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									       Chapter Nine

       Markets and Money
in the Global Political Economy
        Liberal International
          Economic Order

• set of regimes established after World War
  II to promote monetary stability and the free
  flow of trade and capital
• Bretton Woods conference
• WTO/IMF/World Bank
• spurred by globalization and
      Commercial Liberalism

• humans naturally want to cooperate
• trade can benefit all and promote peace
• problems of capitalism boom-and-bust can
  be solved
• open markets and free trade
• principle of comparative advantage
• absolute gains of trade more important than
  relative gains
Table 9.1: Comparative Advantage
 and the Gains from Free Trade

• government regulates economy to increase
  power and security
• economy subordinate to needs of state
• trade: relative gains more important than
  absolute gains
• international politics as zero-sum game
• ties with political realism
• neomercantilism

•   beggar-thy-neighbor policies
•   import quotas
•   export quotas
•   non-tariff barriers
•   protection of infant industries
•   strategic trade policy
•   countervailing duties
•   antidumping duties
    Hegemonic Stability Theory

• peace and free trade depend upon a great
  power willing and able to use economic and
  military strength to promote global stability
• United States now; Britain before
• hegemon helps provide collective goods
  that benefit all
• free riders
• promote free trade and free markets
             United States:
          Declining Hegemon?

•   largest economy
•   share of world output declining
•   largest debtor nation
•   imperial overstretch?
•   uncertain future for the international system
          Free-Trade Regime

• GATT: General Agreement on Trade and
  Tariffs (1947)
• Uruguay Round 1986-1994
• WTO: World Trade Organization; increases
  free trade; dispute settlement; enforcement
• critics: decreases sovereignty; hurts efforts
  to protect environment; promotes
 Table 9.2:
Figure 9.1: A GATT-WTO Chronology
           Monetary Policy

• manipulations by central banks to control
  inflation and regulate the economy
   – change money supply
   – manipulate interest rates
   – control inflation
   – promote economic growth and trade
            Exchange Rates

• fixed exchange rate
• floating exchange rate: since early 1970s
• managed exchange rate system:
   – European Monetary System
• official exchange rate
• devaluation
   Table 9.3:
 Concepts for
Exchange Rates
and Balance-of-
Payments Issues
 Figure 9.2: How to Tell a Real Bargain? Calculating
the Cost of Goods in the Globe’s Confusing Currency
                 Exchange System
Bretton Woods Monetary System

• fixed exchange rates maintained by
• International Monetary Fund: balance of
  payments and exchange-rate stability
• World Bank: loans for economic
• U.S. dollar: convertible at $35 per ounce of
     Floating Exchange Rates

• 1971: Nixon ends dollars for gold
• end of Bretton Woods exchange rates
• floating exchange rates
   – vary by changing economic conditions
   – problems for central banks
   – compounded by financial crises
   – international cooperation to manage rates
• Euro: regional currency for Europe
    Trade Trends and Troubles

• regional trade blocs: NAFTA, EU, FTAA?
• protectionism
• most-favored-nation status
• 2002: President Bush regains fast-track
  negotiating authority
• domestic political and economic factors
  affect trade and trade policies
Figure 9.3: Tariff or Not to Tariff:
       That is the Question
Map 9.1: Ranking Countries by their
       Economic Freedom
Map 9.2: The Volume of Trade Flows
  Between Major Trade Partners
  Figure 9.4: Global Economic Prospects:
The Growth of Trade and Wealth, 1950-2008

• In what ways is mercantilism linked to
• Can the United States fill the role of
• What states or groups of states could
  potentially assume the role of hegemon?
        Discussion, continued

• In what ways do the low politics of
  international political economy and the high
  politics of international security affect each
• In what ways does international political
  economy affect your life?
• What are the positive and negative aspects
  of international trade?

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