The Issues Related to International Politics that Are Obstacles to Free Trade - Essay Example

All countries can potentially benefit from free trade and a stable international monetary order, but in practical achieving this objective is very difficult. The main reason for this is international and state level politics, which aims at their own goods and absence of centralized authority or government. This paper will highlight some of the issues related to international politics that are obstacle to free trade, in below paragraphs. What is international politics' According to Waltz, international politics is politics in the absence of government1. There is no centralized authority beyond international boundaries, and the system is composed of interdependent sovereign states based on the theory that each is formerly equal (but this is not true). Without an overarching ruler that can oversee and regulate the international structure, neither the security nor well-being of individual states assures. A state constantly strives to ensure its security and "self-help", through strategic behaviors, competition, and cooperation. Moreover, because international structure is formed by the "co-action of self-regarding units"2 each seeking goods for its own, a lot of assumption of the other units and its intention is made for strategic behavior. Waltz, as a realist political scientist, describes international politics as "the realm of power, of struggle, and of accommodation"3. Thus, uncertainty and coordination problems that take place sometimes make it difficult to achieve the potential benefit (the states are capable of) from free trade and international monetary order. In general, states are an autonomous political unit motivated by self-interest and aimed at their own goods. In such "self-help" system, each unit put effort in providing itself with the means of protection against others. According to Mearsheimer, a realist, cooperation in the international system is unfeasible. States are selfish, concerned with power distribution and balance in the system, and in fact resembles a survival game in which units constantly strive to gain power. This results in three general patterns of behavior, "fear, self-help, and power maximization"4. It is logical then for the units to act selfishly and often offensively with regard to each other. However, the uncertainty of each other's short-term and long-term intentions and actions, whether the gain will be mutual or lopsided, works against trouble-free cooperation. Standard Trade Theory tells that free trade leads to aggregation of benefit and maximizes the welfare of most states. Now question arises, why then is this so hard to achieve' Nations want to take advantage of the free trade market, but "frequently unwilling to open their own economies"5, is a result of collective action problem. Collective action problem rises out of the self-interest of individual states that halts them from cooperating even if it is in their interest to do so. For example, through the "Endogenous Tariff Theory", Giplin explains, why and how domestic interest groups work to serve its nation's own goods as a barrier to import policies. A state will be willing to participate in the international free market system and export domestically produced goods to other nations for economic development. However, at the same time, it seeks to set up high trade barriers and impose tariffs on imports to hamper other countries' exported goods being brought into domestic economy. This will result in a situation, where every state seeks to export as much as it can, and import as little as possible. According to Goldstein, this action is "individually rational but collectively suboptimal for each nation to adhere to tariffs rather than to free trade"6. During the Great Depression period in United States, Americans were collectively running to the bank to withdraw their savings, which did no help to the economic downfall. As such, no state will think in other states' position or aim for the true, long-term benefits for the whole; but instead will act selfishly for short-term benefit and security by insisting on low import and high export rates. This collective action problem poses, why the free trade system is so difficult to achieve. The international system lacks an authority to enforce mechanisms and regulate the process, to achieve the benefit from free trade; therefore, the endeavor should be "self-enforcing". However, this is possible only if the states are equipped with ways to check if their trading partners are complying with the established agreements, and thus securing the benefit of trade. According to Goldstein, a state can serve as a hegemon to objectively regulate behaviors and "disseminate information about state compliance"7. However, the fear of cheating poses another major setback in achieving the benefit from free trade. Theoretically, it is accepted that economic hegemon have the most interest and incentives in establishing an international free market system. However, though the hegemon benefits from the system, it also has the greatest opportunity to cheat. During the post World War II, the hegemonic state was shifted from Great Britain to United States. To effectively implement free trade regime throughout nations, U.S had to design mechanisms to "convince trading partners that its commitment to trade liberalization as not ephemeral"8. United States achieved this by devising the General Agreement on Tariffs and Trade in 1947 and International Trade Organization in 1948. This gave decision-making and veto powers to other countries on trading policies based on consensus rule. However, U.S interest in the trade regime has varied over time, which made some countries reluctant to join the free trade realm. For example, during the Cold War, U.S' focus was on stabilizing the balance of power in Europe, giving special interest in the economic terms of its allies. During the 1980s, United States encountered a "growth crisis" in which the domestic growth rate slowed down and local industry was threatened. By the 1980s, the Japanese automobile manufacturers gained a major foothold not only in the U.S but also in the world markets. As a response, rising domestic voices urging for increase of tariffs and barriers in imports led United States to "cheat" and create trade regulations to safeguard its own industries and jobs. Because of this fact, other nations became increasingly wary of U.S power and opportunistic behavior. In addition, this led to small countries and developing nations cautious to enter free trade. U.S ultimately recognized its unfair play and created the World Trade Organization in 1995, to "constrain large states from capricious policies"9. As seen, even in the presence of a hegemon, the issue of uncertainty and possible cheating made other nations from perfecting the free trade system. Pre-requisite on sustainable trade is a reliable system of exchange and the lack of such order makes international cooperation in free trade even more difficult. The system must deal with issues of exchange rates, and value transferability. After the decline of Great Britain's Gold Standard system that allowed each country's currency to convert into amount of gold, U.S coordinated the Bretton Woods System in 1944. U.S dollar became equivalent to gold, and it sought to regulate monetary order among states. Though the purpose was stability in trade, transparency of currency, and incentives to keep imports and exports balanced, United States faced many costs. Vast amount of circulation of dollars made U.S more vulnerable to economic shocks. U.S was not able to take advantage of its own system because of lost control over its own currency. Economic slowdown in United States during the 1960s created domestic and international doubt of the sustainability of the Bretton Woods system, along with increased national debt from Korean War and Vietnam War. Finally, in 1971, U.S faced trade deficit for the first time in 20th century. President Nixon subsequently suspended domestic outcries for United States government to gain back "sovereignty" and abolish the Bretton Woods system in 1971. International structure without governance of a monetary order poses another adversity to attaining the potential benefit from free trade. The objective of achieving the potential benefit from free trade and international monetary order has been difficult due to the core issue of international politics and absence of government (centralized authority). In a sense the system is like a game in which each player equal in capabilities constantly struggle to figure out, analyze other players' intentions and calculate the benefit each will gain from cooperating or competing. Coordination problems, fears of uncertainty and possible cheating, behaviors driven by self-interest and short-term benefits, and unsustainable monetary mechanism halt a successful, harmonious international system in which every state is capable of benefiting from free trade and monetary system. References: Waltz, Kenneth N. The Anarchic Structure of World Politics, "International Politics [Enduring Concepts and Contemporary issues]", Robert J. Art, Pearson Education, Inc. Mearsheimer, John J. Anarchy and the Struggle for Power, "International Politics [Enduring Concepts and Contemporary issues]", Robert J. Art, Pearson Education, Inc. Giplin, Robert, Global Political Economy: Understanding the International Economic Order, Princeton University Press, 2001. Goldstein, Judith, US National Power and the Post-War Trading Regime, World Trade Review, 1, 2002. Read More