J. Lawrence Broz
Professor and Department Chair
Department of Political Science
University of California, San Diego
Associate Director, Center for Commerce and Diplomacy
Domestic Political-Economy of the WTO Crisis: Lessons for Preserving
T. Renee Bowen). September 8, 2021.
Abstract: The crisis at the World Trade Organization is the result of a decline in support for multilateralism in the United States—a leader of the post-war global economic order. Three key problems with WTO design generated the crisis. First, incomplete rules related to trade remedies are interpreted by the WTO’s Appellate Body (AB) in ways that conflict with a narrow set of sensitive domestic priorities. Second, existing WTO rules do not sufficiently account for non-market economies, such as China. Third, remediation of these problems is infeasible due to consensus-based decision-making in the WTO. These problems represent more fundamental challenges induced by increased economic integration—loss of sovereignty and erosion of democracy. To alleviate these problems in multilateral agreements we suggest: 1) a narrow solution that carves out a special process for handling trade remedy disputes; 2) a broad solution that relaxes the requirement of consensus for WTO reform, adopting some form of supermajority voting or a sunset clause; 3) the reform of domestic consensus-building institutions within the US that directly address the politicaleconomy and cultural sources of voter discontent.
Abstract: We analyze major transitions in U.S. trade policy using a two-factor, two-good, two-country model, where domestic policy is the outcome of political bargaining between two parties representing each factor owner--globalists and protectionists. The dominant party sets the agenda, but parties must agree to any change from the status quo. When domestic and foreign status quo tariffs are low and in the absence of transfers, the protectionist agenda-setter will offer high tariffs, agreed to by globalists in exchange for a share of tariff revenue--as was the case when the Republicans initiated the "Era of Restriction" after the Civil War. When the status quo trade policy is high unilateral (and foreign) tariffs, e.g., U.S. 1860-1931, a free trade bargain is available only if accompanied by sufficiently high domestic transfers to the protectionists. In the 1930s the globalist Democratic party offered the protectionist Republican party transfers to replace the benefits of the tariff, ushering in the "Era of Reciprocity with Redistribution." When transfers are too low, a consensus emerges for a "Retreat" from free trade, especially in the face of rising imports. We conclude that the recent rise of China as an exporter of capital-intensive manufactures is not sufficient to explain the unilateral imposition of tariffs by the U.S. beginning in 2018; domestic social transfers that are too low are also to be blamed.
Abstract: To what extent do rulings on trade disputes at the World Trade Organization (WTO) affect U.S. domestic politics? We use the random assignment of WTO Appellate Body (AB) judges to disputes as an instrumental variable to predict WTO-AB rulings. We find that voters in U.S. counties more exposed to adverse WTOAB rulings were significantly more likely to vote for the Republican candidate in the 2016 U.S. presidential elections than for the Republican candidate in 2012. We measure a county’s exposure as the cumulative share of employment in industries that are affected by AB rulings, and we control for county characteristics and other trade flows, including imports from China. We find this causal effect of WTO-AB rulings on U.S. election outcomes to depend on the average educational attainment in the county and to be concentrated in counties with a high population share of residents with less than a college degree. These findings support the view that WTO-AB rulings are salient for U.S. domestic politics and have contributed to a backlash from voters in counties whose employment was exposed to adverse WTO-AB rulings.
Abstract: The institutions that have sustained global economic cooperation for the past 75 years are under threat. Despite admonitions that global peace and prosperity are at risk, policymakers in important countries are ignoring the rules of the multilateral order and moving down the path of unilateralism and economic nationalism. What role can social scientists play in redesigning the international economic order? We offer a research agenda for contributing to the reform and improvement of global institutions. The research agenda is guided by three themes: threats, solutions, and leadership. Threats refer to the deep causes of the crisis in global institutions, not the symptoms or expressions of those problems. Solutions refers to institutional reforms required to address deep threats to the global order. Leadership addresses the challenge of coordinating efforts to supply international institutions, which can be thought of as global public goods. We demonstrate the value of this research agenda by applying it to the World Trade Organization.
