International Trading Systems

International Trading Systems

• International trading systems comprise thousands of unilateral, bilateral, regional, and multilateral rules and agreements among more than two hundred nations.
• International trading systems are not a new phenomenon.
• The oldest known international trade route was the Silk Road, a network of pathways in the ancient world that spanned from China to what is now the Middle East and to Europe.
• The Silk Road traded silk, one of the most profitable products.
• The Chinese Han dynasty opened trade to the West until 1453 BCE when the Ottoman Empire closed it.
• Historians Dennis O. Flynn and Arturo Giráldez state all important populated continents began to exchange products continuously both with each other either directly or indirectly.
• The galleon trade was part of the age of mercantilism from the 16th century to the 18th century.
• Mercury, countries particularly in Europe, competed with one another to sell more goods, while defending their country’s income and limiting monetary reserves.
• Mercantilism also included restricted trade routes and subsidized exports.
• International trade is essential to ending global poverty and allows countries to grow faster and improve productivity.
• Trading globally gives consumers and countries the opportunity to be exposed to goods and services not available in their own countries.
• Export trade is how companies sell their goods and services to companies or consumers in a different country.
• Import trade consists of goods and services being brought into one country from another where they were originally manufactured or created.
• Entrepôt trade involves goods being imported into a country and then re-exported out, without being distributed.

The Bretton Woods System

• The Bretton Woods system was largely influenced by British economist John Maynard Keynes (1883-1946).
• The Bretton Woods agreement was established in July 1944, representing 44 countries at the United Nations Monetary and Financial Conference held in Bretton Woods, New Hampshire.
• It was created in order to replace the gold standard with the US Dollar as the global currency.
• The Bretton Woods Agreement also created two international institutions: The International Monetary Fund (IMF) and The International Bank for Reconstruction and Development (IBRD) also known as The World Bank.
• The International Monetary Fund (IMF), aims to promote global economic growth and financial stability to encourage international trade and reduce poverty.
• The International Bank for Reconstruction and Development (IBRD) also known as The World Bank provides financial assistance to countries affected by World War I to reconstruction projects in 1945.
• Countries promise that their central banks would maintain fixed exchange rates between their currencies and the dollar and agreed to avoid trade wars.
• The Bretton Woods System gave nations more flexibility than a strict adherence to the gold standard.
• The system dissolved between 1968 and 1973.

Neoliberalism and Its Discontents

• Neoliberalism is a political and economic policy model that emphasizes the value of free-market capitalism while seeking to transfer control of economic factors from the government to the private sector.
• Neoliberalism is a model of free market capitalism that favors greatly reduced government spending, deregulation, globalization, free trade, and privatization.
• Since the 1980s, neoliberalism has been associated with the "trickle-down" economic policies of President Ronald Reagan in the United States and Prime Minister Margaret Thatcher in the United Kingdom.
• Neoliberalism has been criticized for limiting social services, overly empowering corporations, and exacerbating economic inequality.
• The term neoliberalism was first coined in 1938 at a conference of noted economists in Paris.
• Freedom, since a rallying cry of the Left, is now the stated ideology of the neoliberal program of upward wealth distribution.

The Global Financial Crisis and The Challenge to Neoliberalism

• The global financial crisis of 2008-2009 came under the significant strain during the global financial crisis of 2007-2008 when the world experienced the greatest economic downturn since the Great Depression.
• Banks began extending loans to families and individuals with dubious credit records, people who were unlikely to pay their loans back.
• Financial experts wrongly assumed that, even if many of the borrowers were individuals and families who would struggle to pay it, a majority would not default.

Economic Globalization Today

• Exports, not just the local selling of goods and services, make national economies grow at present.
• The United States, Japan, and the member-countries of the European Union were responsible for 65% of global exports, while the developing countries only accounted for 29%.
• By 2011, developing countries like the Philippines, India, China, Argentina, and Brazil accounted for 51% of global exports while the share of advanced nations including the United States had gone down to 45%.
• The WTO-led reduction of trade barriers, known as trade liberalization, has profoundly altered the dynamics of the global economy.
• First, developed countries are often protectionist, as they repeatedly refuse to lift policies that safeguard their primary products that could otherwise be overwhelmed by imports from the developing world.
• Most countries loosen tax laws, which prevents wages from rising while sacrificing social and environmental programs.

Conclusion

• International economic integration is a central tenet of globalization.
• Government must continue to devise ways of cushioning the most damaging effects of economic globalization, while ensuring that its benefits accrue for everyone.