Politics of Economic Globalization and Hegemonic Stability Theory

HST

Realist idea the emphasizes the idea of hegemony 

Economic Globalization

Integration of national economies into international economy through:

• Trade of goods and services

• cross border labor flows

• cross border capital flaws

  • Short term capital flows

Current Tariff Rate

• Consumers face an overall average effective tariff rate of 18.0%

  • the highest since 1934.

    • After consumption shifts, the average tariff rate will be 17.0% of the highest rate since 1936

Two Possible explanations as to why countries involve themselves in international trade

• Theory of comparative advantage

  • Every country has a comparative advantage in something, and thus every country gains from trade

• Trade liberalization by the roles of International Institution (GATT and WTO) led by the hegemon

Aaron Smith

Absolute advantage 

Hegemonic Stability theory

• International economy will be open and stable when a Hegemon exists

  • The Hegemon should be

    • Capable of setting rules of the international economy

    • Willing to defend the rules through international institutions

    • Committed to a system that keeps other major powers satisfied

Three waves of globalization

• Cross border Trade

  • of good and services

• Cross border labor flows

  • Immigration

• cross border labor capital flows 

  • money 

• Wave 1: All was high (Hegemon)

• Wave 2: All was low (low Hegemon)

• Wave 3: Trade was high, but labor and capital flows were low because of the migration limitations (no Hegemon) 

  • Hegemonic Stability theory cannot explain the openness of ecomomic flow 

Hegemonic Transition in the interwar period

The US refused to assume hegemonic responsibilities in Interwar period

The problem:

• War Debt and reparations between major powers

Was debts ( and reparation

• The US unwilling to forgive the war debts from the UK and France

• Repayment depends upon ability to earn dollars from trade in the US

• Yet, the US raises Tariffs, as a result, international trade volume decreases

• Now UK and French Payments to US depend upon reparation payments from Germany

War Debt triangle

• Now UK and French Payments to US depend upon reparation payments from Germany

  • They needed money to take so they take from New York Bankers-Germany

    • Germany pay back debt to France

      • France and Britain pay back the US

Resulted from US failure to assume hegemonic role

Without a Hegemon after the Great Depression

• NY bankers stopped lending money to Germany and collapse of the global economy into rival trade blocs Hitlers Rise to power and WWII

Conclusions drawn from Inter-War period by the US

• Peace and Prosperity depend upon the existence of a stable international economy

• Existence of a stable international economy depends upon US leadership

• US is still a hegemony in military and politics, but not international trade

Why the US accepts Hegemonic Role

• Altruism: Liberal/constructivist Created the post-war eceonomy because it was needed and no other country could

• Security: Realist idea created the postwar economy because IS Security interests necessitated it.

• Materliamism: Also a realist idea the emphasizes the created postwar economic system because IS economic actors stood to realize large benefits from open trade and stable exchange rates

Postwar Planning

• The general agreement on tariffs and trade (GATT)

• Bretton woods international financial system

  • Fixed exchange rates and convertible currencies

  • International financial institutions

    • International Monetary Fund (IMF)

      • lending to countries in financial crisis

    • World Bank (IBRD)

      • lending to developing countries to help them develop and reconstruct

Hegemonic Stability Theory from the late 20th century till now

• relative decline of US Hegemonic power since the 1970s

• Would the World retun to closed global economy then

  • Not necessarily

    • Neo-liberal institutionalism (R. Keohane)