Explaining Foreign Interest in China's Global Leadership: Bilateral Central Bank Currency Swap Agreements (with Zhiwen Zhang). This draft: August 15, 2018
Abstract: Global leadership, by definition, requires followers. In contrast to claims that China uses its vast economic resources to pull foreign nations into its orbit, we argue that grievances with the current U.S.-led international order have also pushed foreign political elites closer to China. We evaluate this argument by analyzing foreign participation in China’s network of bilateral currency swap agreements – the largest network of its kind and an important component of the global financial architecture. While China’s main interest in the swap agreement initiative is to foster the internationalization of the renminbi (RMB), we focus on the incentives of the counterparties. We find that grievances about global financial instability are particularly important push factors. Specifically, we find that countries that have experienced more financial crises, more International Monetary Fund (IMF) programs, and more IMF conditions since 1990 are more likely to sign a bilateral currency swap agreement with China than nations that have been less exposed to these financial problems. We find no evidence that grievances about IMF governance motivate interest in China’s swap line program.
"Voting" to Audit the Fed (with William Roberts Clark). April 2, 2018.
Abstract: Federal Reserve independence is a chimera. We derive and test predictions about when members of Congress will support legislation to curtail the Fed’s powers and independence. We posit that members of Congress have partisan monetary policy preferences (Democrats like loose policy, Republicans like tight policy) and will support such legislation when the Fed pursues policies that are in tension with their own party preferences. We model the Fed as a strategic agent of Congress with hawkish preferences of its own that are closer to Republicans than to Democrats. We make predictions about the propensity of members of Congress to co-sponsor attacks on the Fed based on whether members are naïve or sophisticated with respect to the Fed’s partisan bias. If members of Congress are naïve and do not anticipate that the Fed can adjust its policy to influence presidential electoral outcomes, then the propensity to threaten to audit the Fed should be based strictly on partisan identity: Naïve Democrats (Republicans) should always respond to increases in the Federal Funds Rate by increasing (decreasing) their propensity to co-sponsor attacks. However, if members of Congress are sophisticated and understand that the Fed acts strategically to aid in the election or re-election of Republican presidential candidates, then the relationship between the Federal Funds rate and the tendency to threaten the Fed should be moderated by both the electoral calendar and the party of the president: Republicans (Democrats) won’t attack (reward) the Fed when it loosens policy late in the term of a Republican president because they understand the Fed is actively engaged in aiding the electoral efforts of Republican presidential candidates. Our results suggest that House Democrats are sophisticated partisans, Senate Democrats are naïve partisans, and the behavior of Republicans in both chambers is inconsistent with the partisan model.
The Federal Reserve's Coalition in Congress. January 16, 2015
Abstract: The Federal Reserve’s coalition in Congress changes over time with the mandate the Federal Reserve (Fed) is pursuing. When the Fed is fighting inflation, the Right supports it while the Left attacks it. When the Fed’s focus shifts to reviving employment, the coalitions reverse and the Left supports the Fed while the Right attacks it. I analyze a new dataset of all congressional legislative proposals since 1973 that would reduce the Fed’s political independence from Congress. I find that cosponsors of these “anti-Fed” proposals move from left to right as the Fed’s priority shifts from price stability to full employment. I also examine roll-call voting on an anti-Fed proposal that was approved in the House in 2012. Voting patterns on this “Audit the Fed” proposal reveal that the Fed’s congressional coalition is now solidly left-wing, with attacks emanating from the Right. This reflects a combination of macroeconomic conditions – reducing unemployment has been the Fed’s priority during the Great Recession – and the Right’s antipathy to the Fed’s support of foreign central banks during the financial crisis.
