International Political Economy

1. International Political Economy International Production and Trade Structure Lecture 9 (Ch. 6)

2. Nation States are interdependent – beneficial? Creates tensions? • Four Structures that link nation states and other actors furthering their interdependence • International production and trade • Finance and monetary structure • International security structure • Knowledge and technology structure

3. International production and trade structure Deals with issues such as • Who produces what, under what conditions, how it is sold, to whom and on what terms? • Why production and trade are so controversial • Who gains from international trade? What and whose terms and conditions prevail when it comes to international trade? • Connection of production and trade to earning income and development hence controversial

4. In this chapter: Development and changes that have occurred in the post WWII production and trade system. Many trade experts in Northern industrialized countries have sought ways to liberalize the world’s markets since WWII. US and its allies created GATT in 1947 to promote liberal values and trade based on US strategic and military objectives. In a further effort to liberalize world trade, WTO replaces GATT in 1995. Other trade issues covered: increase in number of PTAs and FTAs. North South trade relations and its effects on economic development etc.

5. How has the nature of production changed over time? • World production increasingly becoming fragmented – vertical specialization and outsourcing- eg. Boeing, Apple? • Changing trends – increasing mobility of capital and economic restructuring whereby industries leave the developed w search of new markets, cheap labour and other production advantages. Mercantilists and structuralist viewpoint on these changing trends?

6. North – South Disparity? • 59 per cent 2006 developed country share of world output • 14 per cent 2006 share of East Asia and the Pacific developing countries (Source: World Development Indicators 2008, World Bank)

7. International Trade International trade has grown dramatically – increased demand for goods that cannot be produced locally – Multifold increase in trade volume- world trade in merchandise and services increased from $84 billion in 1953 to $76 trillion in 2004 – reflects growing internationalization or globalization of production

8. Trade- the liberal route to development – generating income and jobs – countries engaged in efforts to regulate trade to maximize its benefits and minimize the costs to their economies. How would the three perspectives in IPE (liberalism, mercantilism and structuralism) view trade?

9. Liberal View on Trade Washington Consensus (based on liberalist ideology- free trade based on comparative advantage is positive sum for all nations) – promoted by US, its allies and institutions such as WTO, IMF and WB. For the liberalists the benefits of open international trade far outweigh its costs.

10. Mercantilist Views on Trade Fredrich List and Alexander Hamilton both argued for protection of infant industries through tarriffs and quotas in order to national indepence and security. Neomercantilists today also challenge the assumption that comparative advantage unconditionally benefits all parties engaged in trade – people in the importing country will be laid off as CA shifts to other nations. Also in many cases states can intentionally create comparative advantage almost overnight in the production of new goods and services simply by adopting strategic trade policies that invest heavily in those products. Trade protection is necessary because of the fear of becoming independent on another nation and the possibility of exploitation

11. Structuralist Views on Trade? Trade helped dominant mother countries to dominate and subjugate the economies of the colonial territories. Colonial territories provide mother countries with primary goods, mineral resources and well as market for output. Industrialized countries converted these primary resources into finished products and sold it to other major powers and back to the colonies Peripheral countries have become underdeveloped as a result of contact with industrial nations through trade.

12. Trade Terminology… Tariffs- tax placed in imported goods – used as a source of revenue for LDC governments or as a form of protection Quotas: limit on the quantity of an item imported – effect? Export quotas: international agreements that limit the quantity of goods exported by a nation ( to limit the quantity of imports by another nation). Eg. VERs, MFA (system of textile export quotas for LDCs) Export subsidies? NTBs? Currency Devaluations: making a nation’s currency worth less so that exports to other nations become cheaper and hence more attractive. Strategic Trade practices: state efforts to create comparative advantage by subsidizing research for a particular industry etc. or provide subsidies to an industry to help it get established Dumping: the practice of selling an item cheaper at home than abroad, Dumping is an unfair trade practice – used to drive out competitors from an export market with the goal of generating monopoly power. Counterveiling trade practices: measures taken as a reaction to another country’s protectionist policies. Eg. Antidumping duties to counter the advantage gained by a state that dumps its products. Safeguards: Defensive measure: after tariffs are reduced, a product might be imported in quantities that threaten to damage local industries.

13. GATT and the Liberal Post-War Trade Structure • Bretton Woods Conference in 1944. Post WWII, the US and Great Britain established a new economic order based on promoting free trade and integration between nations – they hoped this would prevent many of the interwar economic conflicts and problems that had led to WWII. • 1930s Great Depression – Protectionist Policies uptil 1934 – it was only in 1934 that the US adopted a free trade policy • Establishment of GATT in 1948- the primary organization responsible for the liberalization of international trade through a series of multilateral trade negotiations called rounds – in each round the world’s main trading nations would agree to reduce their own protectionist barriers in return for a freer access to each other’s markets. • GATT membership open to all nations but communist countries refused to join it viewing it as a tool of Western imperialism.

14. GATT.. • Based on the principles of reciprocity and non-discrimination. • Both principles successful – members slowly began to peel away the protectionist barriers they had erected in the 1930’s after the Depression. However, some members were not willing to grant reciprocity or apply non-discrimination to all trading partners – use of trade as a foreign policy tool. • GATT was not a set of rules that could be enforced by the organization- but rather depended on member countries to fulfill multilateral trade obligations with one another.thus allowed a lot of exceptions – textiles, agri products etc.