Test 2 Global Issues

Unit 5-7

The Bretton Woods institutions were created after WWII:

To promote stability in international economics and, hence, strengthen international peace and prosperity

Who was the United Kingdom’s lead negotiator at the Bretton Woods Conference?

John Maynard Keynes

What key international financial institutions were created at the Bretton Woods Conference?

International Monetary Fund and the World Bank

What is the primary role of the International Monetary Fund?

Assisting countries that face significant budgetary imbalances and undertaking programs to promote financial stability

What is the overall logic of the International Monetary Fund (select all that apply)?

Assist countries facing significant short-term distress to help forestall a shift to protectionism or radical socialism. Promote financial stability to foster economic growth¸ peace¸ and prosperity.

During the inter-war period (between WWI and WWII):

Currency manipulation, trade protectionism, and other mercantilist practices helped foster instability

The World Bank’s mission is to:

Provide loans to developing countries for longer-term development projects

The International Trade Organization envisaged by Keynes

Never came into being. Included a mechanism to settle trade disputes between countries. Was in some ways a precursor to the WTO.

The World Trade Organization:

Upholds the rules of international trade

Which three IGOs form the “three-legged stool” designed to guide the international economic system?

The IMF, World Bank, and WTO

What is IMF role as an IGO?

Assist countries facing significant short-term budgetary imbalances

What is the World Banks role as an IGO?

Provide loans for longer-term development projects

What is the WTO role as an IGO?

Uphold the rules of international trade

Floating exchange rates, which much of the world shifted to after 1971, differ from fixed exchange rates in that with floating exchange rates:

The market determines the price of the currency

Under the GATT (General Agreements on Tariffs and Trade)

States agreed to lower their tariffs and apply the same tariff rate to all members of the GATT (known as the most-favored nation—or MFN—system). Average global industrial tariffs lowered from over 20% in 1947 to less than 5% in 1993.

The creation of the WTO included:

The creation of a trade dispute settlement mechanism with teeth, to resolve trade disputes amongst members

Losing a case through the WTO disputes settlement mechanism could lead a country to face:

 Economic sanctions from the winning state

Classical liberal trade theory holds the view that:

Free trade without governmental interference will eventually benefit all economies in the international system by ensuring efficiency in the production and distribution of goods and services

The idea of comparative advantage is that:

States should specialize in producing the goods which they produce most efficiently and trade for goods that other states produce most efficiently

Those that caution against free trade generally argue:

Free trade leads to competition which can cost workers their jobs

Arguments in favor of free trade often include each of the following:

Free trade produces overall economic growth and jobs in sectors where the country has a comparative advantage. Open trade fosters lower prices for consumers. Everyone benefits when countries produce and sell what they do most efficiently. Free trade promotes interdependence among countries and helps maintain international peace.

Two thinkers closely associated with setting the classical liberal roots of open markets and free trade include:

Adam Smith and David Ricardo

The removal or reduction of tariffs, subsidies, or quotas on the trading of specific goods to stimulate freer trade is known as:

Trade Liberalization

Arguments in favor of protectionist policies include:

Countries can temporarily support the growth of infant industries to reshape their comparative advantage

Freer Trade: 

Is criticized by conservatives¸ who worry it may impinge on state sovereignty and power. Is criticized by contemporary liberals¸who worry about a “race to the bottom”.

Proponents of free trade argue:

Trade increases overall employment and growth, and can shift jobs to where a country has comparative advantages

Why is trade policy inevitably intertwined in politics?

Trade policies have winners and losers, impact our values as people and citizens, and are interconnected with state foreign policy concerns, power, and sovereignty.

Which country pulled out of the Trans-Pacific Partnership (TPP)?

The United States

One criticism of state efforts to attract international capital is that it can lead to:

A “race to the bottom,” with countries lowering labor and environmental standards to compete

Tarrif

A tax on imports

Quota

A restriction on the number of goods that can be IMPORTED

Subsidy

Direct government payment to domestic producers

Regulations

Rules and standards that can create barriers to the importation of foreign goods

History on Develping countries

In 1945 there were 51 states in the newly created United Nations, and now there are more than 190. Almost all the LDCs are former colonies and faced conquest, racism, and colonialist mercantilism prior to independence.

For developing countries that mainly produce primary products, such as mining and agricultural goods

Persistently low and unpredictable export prices cannot generate the revenue for the expensive manufactured/high-tech imports needed for development. Classical liberal arguments for open markets and free trade can be viewed with suspicion.

Protectionist steps countries can take include

Tariffs (taxes on imports). Business regulations and licenses. Quotas. Subsidy.

