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GO131: International Relations Professor Walter Hatch Colby College Global Trade and Finance

GO131: International Relations Professor Walter Hatch Colby College Global Trade and Finance. No Trade. Autarky (“self-reliance”) Protectionism Tariffs Non-tariff barriers. Trade. $10 trillion/year in merchandise exports $2.5 trillion/year in service exports. Why Trade?.

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GO131: International Relations Professor Walter Hatch Colby College Global Trade and Finance

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  1. GO131: International Relations Professor Walter Hatch Colby College Global Trade and Finance

  2. No Trade • Autarky (“self-reliance”) • Protectionism • Tariffs • Non-tariff barriers

  3. Trade • $10 trillion/year in merchandise exports • $2.5 trillion/year in service exports

  4. Why Trade? • Specialization • Efficiency • Lower Prices • Absolute gains

  5. Comparative Advantage

  6. Heckscher-Ohlin • A country will tend to export the commodity that more intensively uses its relatively abundant factor of production, and will import the commodity that more intensively uses its relatively scarce factor of production • Why? • Difference in relative price of commodities • Gains from specialization

  7. Liberal Economists:Be Happy

  8. Three Unhappy Scenarios Friction in allocating resources Declining terms of trade To overcome? industrial policy Asymmetrical interdependence

  9. Trade Relations • Unilateralism • Super 301 • Bilateralism • Plurilateralism • EU • NAFTA • Multilateralism

  10. Governing Global Trade • GATT (1947) • WTO (1995) • 149 members • Limited enforcement powers • Great success: reducing tariffs • most-favored nation concept

  11. Critics Seattle 1999

  12. Challenges: The Doha Round Director-General Pascal Lamy

  13. Finance

  14. Types of Finance • Portfolio investment • Foreign Direct Investment • $900 billion in 2005 • Currency Exchange • $1.9 trillion every day

  15. Exchange Rates • Convertible • From fixed to floating • Currency value is relative • States have own reserves

  16. Bretton Woods • Meetings in 1944 under U.S. and U.K leadership • Created IMF and World Bank • fixed exchange rate system • non-dollar currencies pegged to the dollar, which was (supposedly) backed by gold stockpiles • U.S. began running larger and larger BOP deficits. Central banks in Europe and elsewhere found they had greater and greater dollar reserves relative to the gold in Fort Knox. They began to doubt the ability of the U.S. to redeem its dollar liabilities in gold. • 1971: U.S. abandoned dollar standard; within two years, major currencies were floating

  17. Today’s IMF • 184 members • Lender of last resort • Macroeconomic policy police • Asian fiscal crisis (1997-8)

  18. Critics of IMF

  19. Third World Debt

  20. Who Runs the IMF? • Rodrigo de Rato y Figaredo? • U.S.? • 17.4 percent voting power

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