Part two: Money and Trade Flashcards
Outline the balance of payments, explaining what it is and how it works
Balance of in-and outflow of fiat currency in a domestic economy:
- Current account, i.e. the money changing hands to pay for goods and services
- Capital account, money being invested to and fro a country
These accounts should balance each other out lest money gradually leave the economy (see Sri Lanka in the 2022)
Outline the mechanisms by which balance is achieved in the balance of payments
Friedman (1967)
* Domestic macroeconomic adjustment: adjustment of domestic prices and incomes
* Exchange rate adjustment: appreciation or depreciation of a currency’s ‘price’ (exchange rate) relative to other currencies and/or a key commodity (such as gold)
* Reserve adjustment: spending or amassing official reserves by a country’s monetary authorities
* Exchange controls: direct intervention into the current account (as with a tariff or subsidy) and/or the capital account (as with capital controls)
Define the balance of payments constraint and how it relates to IPE
You cannot spend more in ForEx than you earn. If the discrepancy between outflows and inflows grows too large, it can crash your currency and thereby the economy
Explain how the balance of payments constraint can lead to zero-sum international economic relations
- The USA spends more than it earns –> outflow of money
- China lends this money back to the USA
- The USA can keep spending more as long as China keeps lending (increasing its dollar reserves)
- Chinese Producers dependent on Sales to USA, USA depends on goods and services from China
- Adjustment would lead to “mutually assured financial destruction”
Specify the sources of global imbalances using empirical examples
- Ressource distribution (oil)
- (Post-)colonial depency (Africa and EU)
- Exchange rate regimes (china devaluing currency)
Define globalisation and outline the various ways in which it can be measured and assessed
- The process by which geographic space becomes less significant in determining substantive outcomes in our world
- The intensification of worldwide social relations which link distant localities in such a way that local happenings are shaped by events occurring many miles away and vice versa (Giddens, 1990)
‘the internationalising of production, the new international division of labor, new migratory movements from the South to North [and] the new competitive environment that accelerates these processes…’ (Cox, 1996).
Specify the relationship between states and markets in driving globalisation and deglobalisation
States need to create the framework for markets to organically breach divides. Example: the flow of information. The internet enables us to create a global commons. But, as the Great Firewall of China shows, states can choose to manage whether and how their populations connect to the common internet.
Specify the essential features of the First Era of Globalisation, particularly with regard to the mechanisms that drove it forward and those that brought it to an end
Wallerstein, 2011: Capitalist system originiated in 16th century and has continued to expand (Hanse, Venice, systems of labour control methods, strong state machineries).
VOC and EIC spread this, linking european states, then economies, to the rest of the world. Passport-free travel, more individuals living abroad than today, global gold standard, berlin conference.
Discuss, using empirical examples, the social, political, and cultural consequences of the First Era of Globalisation
Passport-free travel, more individuals living abroad than today. Share of foreign originated goods consumed around the world peaked in just before 1914, then took six decades to recover. In the end, the flow of capital (relative to national income) across borders today pales in comparison to the flows between developed countries prior to the War.
Critically assess the veracity of the ‘Pax Britannica’
Period of relative peace, allowing forcolonialism, global gold standard system, but did not survive the emergence of a new power on the continent
Discuss, using empirical examples, the resurgence of mercantilism in the late nineteenth century and the efforts of the commercial liberals to combat this
Countries increasingly protective of economic interests in the global south leading to Berlin conference.
The McKinley Tariff (1890) in the US imposed high tariffs on European goods, leading to a trade war with Germany.
The Cobden-Chevalier Treaty (1860) between Britain and France lowered tariffs on a range of goods, stimulating trade
Boli, Lechner, 2014
Outline the essential features of the Anglo-American liberal international order
UN, GATT and later WTO, IMF, International Bank for Reconstruction and Development (focussed on war-torn Europe and Asia, later became World Bank), Bretton-Woods system
Trace the evolution of the global monetary order from the gold standard through to the dollar order
- Following the war, many countries attempted to peg their currency to gold but failed. Last attempts were abandoned with the onset of the great depression
- The system then collapsed amid growing restrictions on international capital flows and protectionist trade policies
- Bretton Woods created in 1944 with the intention to balance the need to intervene in the economy at home with the desire to create greater economic openness abroad
- Abolished by Nixon in 1971
4 key elements of BW:
- Fixed but adjustable exchange rates, Dollar as anchor
- Countries retained initial capital control in order to adjust their systems
- “Scarce Currency”-clause: restrictions on imports from countries who ran payment surpluses (i.e. USA due to fears of Dollar shortage)
- IMF and IBRD (later world bank) created for support and guidance
Explain the creation and early evolution of the General Agreement on Tariffs and Trade
- Initial plan for a strong organisation to restore international trade (ITO) to create a Regime like Bretton Woods but no support in congress
- Instead: more limited agreement on trade liberalisation in manufactured goods = GATT in 1948
Analyse the origins and evolution of the post-war global economic order using the major approaches to IPE
- Bretton Woods as an attempt at an improved version of the global trade framework pre 1914
- Ironically, could only have worked as long as capital controls remained with European economies and thus convertibility was not fully restored
- Due to inflationary US policy abolished by Nixon as soon strains started to show
Liberalism: institutionalisation of trade relations
HST: US as Hegemon
Marxism: post-war order perpetuates unequal power relations
Outline the essential features of the multilateral trade regime (i.e. the WTO)
- GATT Uruguay round (29 seperate accords, effective 1995): agriculture, textiles, services, intellectual property rights, investment; only insignificant tariff reductions on manufactured goods
–> also created the WTO - WTO serves as an umbrella organisation for all trade rules and obligations created by the Member States. Through the newly introduced Single Undertaking, all trade rules are now applicable to all Member States, irrespective of their levelof economic development (with some minor exceptions) –> no more special and differential treatment (SDT) for developing countries
- Created a binding dispute settlement mechanism and a corresponding appelate body to review settlement decisions
- Developing countries were able to win against developed countries in the past, e.g. Brazil against US cotton subsidies in 2004
