the United States on imported ethanol and biodiesel. These trade barriers not only reduce any potential environmental benefits that could be achieved from using these products, but also limit the development benefits than poor countries might enjoy from producing them.

Conventional trade theory, which combines the Heckscher-Ohlin theory and the Stolper-Samuelson theorem, implies that expanded trade between developed and developing countries will increase wage inequality in the developed countries. This theory is widely applied. It serves as the basis for estimating the impact of trade on wages using two-sector simulation models and the net factor content of trade. It leads naturally to the presumption that the rapid growth and declining relative prices of US manufactured imports from developing countries since the 1990s have been a powerful source of increased US wage inequality. In this study we present evidence that suggests the presumption is not warranted. We highlight the sensitivity of conventional theory to the assumption of incomplete specialization and find evidence that is not consistent with it. Since 1987, although US domestic relative effective prices in industries with relatively high shares of manufactured goods imports from developing countries have declined, effective unskilled worker-weighted prices have actually risen relative to skilled worker-weighted prices. If anything, this suggests pressures for increased wage equality. Also in apparent contradiction to theory, the (six-digit North American Industry Classification System [NAICS]) US manufacturing industries with high shares of manufactured imports from developing countries are actually more skill intensive than the industries with high shares of imports from developed countries. Finally, applying a two-stage regression procedure, we find that developing-country import price changes have not mandated increased US wage inequality. While these results conflict with standard theory, they are easily explained if the United States and developing countries have specialized in products and tasks that are highly imperfect substitutes. If this is the case, the impact of increased trade with developing countries on US wage inequality is far more muted than standard theory suggests. Also methodologies such as the net factor content of trade using US production coefficients and simulation models assuming perfect substitution between imports and domestic products could be highly misleading.

This paper reviews China's multilateral and preferential trade policies. It reviews the demanding terms of China's WTO accession, its current tariff and trade regime and its participation in the Doha Round negotiations and the institution's regular activities. The analysis concludes that China's trade policies are broadly supportive of a rules based multilateral trading order and its behavior at the WTO is that of a status quo power rather than one seeking major systemic changes. The discussion then turns to China's regional trade initiatives. China has been extremely active in negotiating these and their implications remain uncertain. Concerns about an East Asian fortress, though, appear misplaced. Directly, and through their impact in inducing others to respond, these FTAs could provide a powerful impetus to the process of competitive global liberalization. Countries that do implement agreements with China will find it relatively easy to open their markets to other developing countries. There is also a risk however that the proliferation of FTAs will lead to web of overlapping agreements that could make the trading system unnecessarily complex.

South African trade policy has exerted a major influence on the composition and aggregate growth of trade. In the Apartheid period, trade protection seriously impeded both exports and imports, and the economy depended on favorable global commodity price trends to avoid running into an external constraint. South Africa developed a comparative advantage in capital-intensive primary and manufactured commodities partly because of its natural resource endowments but also because the pattern of protection was particularly detrimental to exports of non-commodity manufactured goods. High and opaque tariffs seriously impeded export growth. When global commodity markets were weak, in combination with declining gold exports, this seriously constrained aggregate growth and dulled the response of exports to the weaker rand in the late 1980s. On the other hand, surcharges were effective in reducing imports. By contrast, trade liberalization in the 1990s not only increased imports but, by reducing both input costs and the relative profitability of domestic sales, also boosted exports. The growth in non-commodity manufactured sectoral exports as a result of liberalization was actually faster than sectoral imports. This evidence suggests that additional trade liberalization could well be part of the strategy to enhance export diversification. It points to the importance of policies that afford South African firms with access to inputs at world prices as well as a competitive real exchange rate.

In this paper we explore a proposal to backload the phase-in of MFN tariff reductions in sensitive sectors and use the revenues generated to provide compensation for preference erosion. We argue that the approach would be both equitable and effective.

This paper evaluates the US initiative to establish a Free Trade Agreement with countries in the Middle East by signing bilateral agreements with the countries individually and then combining them into a single arrangement. These agreements present new opportunities for Arab countries, but to take full advantage, they will have to complement the agreements with additional policy measures, both individually, and together. The promise comes from the ability to use the agreements as a catalyst for improving regulatory rules and systems at home and facilitating integration with the rest of the region and the world. But the agreements also present problems for Arab countries, first in relating these US agreements to agreements with other trading partners - most importantly the EU; second in creating political difficulties associated with closer relations with the USA given problems in the region, and third, in undertaking the necessary economic and political policies that are necessary to realize the benefits.

This chapter looks at financial crises as a challenge to the international financial system and investigates the “public bad” nature of the phenomenon. The conclusion: excessive financial volatility is a global public bad. Instability is not purely a technical by‐product of the production of financial services. Rather, it is the outcome of market failures, for reasons not yet fully understood. Having laid out this diagnosis, the chapter looks at how existing institutions and policies deal with international financial instability, both to limit its acuity and to deal with its implications. The main emphasis is on drawing lessons from recent experiences (Europe, Mexico, and East Asia) and recent theoretical advances, especially those that have improved our understanding of crises. The chapter presents five main proposals. (1) Proceed with caution in promoting capital liberalization; (2) avoid the restrictive macroeconomic policies, huge loans, and deep structural policies of recent packages; (3) complement today's ex post conditionality with ex ante conditionality; (4) suspend debt repayment in the event of a major crisis accompanied by a collapse of the exchange rate; and (5) end the monopoly of the International Monetary Fund (IMF) by creating regional IMFs.

It is commonly argued that Japanese trade protection has enabled the nurturing and development internationally competitive firms. The results in our paper suggest that when it comes to TFP growth, this view of Japan is seriously erroneous. We find that lower tariffs and higher import volumes would have been particularly beneficial for Japan during the period 1964 to 1973. Our results also lead us to question whether Japanese exports were a particularly important source of productivity growth. Our findings on Japan suggest that the salutary impact of imports stems more from their contribution to competition than to intermediate inputs. Furthermore our results indicate a reason for why imports are important. Greater imports of competing products spur innovation. Our results suggest that competitive pressures and potentially learning from foreign rivals are important conduits for growth. These channels are even more important as industries converge with the market leader. This suggests that further liberalization by Japan and other East Asian countries may result in future dynamic gains. Our results thus call the views of both the World Bank and the revisionists into question and provide support for those who advocate more liberal trade policies.

This paper compares the responses of intra- and extra-firm trade to exchange rate changes. It does so both to inform the debate on whether these responses are qualitatively different and to improve understanding of the microfoundations of features of trade behavior such as long adjustment lags, the large impact of distance, and the presence of significant home bias. We argue that the informational problems posed by search (acts identifying potential exchange partners) and deliberation (acts assessing their reliability and trustworthiness) play a key role in explaining these features and suggest that multinationals should have advantages in overcoming these problems. Indeed we find that the responses of multinationals to exchange rate changes are both larger and more rapid.

This paper compares the responses of intra- and extra-firm trade to exchange rate changes. It does so both to inform the debate on whether these responses are qualitatively different and to improve understanding of the microfoundations of features of trade behavior such as long adjustment lags, the large impact of distance, and the presence of significant home bias. We argue that the informational problems posed by search (acts identifying potential exchange partners) and deliberation (acts assessing their reliability and trustworthiness) play a key role in explaining these features and suggest that multinationals should have advantages in overcoming these problems. Indeed we find that the responses of multinationals to exchange rate changes are both larger and more rapid.