Central Bank Support Coalitions. First Draft: September 27, 2014
Abstract: The Federal Reserve’s ideological "support coalition" in Congress is not constant but changes over time with the mandate that it is pursuing. When the Federal Reserve (Fed) is fighting inflation, the Right supports it and the Left attacks it. But when the Fed’s primary focus shifts to recession and high unemployment, the coalitions reverse and the Left supports the Fed while the Right attacks it. A second complementary influence involves the Fed’s foreign operations. I argue that the Fed’s massive support for foreign central banks during the recent crisis further alienated the Right for “anti-globalization” reasons, compounding the ideological effect arising from the Fed’s focus on unemployment. I evaluate these arguments in two ways. First, I analyze all congressional proposals since 1973 to increase oversight of the Fed to see if opponents (identified as proposal sponsors and co-sponsors), move from Left to Right as the Fed moves from fighting inflation to fighting unemployment. The results strongly support this conditional conjecture. Second, I examine roll-call voting on Ron Paul’s 2012 “Audit the Fed” bill, finding that the Fed’s congressional support coalition is now solidly left-wing, with attacks emanating from the Right. This is due to a combination of monetary conditions – reducing unemployment is the Fed’s current priority – and the Right’s antipathy to the Fed’s global activities.
Currency Misalignments and Industry Demands for Trade Protection August 2014.
Abstract: It is well known that currency misalignments lead governments to raise trade barriers. Less well known is that the protectionist response to currency misalignments varies by industry. Industries with high exchange rate “pass through” (where exchange-rate changes are more fully transmitted to product prices) are more likely to be harmed by misalignments than industries with low pass-through. Similarly, industries that rely on imported intermediate inputs via global supply chains are less likely to be harmed by misalignments than industries that source inputs domestically. I evaluate these arguments with evidence from recent congressional legislation that would impose trade barriers on nations with misaligned currencies, like China. I find support for the claim that exchange rates have a differential impact across industries: high pass-through industries explicitly lobbied for the legislation while industries dependent on global supply chains lobbied against it. I also show that campaign contributions from supporting (opposing) industries have meaningful effects on the likelihood that a member of Congress voted yes (no) on the legislation. Therefore, exchange rates appear to induce targeted trade barriers only in industries where competitiveness is unambiguously harmed by misalignments.
Malapportionment, Gasoline Taxes, and Climate Change (with Dan Maliniak)
Abstract: Gasoline taxes vary widely among industrialized countries, as does support for the United Nations' effort to curtail the use of fossil fuels to address the climate change problem. We argue that malapportionment of the electoral system affects both the rate at which governments tax gasoline and the extent to which governments participate in global efforts to ameliorate climate change. Malapportionment results in a "rural bias" such that the political system disproportionately represents rural voters. Since rural voters in industrialized countries rely more heavily on fossil fuels than urban voters, our prediction is that malapportioned political systems will have lower gasoline taxes, and less commitment to climate change amelioration, than systems with equitable representation of constituents. Furthermore, it is unlikely that malapportionment is an endogenous variable, correlated with the error term in our models, because levels of malapportionment were established at the founding of nations in most cases--sometimes centuries before the introduction of gasoline taxes and awareness of global warming. We find that malapportionment is negatively related to both gasoline taxes and support for the Kyoto Protocol to the United Nations Framework Convention on Climate Change (where "support" is measured as the duration of the spell between the signing of the Protocol and ratification by the domestic legislature).
The Political Economy of IMF Voting Power and Quotas (with Brock Blomberg). March 2012
Abstract: We explore the governance structure of the International Monetary Fund, wherein voting power is explicitly tied to the size of member countries' financial contributions, known as quotas. By virtue of their large quotas, rich countries have the preponderance of voting power while developing countries are left to complain about a democratic deficit that leaves them with little influence over the IMF's policies and programs. We develop a model that recognizes the bifurcation of members into industrial-country creditors and developing-country borrowers and treats the IMF as an international government that provides collective insurance against balance-of-payments shocks. We show that when the rate at which the IMF taxes an economy (via quotas) to fund this co-insurance scheme has an impact on voting power, there is an incentive for rich countries to support subsidizing the risks of poor countries, even when the poor have substantial political power. To test the model, we estimate the covariates of actual IMF quotas (and quota shares) over time, giving attention to the role of cross-country inequality and the political ideology of domestic governments. As our model implies a conditional relationship between inequality and conservatism, we include an interaction term. We find that the impact of inequality is positive, as expected, and that this effect is smaller for conservative governments.
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