Trade

Trade builds Globalization

The EIC existed because of the demand of things like tea

The goal of all this was a favorable balance of trade..

…exporting more than was imported

However, as countries try to do this they risk a worldwide reduction in trade volume.

This equals depression and a loss of productivity

Before 1945 much trade was done in regional or exclusive blocs

The British had the Imperial Preference system

Commonwealth Countries were given better deals

Japan did this with East Asia

(Their WWII Empire was called the “The Greater East Asia Co-Prosperity Sphere”)

The US used the Monroe Doctrine to obtain favorable trade with Latin and South America

After 1945 a major goal of the US, and FDR, was a de-construction of this and a return to truly free trade

The beginning of a fully negotiated monetary and trading regime.

Designed to prevent a repeat of post WWI collapse of the international economy

Bretton Woods

Two key words:

Regulated market

Currency control

Pax America

The US and the UK studied the problems that had led to the Great Depression

Wild fluctuations in exchange rates

Sudden currency devaluation

The US worried that there would be no strong market for US goods and services after the war

Enter the Marshall Plan

The Marshall Plan was designed to pump recovery monies into Europe.

In 2008 terms, almost 300 billion was given in both loans and gifts to Europe.

It became a cornerstone of Cold War policy as well.

Money was offered to Eastern Europe and the USSR

It was declined, of course.

The Soviets tried a similar program but it failed to stimulate as much as the massive US influx of cash did.

The Marshall plan was a cornerstone of Military strategy as well.

A revitalized Germany was an integral part of the Marshall Plan

And a major fear of the Soviets

In the next two decades, Europe surpassed pre-war agricultural production and industrial capacity increased by almost 35 percent.

Noam Chomsky

The amount of American dollars given to France and the Netherlands equaled the funds these countries used to finance their military forces in southeast Asia

Critics

The Marshall plan played a large role in setting the stage for global economic management on a scale unprecedented.

Bretton Woods built a regime that included…

To manage world trade, several organizations were set up.

GATT

IMF

WTO

Managing World Trade

Major tasks:

Reduction of trade and tariff barriers

Was superseded in 1995 by…

GATT

Further liberalization of trading regimes

Poor states possess a veto

Economists believe that big states may reform blocs to control their trade better

WTO

The IMF was designed to regulate a monetary regime

Competitive devaluations were forbidden

(This is where a state makes itself more attractive for international markets)

IMF

Designed to maintain international liquidity

Provides cash inflow to states with insufficient cash flows.

Do this by making short term loans

IMF

If you take a loan, the IMF will impose “pre conditionality”

These are essentially economic performance targets that need to be in place for an IMF loan

Problems with the IMF

Structural Adjustment Program

Basically, the IMF wants a troubled government to sell off anything it can to help balance books.

In the past these sales were at highly discounted prices to Western States.

SAP

These are implemented by the IMF and do things like..

..raise taxes

..lower corporate taxes

Budget restrictions

Austerity Programs

Argentina- Budget restrictions helped to implode the ability to finance any public good.

Kenya-Opened up the Central bank to corruption by easing currency restrictions.

IMF Horror Stories

Designed as a multi-lateral capital investment corporation after 1945.

The purpose was to re-build war torn economies

World Bank

Later it switched from lending money to 3rd world countries to…

…integrating them more effectively in an open and global political enviroment.

Throughout the 70s and 80s, many 3rd world states borrowed heavily and were, consequently, left in debt.

The capital gains expected never materialized; the interest payments took too much on already stretched economies.