Political Economy of International Trade - Book Report/Review Example

Political Economy of International Trade Introduction Primarily, trade is an exchange of goods and it involves many factors such as policies and trade regulations. The exchange of goods can occur within a country or goods transported into another country—international markets. In the later, we refer to this as international trade. In order to facilitate efficient international trade, it is necessary that countries have free trade policies. For many decades, policies and trade regulations of international trade have been the subject of debate both at national and international rendezvous. In some instances, some countries have severed their international ties due to bad policies brought by bad political policies within the political economy. Therefore, moving away from the theoretical understanding of politics, political economy, and economic theories, and embark on the theoretical insight of government policies on international trade, we might come to conclusions that there are distortions in the implementation of international trade policies and regulations that form the basis of international trade. Political economy of international trade is a discipline taught in universities and other major institutions in order to enlighten people on the issues surrounding international trade1. Moreover, political economy of international trade dwells on various factors such as the role-played by international trade in terms of enhancing the economic welfare of nations that make up the world, economic growth in both developed and developing countries, and the role of international financial systems in improving economies of the world. The world is undoubtedly becoming increasingly global. Therefore, a critical analysis of the world economic system is necessary in understanding the economic conditions of the world. Through this topic, we seek to understand not only the factors that propel economic development, but also various modalities of promoting effectiveness in the international economic system. The paper discusses the political economy of international trade right from state power to agreements to structures of international trade. State power and structure In order to understand theories of international trade, it is imperative to discuss state powers and structure. By doing so, we will open a new front into understanding how political economy influences international trade. This topic falls squarely under the auspices of international relations. To start with, different theorists have come up with theories on state power and structure. For many decades, experts in international trade have bureaucratized, trans-nationalized and multi-nationalized state power and structure making it just a systemic assemble rather than a virtual state. These theorists assume very many things, for example, they take the state as an entity that must work with the international community. In other words, the sovereignty of states do not count when it comes to internal trade and states must be ready to relinquish their sovereignties, become trapped in the international community for them to be real actors in international trade2. The argument put across by many students of international relations where political economy of international trade is common is that interdependence among nations is not a recipe of state policies and choices, but rather a matter that nations could not do without due to the existing international systems that are beyond reach. This concept is explicit in the balance-of-power theory that discusses the impact of interdependence of nations for economic growth. However, taking a critical analysis of this theory and argument, this perspective begs more questions than answers. To start with, this perspective may be right to an extent whereby it is able to highlight a myriad of developments within the international economic structure. On the contrary, this perspective does not give concrete explanations on state structure. It ignores the factors such as behavioral and institutional manifestations of the state through a reticence approach. International structures are complex and they involve more than interdependence, and sometimes, states can retreat to their sovereignty. For instance, consider a state that invokes inclusive autarky, which is, prohibiting any movement across its territorial boundaries. This will indeed affect international trade unlike when such restrictions do not exist. Thus, in order to understand explicitly the political economy of international trade, we consider factors such as labor, the non-autarky approach, production, technology and interests3. According to the state-power theory, the success of international trade largely depends on state structure rather than state power. This is because state structure sets the benchmarks for international trade. In other words, through state structure, national goals not only take a precedent position, but they set out the interests of the nation. Four major state interests determine the political economy of a state. These include economic growth under autarky, social stability of a nation, and the political power. The other one is the gross national product of a state. The relationship between these four factors depends on how the nation handles its borders, that is, if it allows openness for movement of goods. Additionally, the potential economic power of the state depends on its interests, economic development targets, and the relative size of the nation. It is also important to note that different states wield potential power due to their advancements in terms of technology, productions, and openness approach to international trade. In essence, the state structure, as opposed to state power, determines the classification of a state as either multi-polar or hegemonic. The hegemonic economic potential distribution is significant as it leads to open trading structure making states achieve their goals and objectives of international trade. In fact, empirical data show that hegemonic states are economic powerhouses and frontiers in international trade. Another theory that explains state power and structure and relationship to international trade is the neoclassical theory. This theory bases its argument on the assumption that states have an obligation to do all they can to achieve combined economic utility. The neoclassical theory