PS 231: Key Concepts in International Economics and Politics

Economic Eras

National Economy Era (1648-1815), International Economy Era (1815-1975), Global Economy Era (1975-Present), Neo National Economy Era? (2018-Present).

Security Committees

They can form security committees which is where if two countries with significant political divisions are economically integrated and become dependent on each other. Their mutual dependency will over time reduce the conflict and could lead to a positive peace.

Economic Power

Economic power can be used to political good, like with bilateral foreign aid. There is a balance between being too controlling and also ensuring economic security.

Government and Market Relationship

The government and the market have a complex relationship because they each need each other for some good things and are also at odds with each other at times.

Absolute Advantage

The ability of a state to produce products most efficiently compared to competitors.

Austerity Program

Austerity programs are economic policies governments use to reduce budget deficits, typically through tax increases, spending cuts, or a combination of both. Austerity measures have faced controversy regarding their purpose and usefulness. Many economists argue that these measures have contractionary effects and usually worsen ongoing economic recessions.Austerity measures imposed after economic crises have not helped countries recover faster and have led to public outrage and protests.

Beggar-thy neighbor

A term thought to be coined by Adam Smith, referring to a policy where a country prioritizes its own welfare at the detriment of other states, typically through trade barriers or devaluing its currency.

Bilateral

In international relations, 'bilateral' refers to agreements or relationships between two states, including provisions regulating trade conditions such as customs duties and quotas.

Bretton Woods System

A monetary system developed during World War II to address the shortcomings of the gold exchange standard, leading to the creation of the IMF and a system of fixed but adjustable exchange rates.

Capitalism

An economic system where most means of production are privately owned and production is guided by market operations, characterized by the accumulation of capital to enlarge productive capacity.

Centrally planned (or command economy)

An economic system where the means of production are publicly owned and economic activity is controlled by a central authority that assigns production goals and allocates resources. Prices are set by the central planners and are used as instruments to reconcile the total demand for consumer goods with the available supply, while also allowing for revenues to the state.

Command economies

Command economies were characteristic of the Soviet Union and the communist countries of the Eastern bloc, and their inefficiencies were among the factors that contributed to the fall of communism in those regions in 1990-91.

Colonialism

Colonialism, from the 1760s to the 1870s, involved global expansion of western Europe, differing from previous centuries due to the Industrial Revolution. Industrializing nations shifted from primarily buying colonial products to selling machine-produced goods, creating demand for raw materials and food from colonial areas. Adaptations included overhauling land arrangements, creating labor supply for commercial agriculture, mining, spreading use of money, and curtailing native industry. Political changes included developing cooperative local elites and implementing new legal systems, which were essential for transformations. Culture and language of the dominant power were also imposed during colonialism. The technological disparity between Western nations and the rest of the world, particularly in armaments, played a crucial role in Western expansionism. Problem of small states lacking sovereignty and large states without a common ethnic base. As more nations industrialized, competition for world trade and finance intensified, diminishing Great Britain's early advantage.

Decolonization

Decolonization accelerated after the mid-1950s due to the opposition of the United States and the Soviet Union, revolutionary movements in the colonial world, and the war-weary public in western Europe.

Comparative advantage

Comparative advantage, an economic theory developed by David Ricardo, suggests that countries should specialize in producing goods and services they can produce most efficiently and trade for others.

Devaluation

Devaluation in international relations refers to the reduction in the exchange value of a country's monetary unit relative to gold, silver, or foreign monetary units, aiming to correct persistent balance-of-payments deficits. Devaluation lowers the prices of a country's exports in terms of the importing country's currency, while raising the prices of imports for the devaluing country.

Revaluation

Revaluation increases the exchange value of a country's currency and may be implemented when a currency is undervalued, leading to persistent balance-of-payments surpluses.

Eurozone

The Eurozone consists of the 19 member states of the European Union (EU) that have adopted the euro as their common currency.

European Central Bank (ECB)

The European Central Bank (ECB) is the central banking authority of the Eurozone, established in 1998 by the Treaty of Amsterdam. The ECB's main task is to conduct monetary policy in the region by managing the supply of the euro and maintaining price stability. The ECB is overseen by a governing council consisting of six executive board members and the 19 governors of the national central banks of the Eurozone countries. The ECB, along with the national central banks of EU member countries, make up the Eurosystem and is responsible for supervising lending institutions within it.

Fair trade

The concept that everyone should be paid a fair price for their products, hinting at the underlying problem of unfair working conditions and prioritizing wealthiness over honesty.

General Agreement on Tariffs and Trade (GATT)

A set of multilateral trade agreements created to abolish quotas and reduce tariff duties among contracting nations, concluded by 23 countries in Geneva in 1947, taking effect on January 1, 1948. WTO replaced GATT in 1995 and has enforcing power, making it more effective than GATT. the class of most favored nation embodies the principle of trade without discrimination, where tariff cuts agreed upon by a country and its largest trading partners are automatically extended to every other GATT member.

