What are the factors that led to the slowing down of liberalisation

Question 1

Waning of the US hegemony from the 1968 to 1973 would destabilise the international trading landscape and cause a slowdown in liberalisation (LT issue) –> show US deficit

Answer 1

Cause 1: The Cold War
- US increasing military budget was the highest in the world as they kept pressing on the arms race with the USSR

Cause 2: Increased protectionism of WE and J which led to BOP deficits which resulted in the US being unable to sustain the GDC
- Protectionism of foreign competitors like the EU CAP and Intra-EU trade
- WE & J strong automobile exports dominated US markets (Volkswagen 60s, Honda, Nissan 1970s)
- US reserved of gold and forex lagged behind overseas holdings ($13B < $70B)

→ 1967-71 US deficit expanded from $2.8b to $19.8b
→ Nixon Shock =10% import tax + end of GDC + USD devaluation = fall in trade

Question 2

Emergence of new protectionism led to a reversal on trade liberalisation as countries sought to protect their industries from unfair trade practices (LT issue)

Answer 2

• NTB were not addressed in mechanisms like the GATT eg. US Omnibus trade Act imposing bilateral surplus-reduction requirement of 10% wasn’t traditional protectionism

–> 1973-75: 13% reduction in international trade
–> Annual growth rate for export volume globally fell from 8% during the golden age to 1.5% in 1989

Question 3

Role of Oil Crises which led to increases in COP which decreased exports and liberalised trade (LT issue) –> link to stagflation

Answer 3

1973 AIC Oil Crisis
- OPEC had agreed to reduce crude oil exports by 5% every month until Israel evacuated the territories occupied
- Oil prices jumped 70% to >$5/barrel
→ Full embargo: Oil prices jumped 130% to >$12/barrel

1979 Iran Oil Crisis
Against the backdrop of the Iranian Revolution
- Reduction of global oil supply and a surge of panic buying
- Oil prices jumped to $40/barrel within a year

→ Global inflation exceeded 15% in
1974, but growth also dropped to 2.8% from 5% before the oil crisis which resulted in stagflation which is hard to resolve due to the Inflation-Growth dilemma

Question 4

Overreliance on debt caused the debt crisis in the 1980s which led to stagflation in countries, forcing a halt on production and liberalisation

Answer 4

Trigger:
- 1979-82 US interest rates were pushed up from 10% to eventually >20% to curb US inflation
- 1981-82 Real interest rates in LDCs shot up to 6% and then 8% = debt issue
- 1982 interest payments as a percentage of exports from 1976 doubled

Context:
- OPEC countries from the Oil Crisis deposited 150M in banks across 1974-1980
- banks enabled overborrowing

Result:
- Panic borrowing: Half of LatAM borrowed 1B each week
- 1982 Mexico defaulted, triggering a wave of sovereign defaults elsewhere especially in LatAM
Brazil 100B and Argentina 50B

Caused: Stagflation, 1983-88: Mexico’s annual real GDP growth averaged only 0.1%