Global Issues Unit 6: Understanding the International Political Economy: Trade

The Bretton Woods institutions were created after WWII:

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

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

John Maynard Keynes

What 2 key international financial institutions were created at the Bretton Woods Conference?

1) International Monetary Fund (IMF)

2) The World Bank

What is the primary role of the International Monetary Fund (IMF)?

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

What is the overall logic of the International Monetary Fund (IMF) ?

1) Promote financial stability to foster economic growth¸ peace¸ + prosperity.

2) Assist countries facing significant short-term distress to help forestall a shift to protectionism or radical socialism. 

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:

1) Never came into being.

2) Included a mechanism to settle trade disputes between countries.

3) Was in some ways a precursor to the WTO.

The World Trade Organization:

Upholds the rules of international trade

Which 3 IGOs form the “three-legged stool” designed to guide the international economic system?

1) The IMF 2) World Bank 3) WTO

What IGO has the role of assisting countries facing significant short-term budgetary imbalances?

IMF

What IGO has the role of providing loans for longer-term development projects?

World Bank

What IGO has the role of upholding the rules of international trade?

WTO

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:

1) States agreed to lower their tariffs + apply the same tariff rate to all members of the GATT (known as the most-favored nation—or MFN—system)

2) 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:

1) Free trade produces overall economic growth + jobs in sectors where the country has a comparative advantage.

2) Open trade fosters lower prices for consumers

3) Everyone benefits when countries produce + sell what they do most efficiently

4) Free trade promotes interdependence among countries + helps maintain international peace

2 thinkers closely associated with setting the classical liberal roots of open markets + 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:

1) Is criticized by conservatives¸ who worry it may impinge on state sovereignty + power.

2) Is criticized by contemporary liberals¸who worry about a “race to the bottom”.

Proponents of free trade argue:

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

Why is trade policy inevitably intertwined in politics?

Trade policies have winners + losers, impact our values as people + citizens, and are interconnected with state foreign policy concerns, power, + 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 + environmental standards to compete

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

Promoting exports + protecting the economy by restricting imports

East Asian states have pursued strategies that have included:

1. Authoritarian force in the face of labor unrest. 

2. Strong investments in infrastructure + education 

4 examples of an “export promotion” techniques include:

1. Direct export subsidies

2. Low-cost loans

3. Undervalued exchange rates

4. 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?

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

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

What protectionist policy measure is a tax on imports? 

Tariff 

What protectionist policy measure is a restriction on the number of goods that can be imported? 

Quota 

What protectionist policy measure is direct government payments to domestic producers?

Subsidy

What protectionist policy measure are rules + standards that can create barriers to the importation of foreign goods?

Regulations

Which of the following statements is TRUE?

• 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

• Subsidies

Neoliberal structural adjustment programs call for what 4 things?

1. Opening economies to foreign trade and investment. 

2. Reducing government spending.

3. Selling state-owned enterprises.

4. Relaxing government controls on currency and interest rates. 

During the 19th century:

• 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 + agricultural exports, buying manufactured products + luxury goods. 

• Most people in Latin America suffered from the realities of the transatlantic economy + the liberal economic mantra of the time. 

With the Great Depression:

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

With import substitution industrialization what things are TRUE?

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

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

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

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

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

6. 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). 

Whirlpool claimed its foreign competitors engage in unfair competition. What are examples in the video of what “unfair competition” means?

• Companies getting direct funding (subsidies) from the government. 

• Companies selling their washing machines at prices lower than their cost of production. 

• Companies selling their washing machines at prices lower than what they are charging for the same washing machines back home. 

With respect to the charge that LG and Samsung take advantage of unfair trade practices as far as washing machines are concerned:

• U.S. regulators in the Obama and Trump administrations repeatedly agreed that the companies are breaking international trade rules. 

• LG and Samsung argued they followed the rules 100%, and simply have better products than Whirlpool. 

Because Samsung and LG faced retaliatory tariffs placed on them by U.S. regulators:

They moved some production to China (and later Thailand, Vietnam, and the United States), which did not face the tariffs placed on South Korea. 

As a result of the trade conflict over washing machines:

The price of both foreign and domestically produced washers went up.

To get Samsung and LG to invest in their states:

SC and Tennessee offered significant investment incentives, like the advantages the firms received in South Korea

Because of the tariffs placed on imported steel, aluminum, and other products by the Trump administration, the video points to which specific product the Canadians and Europeans targeted for retaliation?

Washing machines. 

Which of the following is true about global markets and food?

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

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

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

Which of the following is true in relation to the war in Ukarine?

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

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

• Russia has worked to block traditional export routes out of Ukraine

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

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

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

• They have fired at farmers and tractors 

• 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 4 things are true about the global trade in grains today?

1. The Russian blockade of Ukrainian food shipments out of the Black Sea was reinstituted after roughly 1 year. 

2. 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. 

3. 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.

4. 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, B, and C:

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

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

3. Russia has received more oil revenue than ever before

What is the “shadow fleet”?

• Oil tankers that have changed ownership or have murky ownership (i.e., so they are not Russian, but deal almost exclusively with Russian oil).

• Roughly 100 oil tankers that help Russia skirt Western sanctions on its energy exports.

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.