- Trade without discrimination, where each member nation opened its markets equally to every other.

-Protection through tariffs rather than import quotas or other quantitative trade restrictions.

Hyperinflation

An extreme and rapid increase in the price of goods and services, coupled with an equally rapid decline in the value of currency.

Industrial Revolution

Began in the 1760s and significantly reshaped international relations through technological, economic, and social changes. Industrializing nations transitioned from primarily buying colonial products to becoming sellers of machine-produced goods, seeking new markets. Colonies were restructured to serve the economic interests of industrial powers, including overhauling land arrangements and creating labor supplies. The need for social stability led to the installation of new legal systems and the imposition of the dominant power's culture and language. Colonial expansion moved from coastal areas to the interiors of continents, characterized by the removal of indigenous populations or transformation of their societies. technological disparity between and the rest of the world allowed the West to exert its will on colonial populations.

Liberal International Economic Order (LEIO)

Rooted in the ideology of liberal internationalism, which emphasizes international commerce and law as key drivers for global transformation.

- Advocates believe that free trade fosters interdependence among states, reducing the likelihood of conflict, as it is not a zero-sum game.

- Expected to follow economic engagement as a result of free trade.

Globalization

Views liberal internationalism as a historical process marked by increasing cross-border transactions, leading to global interdependence.

Berlin Wall (1989)

Following its fall, liberal internationalism experienced a resurgence, challenging state sovereignty and promoting humanitarian interventions.

Mercantilism

An economic theory and practice where the government regulates a nation's economy to boost state power relative to rival nations.

Precious metals like gold and silver were considered vital to a nation's wealth, and nations should acquire these metals through trade if lacking mines. Maintaining a 'favorable' trade balance, where exports exceed imports, was crucial in mercantilism.

Limiting human wants, especially for imported luxury goods, was essential to conserve precious foreign exchange. Mercantilism was based on the idea that national interests inevitably conflict, with one nation's gain being another's loss.

Metropole

In international relations, a metropole refers to a major political entity that exerts control over a large territory or multiple territories.

Nontariff Barriers

Government regulations and practices that impede international trade.

-Quotas (These restrict the quantity of imports, often requiring importers to obtain licenses, raising prices.)

-Voluntary Export Restraints (VERs) (Limit the quantity of exports and tend to raise prices of imported goods, often implemented to avoid more restrictive measures.)

Excise Taxes

Taxes that can impede trade if levied at higher rates on imports compared to domestic goods.

North American Free Trade Agreement (NAFTA)

A trade pact signed in 1992 aimed at eliminating most tariffs and trade barriers between the U.S., Canada, and Mexico, effective from 1994 until replaced in 2020. NAFTA gradually reduced tariffs and trade barriers among the three countries, ensuring duty-free access for many manufactured goods. Intellectual property rights are Provisions included in NAFTA to protect intellectual property and prevent industrial theft. There are formal rules established by NAFTA for resolving disputes between investors and participating countries. There are side agreements where Agreements that addressed labor-market and environmental impacts, including the North American Agreement on Environmental Cooperation (NAAEC). NAFTA aimed to give U.S. and Canadian companies greater access to Mexican markets in various sectors. Critics viewed NAFTA as a means for multinational corporations to increase profits at the expense of ordinary citizens.

Protectionism

A policy that shields domestic industries from foreign competition through tariffs, subsidies, import quotas, or other restrictions.

Tariffs

Taxes on imported goods that raise their prices, making domestic products more attractive.

Import Quotas

Absolute limits on the quantity of specific goods that can be imported, proving more effective than tariffs.

Historical Trends in Protectionism

Wars and economic depressions have historically increased protectionism, while peace and prosperity have encouraged free trade.

General Agreement on Tariffs and Trade (GATT)

An agreement the U.S. became a signatory to in 1947, which later evolved into the World Trade Organization (WTO) in 1995.

Supranational Organization

A multinational political entity where member states share in decision-making and delegate authority to a central body.

Forum for Debate and Negotiation

Supranational entities like the United Nations serve as crucial platforms for international dialogue and negotiation.

Functional Approach to Peace

Specialized agencies within these organizations contribute to peace by addressing global issues.

International Law

Organizations such as the European Union (EU) significantly contribute to supranational law, influencing legal systems across member states.

Regulation and Governance

They play vital roles in supervising and regulating international trade, promoting economic development, and managing financial stability.

Addressing Global Issues

Supranational organizations tackle issues that transcend national borders, such as trade, the environment, and labor standards.

