The document discusses the history and theories of international trade and monetary relations. It covers the transition from the GATT system to the World Trade Organization (WTO) in order to address shortcomings like excluding agriculture and non-tariff barriers. Different frameworks for understanding trade and its effects are examined, including liberalism, mercantilism, economic structuralism, and hegemonic stability theory. Trends in globalization and trade growth over recent decades are reviewed.

1. Chapter 12: The Political Economy of Trade and Monetary Relations

2. Copyright 2010 Cengage Learning The Globalization of Trade GATT-based on non-discrimination, rather than reciprocity World Trade Organization (WTO) 2

3. Copyright 2010 Cengage Learning From GATT to WTO Problems with GATT Left agriculture and services out Non-tariff barriers to trade Quotas VERs Domestic content laws Health and environmental regulations Difficult to resolve non-tariff barriers 3

4. Copyright 2010 Cengage Learning The World Trade Organization Goes Global 4

5. Copyright 2010 Cengage Learning The Growth of Global Trade Integration 5

6. Copyright 2010 Cengage Learning The Contribution of Foreign Direct Investments to Globalization, 1970–2007 6

7. Copyright 2010 Cengage Learning Liberal International Economic Order Shadow of the Great Depression 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 7

8. Copyright 2010 Cengage Learning. Main Differences Between Liberalism and Mercantilism For mercantilism economic relations are conflictual To mercantilism the states are the only important actors To mercantilism it is to serve the national interest To mercantilism politics determines economics Mercantilism postulates that world transformations are products of shifts in distribution of states’ relative power For liberalism economic relations are harmonious To liberalism the major actors are households/business firms To liberalism the goal of economic activity is to maximize global welfare To liberalism economics should determine politics Liberalism’s theory pictures global change in a dynamic ever-adjusting equilibrium 8

9. Copyright 2010 Cengage Learning 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 9

10. Copyright 2010 Cengage Learning The Theory of Comparative Advantage By specializing and trading, states and individuals can increase overall consumption and efficiency. Powerfully contradicts the realist view that international affairs are a zero-sum game. 10

11. Copyright 2010 Cengage Learning Comparative Advantage and the Gains from Free Trade 11

12. Copyright 2010 Cengage Learning The Balance of Trade Exports minus Imports Mathematical impossibility for two states to have a balance of trade with each other Fair Trade 12

13. Copyright 2010 Cengage Learning. Exchange Rates and the Balance of Trade 13 The Interaction of Exchange Rates and the Balance of Trade Equilibrium: Balanced Trade, stable Exchange Rate Decreased Demand for Imports from Europe (Due to Increased Price) Increase in US Imports (Trade Deficit) Increase Price (in Dollars) of Imports from Europe (Due to Increase in Euro Price) Increased Demand for Euros (To Pay for Increased Imports) Increased Price of Euros (Due to Increased Demand)

14. Copyright 2010 Cengage Learning Protectionism Beggar-thy-neighbor policies Import quotas Export quotas Voluntary export restrictions Non-tariff barriers Protection of infant industries Strategic trade policy Countervailing duties Antidumping duties 14

15. Copyright 2010 Cengage Learning The Liberal Approach to Trade Comparative Advantage Mutual advantage through trade Extreme poverty in the world not a result of free trade, but a result of not enough free trade 15

16. Copyright 2010 Cengage Learning The Realist and Economic Structuralist Critique Ask, “How are the gains from trade divided?” 16

17. Copyright 2010 Cengage Learning Realism–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 Neomercantilism 17

18. Copyright 2010 Cengage Learning Economic Structuralism Like realists, ask “What determines how the gains from trade are divided?” Improve working conditions in third world factories Child labor 18

19. Copyright 2010 Cengage Learning Constructivism Embedded liberalism Aims at explaining what happened in the past, rather than explaining what will happen in the future. 19

20. Copyright 2010 Cengage Learning Feminism By ignoring women and issues of gender, other theories cause harm to women by ignoring their role in the global marketplace. Assigned economic roles Domestic work undervalued, ignored Educational opportunities Sex tourism 20

21. Copyright 2010 Cengage Learning 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; Great Britain before Hegemon helps provide collective goods that benefit all Free riders Promote free trade and free markets 21

22. Copyright 2010 Cengage Learning United States: Declining Hegemon? Largest economy Share of world output declining Largest debtor nation Imperial overstretch? Uncertain future for the international system 22

23. Copyright 2010 Cengage Learning Trade Trends and Troubles Regional trade blocs: Caribbean Basin Initiative NAFTA EU Free Trade Area of the Americas Most-favored-nation status Domestic political and economic factors affect trade and trade policies 23

24. Copyright 2010 Cengage Learning. The Growth of World Trade and Wealth, 1950–2010 24

25. Copyright 2010 Cengage Learning. The Volume of Trade Flows Between Major Regions, 2005-2008 25