Course Module 21: The United States and the Bretton Woods Organizations

According to lecture and the reading (Section 30.2), what is the Bretton Woods economic order? What were the main forces that served as an impetus for the U.S. to construct the Bretton Woods order? What are the main organizations that emerged from Bretton Woods?

-        Common effort to impose order on a volatile internatl econ environment, manage econ cooperation in the post WWII era while also preventing/managing major crises

o   Managed openness: build integration that preserves national econ ability to intervene domestically to promote employment & lessen distributive costs of openness

o   Established new syst of adjustable ER backed by form of gold standard

-        Main forces behind it: collapse of first era of globalization in 1914 w/ WWI onset, unraveling of econ cooperation in the interwar period (contributed to econ downturn & volatility, speeding up onset of WWII)

-        Created IMF (“lender of last resort” to govt during financial crises) & Word Bank (assist in longer term econ development goals by providing subsidized capital to countries rebuilding after WWII)

-        GATT (broad principles to govern trade) replaced by WTO in 1995

According to lecture and the reading (Section 30.1), what are the main elements of international economic cooperation? Why is political cooperation between states on international economic affairs difficult to achieve?

-        Elements: trade policy, ER adjustment, financial flows between countries

-        Distributive consequences of economic growth

o   Job losses & economic dislocation for specific/narrow industries (push back on liberalization of trade policies)

o   Benefit consumers bc of lower prices & exporters w/ inc access to foreign markets

-        All govt periodically face incentives to renegotiate/withdraw from internatl commitments

o   Prisoners’ dilemma

o   Populist domestic pressure or exogenous events that lead to econ downturn

How might international economic organizations, like the WTO and the IMF, facilitate economic cooperation among states and higher levels of international trade?

They promote the reciprocity principle where states are more willing to reduce tariffs if they know others will do the same. They provide a structured dispute settlement system to reduce the risk of trade wars and reassure others about the prisoner’s dilemma. Organized repeated negotiation rounds create opportunities for gradual liberalization. Governments can use WTO rules as domestic political cover during discussions about liberalization.

According to lecture and the reading (Section 30.3), what is the GATT and what is the WTO? How do these organizations differ? What are some of the norms, principles, and rules associated with the GATT and WTO? How does the dispute settlement mechanism in the WTO support international trade?

• Forms basic architecture of internatl trade rules in post WWII

• Principles of nondiscrimination, reciprocity (must extend similar concessions to each other), self perpetuating nature of liberalization of trade

•  GATT rules that countries can initiate dispute proceedings if they allege another was violating its policy commitments

  • Failed settlement out of court, GATT convene judge panel & 2 sides present

  • Rule in favor of plaintiff, allow retaliation in form of reciprocal protectionist measures

  • However, defendants could veto the proceedings at any point

• WTO adopted many of formal rules of GATT while also making new rules governing intellectual property rights & trade in agriculture & stronger dispute settlement system

  • Trade policy conducted through WTO

    • Negotiating rounds – meetings aimed at tariff reductions across range of product categories, broad aspects of trade policy that are challenging for bilateral trade

    • Dispute settlement mechanism – can allow retaliation for trade rule violations, defendants are required to participate when plaintiff files dispute

According to lecture and the reading (Section 30.4), what is the International Monetary Fund? What are its main functions? What is the main source of its influence in the international economy? What is conditionality and how does the IMF use it to promote economic reforms within countries? Why does the U.S. have so much influence within the IMF?

-        Manage syst of monetary commitments under the Bretton Woods gold standard

-        “lender of last resort” to provide countries w/ injections of liquidity during financial crises (not so much present day bc of abandoned gold standard), restore investor confidence and prevent capital flight that slows down recovery *mixed evidence

-        Public commitment to avoid restricting capital accounts or flaking on ER commitments

-        Influence comes from quota-based voting system (states get more influence over IMF decisions if they willing to pay more, larger econ have greater discretion over IMF decisions)

-        Conditionality: in order to access funds, borrowing countries have to commit to set of austerity measures (reduce govt spending, privatize state-owned industries, cut social programs that constitute large fiscal outlays) so they don’t fall back in repeat debt crises *not quite successful

-        US has the largest percent vote share, more lenient with lending to countries strategically important to US or where US banks have outstanding exposure