Trade war

A trade war arises when protectionist policies, such as tariffs, subsidies, import quotas, and currency devaluation, escalate into a tit-for-tat exchange between countries.Trade wars can significantly increase tensions between nations, potentially leading to further disputes. They disrupt economies and can have far-reaching consequences, including recessions and supply chain issues. Trade wars, or the threat of them, can sometimes lead to trade policies that benefit all involved. Countries often respond to trade barriers by imposing counter-tariffs or export bans.

International Alliances

Nations might form alliances to bolster economic power or challenge policies through international organizations like the World Trade Organization (WTO).

United States-Mexico-Canada Agreement (USMCA)

The United States-Mexico-Canada Agreement (USMCA) is a trade agreement between the United States, Mexico, and Canada that was signed on November 30, 2018, and went into effect on July 1, 2020, after legislative approval in each country. Countries often respond to trade barriers by imposing counter-tariffs or export bans. Additionally, at least 30% of the work on tariff-exempt vehicles must be done by workers earning a minimum of $16 per hour.

Aid sanction

An aid sanction in international relations involves restricting or suspending foreign aid to a country to compel changes in its policies or actions.

Foreign aid

Foreign aid is the transfer of capital, goods, or services to benefit another country or its population and can be economic, military, or for humanitarian emergencies.

Arms embargo

An arms embargo is a legal prohibition on the export of arms and other war materials to specific states, often belligerent ones or those in rebellion.

Coup d'etat

A coup d'état is the sudden, violent overthrow of an existing government by a small group, typically involving control of the armed forces and police.

Democracy aid

Aid that helps establish or strengthen political institutions and achieve diplomatic goals, enabling countries to gain diplomatic recognition or support in international organizations.

Development aid

The transfer of resources like money, goods, advice, or training to promote development and combat poverty, often taking the form of grants or loans. Purpose is enhancing security, achieving diplomatic goals, promoting exports, spreading culture, alleviating suffering, and addressing transnational issues.

Economic sanction

Restrictions imposed by a government on another government, organization, or individual to compel or prevent specific actions or policies.

Economic statecraft

Using economic tools like foreign aid and trade to achieve foreign policy goals, differing from military force, diplomacy, and propaganda.

Financial sanction

Restrictions on access to financial assets aimed at impeding business or income transfer for the targeted entity.

Trade restrictions

Limitations on the exchange of goods and services between countries, often used as a form of economic sanction.

Travel bans

Prohibitions on individuals from entering or leaving a country, often used in the context of economic sanctions.

Asset freezes

Restrictions that prevent access to financial assets, commonly used in financial sanctions.

Diplomatic goals

Objectives that countries aim to achieve in international relations, often through aid or negotiations.

Grants

Funds provided by one party to another without the expectation of repayment, often used in development aid.

Loans

Borrowed funds that must be repaid, which can also be a form of development aid.

Debt for recipient countries

The financial obligation that can arise from receiving aid, which may be viewed as a tool of influence by donor countries.

Punitive taxation

Taxes imposed as a punishment, often included in negative sanctions.

Embargoes

Official bans on trade or other commercial activity with a particular country, often used as a form of economic sanction.

Boycotts

Refusals to buy or use goods and services from a particular country or company, often used in economic sanctions.

Preferential tariffs

Lower tariffs offered to certain countries as a reward, part of positive sanctions.

Investment guarantees

Assurances provided to investors to protect their investments, often included in positive sanctions.

Sanctions

They can be applied to governments, organizations, or individuals to compel or prevent specific actions.

Asset freezes and seizures

They impact a target's ability to conduct international transactions. International cooperation strengthens the effectiveness of sanctions by isolating the target. They can significantly impact a country's economy, potentially reshaping it fundamentally.

Official development assistance (ODA)

The most common type of foreign aid aimed at promoting development and combating poverty.

Purpose of foreign aid

Countries use foreign aid to prevent friendly governments from succumbing to unfriendly influences. Foreign aid helps gain diplomatic recognition and garner support in international organizations. It addresses issues like disease, terrorism, crime, and environmental destruction.

Humanitarian aid

It plays a crucial role by addressing suffering caused by natural or man-made disasters. Humanitarian aid promotes economic development and helps establish or strengthen political institutions.

Import and export sanctions

Restrictions on trade imposed by a government on another country, organization, or individual.

Types of sanctions

They can include asset freezes, travel bans, and arms embargoes.

LGBTQIAP+

The International Lesbian, Gay, Bisexual, Trans and Intersex Association is dedicated to protecting the rights of LGBTQIAP+ individuals. Founded in 1978, ILGA includes over 1,600 member organizations from more than 150 countries and territories. They address issues such as adoption, age-of-consent laws, discrimination against people with HIV/AIDS, hate crimes, and same-sex marriage. They publish world maps showing countries where homosexual acts are illegal, including those punishable by death. The organization is managed by an executive board with representatives from six world regions and funded through membership fees

Military aid

Military aid in international relations involves the transfer of military resources, such as equipment, training, or financial assistance, from one country to another.

