On the advantage of the WTO: If a big state negotiated with a small state, it wouldn’t be giving much up by walking away from the negotiations. If all the small states are working through the WTO, the big state would be walking away from all of them at once, in which case it has a lot more to lose. The large group of trade becomes self-sustaining because cost becomes much higher to defect/walk away, even for a hegemon.
This interest has nothing to do with altruism (fits in with neoliberal institutionalism). You set up the game this way. Self interested actors will cooperate and not compete rationally.


Trade and the Environment; interaction—International Political Economy
IR
International Security (war, alliances); not much at the second level of analysis (one example is the democratic peace)
International Political Economy (trade, environment); theories more often at the second level of analysis.

Note on the term “liberalism”—free trade, free economics (though in US, democratic more interested in protectionism, so it’s confusing).

Benefits of Free Trade (according to liberal theories)
Takes advantage of comparative advantage. Both countries do better by trading. “Autarky” is when there is no trade. Tariffs reduce the amount of trade, therefore the benefit of advantage.
By specializing, you might get even more efficient, with economies of scale. Free trade bad for monopolies by increasing competition. Domestic competitors might have barriers to entry, for instance, but international competitors may be well established.
Variety

Counterarguments (arguments FOR protectionism):
Why would you have normative protectionist strategy?
In the same way you should diversify a portfolio to reduce risk, specialization could be risky (eg. If that industry fails).
It might be hard to switch over people from one job to the specialty your country has the comparative advantage in. People don’t want to do that—a sector of society will oppose it. “Embedded liberalism”—you have to take care of the potential loser from trade or they will oppose it. Close to US domestic meaning of “liberal”). How can you protect the people who have to switch over? Slow down specialization, possibly by inhibiting free trade in the short term. The real-world idea that to promote free trade, you need some amount of protectionism.
Security/national defense. Certain things you don’t want to depend on others for (guns, oil, food). Eg. Japan protects its rice industry. This one particularly often wrongly cited because it’s hard to argue against.
Infant industries. Industries too “sensitive” (inefficient). But then they won’t give up their protection; you don’t want to give up your domestic monopoly. No incentive to become more efficient.
Balance of trade (Trade deficit)—tariffs could balance it out. Liberals would argue against tariffs as the tool. Your own currency depreciates, then your exports would go up, so trade would balance naturally.
If you have a comparative advantage in high-wage jobs, low-wage jobs go away, poor hurt; embedded liberalism says not to hurt the poor. Social safety net (welfare, job retraining, unemployment insurance) and protectionism.
What if Pareto-efficiency makes poor worse off? Liberal theories—more government revenue from the richer rich can redistribute the income. But rich won’t want to help. What about other countries’ poor? “Protectionism” refers to protection of your own country. Domestic redistribution (embedded liberalism) with global free trade the big win/win welfare maximization.
Spillover effects—liberal economics=no difference between potato chips and computer chips. But computer chips will give you extra spillover to other high-income/high-tech industries. Also, education levels if you specialize in high-tech will be higher, meaning more skills in various areas. If you need to protect a high-end industry to avoid specializing in low-tech, benefits in long-term outweigh short term costs.
(Krugman’s): strategic Trade Policy—the example of Boeing and Expressjet. Inefficiencies of a subsidy more than made up for by the capture of the rest of the market. Very rare.
Protectionism as a tactic or threat—if another country is doing it, we threaten retaliatory tariffs in order to get them to drop theirs. Game of chicken, with the potential for both to lose/fail, because in order to credible threaten, you may have to actually do it, then things spiral.

Capital Controls
Restriction of money flowing in and out of a country. Investment, usually, in stocks, companies. Country may want to have control over shocks in economy. Eg a 1929-esque spiral for an entire country. Shock/spiral might not happen so quickly if there are restrictions. Even if everyone had capital controls, there would still be foreign investment. Investors look for countries without capital controls. Country chooses between poverty and instability. Currently, countries removing capital controls. Represents, to some people, a diminution of autonomy of states. Cannot control own monetary policy. Not technically imperialism. Countries can set selves apart, like Albania. Or Chile can set up some capital controls—and they didn’t lose foreign investment, but retained control. Chile’s economy—investors willing to invest because it’s stable. Investors don’t think they’ll have to pull money out, so no worry that it would be more difficult to. Regaining this autonomy after gaining stability.

(aside 1997 Asian Financial Crisis: 80’s and 90’s saw a rapid deregulation of capital controls. “hot money” allowing quick removal, and 3 month loans, for example. Then, there was overproduction in Asia, and when that became apparent, people pulled their money out of the countries, accelerating the crash. In a single year, there were double digit losses in GDP. The mobile capital really exacerbated the problem of overproduction. Capital controls somewhat put back in.
The reduction of capital controls from the Western liberal idea of free trade. IMF probably worsened matters by recommending further liberalization, when Asian countries probably needed some level of protection at this point.)

Environment
Everything we read was partially international, but there are really two parts to differentiate between:
International effects on domestic environment (Eg acid rain between Canada and US)
Effects on international environment (Eg global warming)

“Race to the Bottom” comparative advantage can come from low environmental regulations (also, labor standards). So, countries have incentives to pollute, even with local problems results (lead poisoning example).

Local environmental standards—think classical liberalism, interconnectedness. There is no real isolated environment that won’t affect us. But good to differentiate between local and inherently global. Some thing that individual rationalism will not make the collective good. Law could fix the collective decision problem.



Excludable? (can you prevent someone from taking advantage of it?)
Rival? (depletable?)

Yes
No
Yes
Private good (eg pizza)
Common Pool Resource (“tragedy of the commons”; Eg Atmosphere in depletable sense; global fisheries)
No
Club Good/collective Good (once your are allowed membership in the country club, everyone can swim in the poll without depleting)
Public good (Eg swimming in the ocean)
A lot of focus on common pool resources because of tragedy of the commons, lose-lose prisoner’s dilemma.

Wijkman: Solutions—enclosing the commons, privatization. Classic collective action problem—could maybe come to an agreement with smaller compensation. Ideal international management (example with ocean fisheries auctioned, non-winners compensated).