POL123 Final

What were some main principles and elements of the Liberal International Order (LIO)? In what ways did this order serve US interests?

• Recognition of sovereignty, territorial integrity, and universal human rights

• Free trade; freedom of the seas

• Institutions for multilateral cooperation (UN, WTO, GATT, IMF, etc.)

• Mutual defense alliances to deter aggression 

Kagan notes that the LIO was based on “two remarkable wagers”. What were these wagers? What kinds of costs or constraints did these wagers impose on the US? What did the US get in return?

1. The US could be trusted to defend them whenever needed

2. The US “would not exploit its disproportionate might to enrich or strengthen itself at their expense”

Required the US to bear costs and exercise restraint, in return, other would-be great powers subordinated themselves to the US

What are some recent US actions that have undermined the LIO?

• Threatened NATO allies

• Threatened tariffs against NATO members

• Questioned the value of NATO (threatened to withdraw, reduced troop commitments, started a war with Iran without consulting NATO allies first) 

• Withdrawn from the Paris climate agreement 

How, according to Kagan, does recent US policy actually represent a return to an old world order?

It’s a return to the “gunboat diplomacy” of the 19th century, based on independence and unconstrained use of national power. Made the US a regional hegemon, not a global power.

In class, I discussed five main points of Mark Carney’s Davos speech. Make sure you’re familiar with these points.

1. The LIO, though flawed, was beneficial…so we supported it

2. This bargain no longer works 

3. Middle powers face a choice 

4. Canada’s choice is a new order that does not depend on the US

5. A warning for the US

Carney warned that “if great powers abandon even the pretense of rules and values for the unhindered pursuit of their power and interests, the gains from ‘transactionalism’ will become harder to replicate. Hegemons cannot continually monetize their relationships. Allies will diversify to hedge against uncertainty.” What recent real-world developments illustrate Carney’s point? More generally, what are some examples of costs the US has borne due to its recent turn away from multilateralism?

• Nations are forming deals, alliances, and agreements that exclude the United States 

• Allies are rising to gain security independence from the US

• Allies have refused to join operations in Iran, and have refused to provide use of their military bases 

• Allies have begun treating the US with suspicion, issuing burner phones, pausing intelligence sharing, refusing extradition requests 

• US is now paying $2 billion a year to recreate health services provided by the WHO

How has recent US policy affected global public opinion toward the US?

Public opinion generally does not believe the US protects democracy, does not believe the US is a force for stability in the world, and does not think the US can be depended upon in a crisis

Countries have begun distancing themselves from America (Britain, Italy, Canada)

8. Why might it be difficult to return to the pre-Trump order even if the US elects a new government with different 

policies

Governments will not stake their long-term security, economic health, etc. on the US unless they’re sure future US commitments are credible, and the world cannot unsee what its seen “the security of Europe cannot be left in the hands of voters in Wisconsin every four years” The US has elected Trump twice, which has told the world that the US is the type of country that elects Trump twice. 

9. What technologies contributed to the rise of the first great globalization? What institutions also contributed to its rise? How did these institutions reduce transaction costs?

Railroads, steamships, and the telegraph (lowered transportation and communication costs)

Empires (guaranteed rights of foreigners, enforced contracts settled disputes, imposed open trade)

Bilateral trade agreements (lower bilateral tariffs) 

Gold Standard 

10. What was the gold standard? How did it affect the conduct of monetary policy? Why were policymakers willing to accept this constraint? Who benefited from the gold standard? Who did it hurt?

The Gold Standard was a fixed exchange rate system, which constrained monetary policy as the money supply could not increase faster than gold reserves 

Policymakers were willing to accept this restraint because at the time most gold standard countries were non-democratic, so they could ignore labor demands. 

Capital owners benefitted most from the gold standard. 

Workers were hurt most by the gold standard

11. Many scholars have argued that the post-WWI spread of democracy undermined the gold standard. Explain

After WWI, many countries democratized. This made it more difficult to maintain the gold standard, because more political power was in the hands of laborers, who were hurt by the gold standard. 

12. Why do economists generally think free trade is a good thing? Why do some people nonetheless oppose it?

• Lower prices (focus on making things that are easy to make in a country) 

• Increased variety (different places make/grow different things)

• More efficient resource allocation  

• Good for economic growth

Even if trade is good for aggregate welfare, it does not make everyone better off, as trade creates winners and losers

13. What are tariffs? What does the diagram on slide 14 tell us about their effects? Be sure you understand what the various 

regions of the diagram (a, b, c, d) represent.

Taxes imposed on imports, paid by domestic importers (and passed on to consumers)

a: producer surplus (gain)

b + d: deadweight loss

a + b + c + d: consumer surplus (loss)

c: governmental revenue (gain)

14. What does the assigned NYT article tell us about the distributional effects of tariffs?

Consumers include domestic businesses that rely on imported inputs

15. How do foreign reactions also determine the effects of tariffs?

Other countries often react with retaliatory tariffs, which is bad for US exporters (ex. Soybean exports to China) 

16. In class, I discussed five rationales for using tariffs. What are these rationales? Is it possible to accomplish all of these goals at once?

Industrial policy 

Foreign policy

Balance of payments

Revenue 

Domestic protection

No. Many of the ways tariffs must be implemented to achieve their goals contradict each other 

17. In class, I discussed five possible trade-policy cleavages (i.e., lines of conflict). What are these cleavages? In each, who 

gains from (or supports) free trade, and who loses (or opposes)?

Consumer-producer conflict 

Industry conflict 

Class conflict 

Regional conflict 

Nationalists vs Internationalists

18. We generally think mass consumers (e.g., people like you and me) are not organized to influence trade policy. How do 

consumer interests nonetheless get represented?

US manufacturers are also consumers, as they import materials at nearly every stage of the manufacturing process. Tariffs make it more expensive to manufacture goods, meaning producers will often lobby against some tariffs. It is in this way that consumer interests are represented.