Neoliberal structural adjustment programs call for

Opening economies to foreign trade and investment. Reducing government spending. Selling state-owned enterprises. Relaxing government controls on currency and interest rates

During the 19th century Latin America: 

The industrial revolution in Europe helped spur demand for Latin America’s primary product exports. Latin American elites benefitted from high demand for the region’s mining and agricultural exports, buying manufactured products and luxury goods. Most people in Latin America suffered from the realities of the transatlantic economy and the liberal economic mantra of the time

The Great Depression made Latin America’s investment and foreign trade drop leading to:

Many Latin American leaders concluded that they should take forceful steps to encourage local production of manufactured goods

With import substitution industrialization

A. States built “infant,” often state-owned industries which manufactured products to substitute for imports

B. Local industries received favorable tariff protections, preferences in government contracts, and significant government investments

C. Latin America saw some economic success between 1930 and 1960, particularly during the global economic expansion after WWII

D. Latin American states had to rely on imported technology and parts, which became difficult to pay for

E. Latin American countries eventually became dependent on overvalued exchange rates, debt, and printing money

F. Many “infant” industries became overstaffed and corrupt, producing inferior products because of a lack of competition

The OPEC-driven oil price increases in the 1970s:

Helped lead to the Latin American “debt crisis” of the 1980s, as countries borrowed money deposited by OPEC countries and continued their import substitution strategies

The middle-income trap

Is when countries are not able to reach higher income levels because they are held back by weak/corrupt institutions, poor infrastructure, sharp inequality, and other challenges

The License Raj:

Was the Indian example of import substitution, with the government creating a lot of red tape (regulations and licenses) to protect domestic industries

Developing countries (LDCs) often face “declining terms of trade” because: 

Their exports (often agricultural goods or other primary products) often do not bring in enough capital to pay for their imports (often finished goods)

Mercantilist approaches to industrialization, seeking to establish desired trade balances and trade profiles, include:

Promoting exports and protecting the economy by restricting imports

East Asian states have pursued strategies that have included

B. Authoritarian force in the face of labor unrest

C. Strong investments in infrastructure and education 

Examples of an “export promotion” techniques include

A. Direct export subsidies

B. Low-cost loans

C. Undervalued exchange rates

D. Protection of infant industries focused on exports

Which country was at the head of East Asia’s “flying geese”?

Japan

Which of the following were known as East Asia’s “four tigers,” following Japan with the export promotion strategy:

South Korea, Taiwan, Hong Kong, Singapore

In export processing zones (EPZs):

Products are assembled with duty-free imported parts and then exported

What are some of the key differences between export promotion and import substitution:

C. Export promoters were often more successful in removing protections once an industry became competitive

D. Import substitution uses protection across an economy, while export promotion more specifically choses sectors for protection and other assistance

what type of trade strategy is associated with significant trade barriers?

Import duties, export duties, profits of export or import monopolies, exchange profits, and exchange taxes.

Which of the following is true about global markets and food

a. Ukraine traditionally grows enough food to feed 400 million people

d. Ukraine and Russia together have accounted for one-third of the world’s wheat exports

e. Russia’s invasion and its blockade of Ukrainian ports initially prevented Ukraine from exporting its grain

Which of the following is true:

a. Iron ore and semi-finished iron have been Ukraine’s single largest export

d. The war cut Ukraine’s steel production in half

e. Russia has worked to block traditional export routes out of Ukraine

What steps have the Russians taken with respect to food production in Ukraine?

a. They have targeted agricultural infrastructure in their attacks¸ including silos and the railroad bridges Ukraine needs to export

d. They have shelled farms with high-explosive projectiles¸ leaving piglets and calves screaming as they were roasted alive

Your answer

e. They have fired at farmers and tractors

Your answer

f. They have stolen Ukrainian crops

If the Ukraine war was to end today,

It would take a significant amount of time and investment to fully bring Ukraine to its prewar levels of agricultural productivity

What point is made about Russian food production?

Western countries have very deliberately not sanctioned Russia's food and fertilizer exports for global food security reasons

What is true about the global trade in grains today

A. The Russian blockade of Ukrainian food shipments out of the Black Sea was reinstituted after roughly one year

B. To keep exports moving Ukraine has found alternative routes, such as overland by road and rail, or by hugging the coastline near the territorial waters of NATO countries

C. Ukraine’s moves to find alternative routes for export have caused some tensions with it’s western neighbors, such as Hungary and Poland, as they have strained infrastructure and corresponded with a drop in local food prices

D. Russia, a major grain producer, has reaped a windfall with record grain production—selling its goods around the world, driving down global prices, and seeking to pull countries into its geostrategic orbit

What is true about the international oil trade

a. India traditionally has not purchased significant amounts of Russian oil¸ because of the distance between Russian ports and India

b. After the United States and Europeans levied heavy sanctions¸ Russian oil has been flowing to China and India at a discounted price

c. Russia has received more oil revenue than ever before

What is the “shadow fleet”

Roughly 100 oil tankers that help Russia skirt Western sanctions on its energy exports. Oil tankers that have changed ownership or have murky ownership (i.e., so they are not Russian, but deal almost exclusively with Russian oil).

How have the UAE and Saudi Arabia reaped a windfall from the Ukrainian war?

By buying Russian oil at a discount and selling it domestically, then selling their own oil products to European countries