Economic assistance

Economic assistance may be used to prevent friendly governments from falling under the influence of unfriendly ones or as payment for the right to establish or use military bases on foreign soil.

Foreign aid

Foreign aid also may be used to achieve a country's diplomatic goals, enabling it to gain diplomatic recognition or garner support for its positions in international organizations.

Organisation for Economic Co-operation and Development (OECD)

The Organisation for Economic Co-operation and Development (OECD) is an international organization established in 1961 to foster economic progress and world trade among countries committed to democracy and market economies. OECD's main goals include achieving high economic growth and employment, a rising standard of living in member countries, and maintaining financial stability. It promotes these goals by encouraging the liberalization of international trade, facilitating the movement of capital between countries, and coordinating economic aid to developing countries. The OECD serves as a consultative assembly, using moral persuasion, conferences, seminars, and publications to influence policy. It acts as a clearinghouse for economic data through its interactions with governmental and international agencies like the International Monetary Fund. The OECD publishes numerous reports and a bimonthly magazine, The OECD Observer, covering various economic and social issues. The organization also issues annual evaluations of individual member countries' economies.

Smart Sanctions

Economic sanctions are restrictions on trade, travel, and access to financial assets that a national government imposes on another government, organization, or individual.

Purpose of economic sanctions

The purpose of these sanctions is to compel or prevent certain actions or policies by the targeted entity.

Sanctions

Sanctions are often used as an initial response to challenges like armed conflicts, terrorism, human rights violations, drug smuggling, and other criminal or objectionable activities because they are less expensive and quicker to implement than military operations. Sanctions against governments usually involve the partial or total suspension of preexisting trade relations and may include asset freezes and seizures, export and import restrictions, travel bans, and arms embargoes. They are often invoked as a first response because they can be levied in situations where military operations would be impossible or undesirable.

Sustainable development

Sustainable development is an approach to social, economic, and environmental planning that balances the needs of current and future human generations with the need to preserve the natural environment. Sustainable development encompasses goals such as a global perspective on social, economic, and environmental policies that considers the needs of future generations.

Tariff

Tariffs, functioning as taxes on foreign goods, are a frequently debated tool in international trade that impacts every part of the supply chain. Supporters say tariffs protect domestic industries, preserve jobs, and bolster national security. Tariffs may be levied to raise revenue. Critics argue that tariffs distort markets and raise costs. Tariffs can provoke retaliation from trading partners, potentially escalating into trade wars, disrupting global supply chains, and weakening economic growth. The most visible effect of tariffs are the higher prices consumers pay.

Third party sanction

Third-party sanctions, also known as secondary sanctions, involve a nation imposing restrictions on entities that conduct business with a sanctioned country.

Economic sanctions

Economic sanctions, in general, involve restrictions on trade, travel, and access to financial assets, imposed by a government on another government, organization, or individual to compel or prevent certain actions or policies.

Beijing Consensus

The Beijing Consensus or China Model, also known as the Chinese Economic Model, is the political and economic policies of the People's Republic of China that began to be instituted by Hua Guofeng and Deng Xiaoping after Mao Zedong's death in 1976.

Big Mac Index

The Big Mac Index is a simplified measure of purchasing power parity (PPP) created by The Economist magazine in 1968.

Developed country

A developed country is typically defined as a nation with a high quality of life, advanced technological infrastructure, and a strong economy, often measured by factors like GDP, income per capita, and the Human Development Index (HDI).

Export-led growth

Export-led growth is closely connected to economic development. High-growth countries often show rapid export expansion.

Export-oriented development strategies

Countries adopting these strategies have experienced high growth rates and maintained growth during worldwide recessions better than those with import substitution policies.

Import substitution policies

Strategies that focus on replacing foreign imports with domestic production, often leading to inefficient enterprises due to reliance on small domestic markets.

Comparative advantage

The ability of a country to produce goods at a lower opportunity cost than another country, allowing for specialization in labor-intensive commodities.

Expropriation

The act of a government taking private property for public use, with compensation provided to the owner, differing from confiscation where no compensation is given.

Income inequality

The unequal distribution of income within a population, which can affect social stratification and various forms of inequality.

Social stratification

The hierarchical arrangement of individuals in society, influenced by factors such as wealth, political power, and social status.

Economic globalization

The increasing economic interdependence among countries, often facilitated by foreign direct investment.

Human Development Index (HDI)

Measures development in three areas: health (life expectancy at birth), education (average years of schooling completed by adults and expected years for children), and standard of living (GNI per capita).

World Bank

An international organization that promotes economic development and helps countries manage balance-of-payments problems.

International Monetary Fund (IMF)

An international organization that supervises and regulates international trade.

World Trade Organization (WTO)

An international organization that plays a significant role in international relations by promoting economic development.