International Relations - Trade, Money, and Finance

Flashcards based on lecture notes on International Relations - Trade, Money, and Finance.

Mercantilism

Views trade as competition between states, prioritizing self-interest and military security, focuses on relative gains, and sees economic growth as a means to support military power and national security.

Economic Liberalism

Sees trade as an opportunity for mutual benefit, prioritizing cooperation and economic security, focuses on absolute gains, and views economic growth as a means to increase the health and wellbeing of humanity.

Absolute Advantage

A country has an absolute advantage if it can produce more of a good than another country using the same resources.

Comparative Advantage

A country has a comparative advantage if it can produce a good at a lower opportunity cost than another country.

Opportunity Cost

What you give up in order to do something else.

Protectionism

Government policies to shield certain industries from international competition through tariffs, subsidies, and quotas.

Tariffs

Taxes on imports used to make foreign goods more expensive to protect domestic industries.

Subsidies

Government financial support to domestic industries to help them compete with cheaper imports.

Quotas

Limits on how much of a good a country can import from another country, restricting supply to help domestic producers.

Smoot-Hawley Tariff

US Congress law passed in 1930 that raised tariffs on over 20,000 imported goods leading to global trade decrease.

Beggar-Thy-Neighbor Policies

Policies where countries try to help themselves (e.g., imposing tariffs or devaluing currency) but inadvertently hurt other countries.

GATT (General Agreement on Tariffs and Trade)

Agreement among 23 countries in 1947 to lower tariffs and encourage free trade. Helped reduce industrial tariffs significantly.

WTO (World Trade Organization)

Global, multilateral IGO created in 1994 to replace GATT, promoting, monitoring, and adjudicating international trade with 164 member states.

Reciprocity

The principle in the WTO framework that you get treated how you treat others.

Most-Favored Nation (MFN)

Any trade concession given to one state must be given to all states with MFN status. This promotes nondiscrimination in trade relations.

Generalized System of Preferences

An exception to the MFN principle where rich states give trade concessions to poor states to help their economic development.

Trade Surplus

When a country's exports are greater than its imports.

Trade Deficit

When a country's imports are greater than its exports.

Trade Expansion Act of 1962 (Section 232)

US legislation allowing tariffs to be imposed for national security reasons.

Trade Act of 1974 (Section 301)

US legislation allowing tariffs to counter unfair foreign trade practices.

IEEPA (1977)

US legislation granting broad powers to regulate trade during national emergencies.

●1929 Stock Market Crash:

Black Thursday (Oct 24) and Black Tuesday (Oct 29) triggered massive sell-offs.

○ The market lost nearly 90% of its value by 1932.

○ Didn’t just hurt Wall Street—it destroyed confidence in the economy and triggered a global depression.

● By 1933, unemployment in the US was approximately 25%.

● Worldwide decline in production:

○ Germany's industrial production declined by 41% between 1929 and 1932.

○ The UK experienced a 23% drop in industrial production during the same period.

Trump’s “Liberation Day”

● 10% baseline tariff on all

imported goods announced April

2, 2025 (effective April 5).

● Added higher tariffs on countries

with large trade surpluses with

the US:

○ China (34%), EU (20%), South

Korea (25%) — effective April 9.

Trump claimed the US was being “ripped off” by unfair balance of trade.

○ A state’s balance of trade is the difference between the value of its exports and

imports.

■ Trade surplus: exports > imports

■ Trade deficit: imports > exports

○ I.e., Trump sees it as a problem that many countries run a trade surplus with the US.

● He justified the tariffs as a way to reduce the trade deficit with these

countries.

○ Hypothetically, in Trump’s mind, this will lead to these countries buying more stuff

from the US, or MNCs building more production in the US.