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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 interdependence 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 Mercantilism • 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 Protectionism • 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 globalization Table 9.2: GATT- WTO Chronology 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: Currency Concerns: Concepts for Conversing about International 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 governments • International Monetary Fund: balance of payments and exchange-rate stability • World Bank: loans for economic development • U.S. dollar: convertible at $35 per ounce of gold 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 Discussion • In what ways is mercantilism linked to realism? • Can the United States fill the role of hegemon? • 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 other? • In what ways does international political economy affect your life? • What are the positive and negative aspects of international trade?
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