perspective is paramount especially to global welfare and Pareto optimality that form the foundation of free trade. However, some countries in order to achieve their national goals can opt for protectionism where they impose optimal tariffs on goods. In most cases, such policies on tariffs have caused acrimony among countries such as China and United States leading to some unwarranted competitive conditions. The neoclassical theory also provides an assumption that states can evade internal distortion by setting out trade regulations that foster the creation of infant industries even though this serves the interests of a nation on a temporary basis4. Compared to the state-power theory, neoclassical theory promotes international trade largely. For instance, in terms of aggregate national income, the assumption that the neoclassical theory advances is that there is autarky to international trading system hence great opportunities to massive economic income. Thus, irrespective of the relative size of the state, economic benefits of openness to international trade are always available. In fact, openness benefits smaller states more because they are synonymous to unequivocally higher ratios of trade compared to the gross national product. Additionally, these countries benefit from reduced dynamic endowments and absence of large economies of scale that only apply to large economies. The political economy that advances openness in the realms of the state’s social stability has effects. For example, the state structure that advances openness of high levels not only exposes the state more in international markets, but also brings in exigencies. In other words, the amplification of factor movements causes changes in domestic production and technological patterns in order to meet the demands of the international market. Consequently, there is social instability caused by factor movements, and labor is one of them. This factor affects small states more than large states simply because the later do not contribute much to the international economy due to their small factor endowment and level of openness. Moreover, large economies knows how to handle adjust factors such as labor by moving both skilled and unskilled labor form one sector of the economy to another. Although social stability does not boost openness, the political economic advancement to international trade promotes openness that is paramount to positive economic development of a state5. International trading structures The political economy of states determines international trading structures. These structures include the allotment of potential economic potential. It is important to note that relative size of a state, and domestic trading policies, which allow are significant contributors to potential economic power. For example, the G8 countries form a system of an open international trading system, and consequently, enhance individual income and economic growth. As discussed above, the deleterious effects of social instability emanating due to international trade competition are less due to factor mobility, for example, extensive development. It is also imperative to note that these countries retain their individual political power due to the presence of symmetrical costs of closure among the eight nations. Considering world countries such as Brazil, Malaysia, Singapore and India, the allotment of potential economic power may result into a closure structure as their individual economic development is not equal. It therefore means that each of these states can generate income from an open system characterized by modest gains. In other words, the political economy of less developed countries does not augment their positions in international markets, due to factor rigidity that is an epitome of a closure system. This is the reason why countries that fall into this class do not favor open trading systems6. In a hegemonic system, for example, United States trading with less developed countries likes South Africa, Botswana, Iraq, Mexico, clearly, benefits and costs of openness will differ greatly, and Unites States will generate more income. This is the reason why large countries prefer to trade with less developed countries. Moreover, during its ascendency, it is vital to note that the rate of growth of United States in this case study example will increase owing to its large relative size and technological advancement. Furthermore, its political power will increase due to the eminent opportunity costs of the created closure system. However, the hegemonic authority will ensure that there is no social instability through mobility factors. Characteristics of international trading systems The political economy of international trade depends on openness exhibited by states. In other words, the paw of goods and policies determines international tariffs and payments, which are vital in international trade. Tariffs Since the Second World War, countries have lowered their tariffs in order to encourage international trade. Nonetheless, it is important to note that tariffs alone cannot set an ambient internal trading system. They are just quantifying indicators that change with time. If they are too low, they affect trade. Therefore, it is important to keep them above the nominal rates. In scenarios of non-tariff barriers, duties presume the role of tariffs. Countries should also ensure that there is undervalue in terms of exchange rates in order to shield domestic markets from distant competition. Institutional and behavioral proportions also determine the amount of income that a country earns. Additionally, the creation of regional trading blocs is not only a comparative advantage to international trade, but also enhances political power and choices7. Trade Proportions Since the start of the nineteenth century, the world trade proportions have increased significantly. This means that the prices of commodities have also increased leading to a considerable growth of aggregate economic levels. The disruptions arising from major world wars crated a negative impact on economic growth by disrupting trade proportions. Despite this, there normalcy resumed. Trading blocs Regional bloc concentration is a political economic strategy that helps nations to boost their international trade. States with a geographical propinquity can come together and form a trading bloc, which will give them a competitive trade advantage. In most cases, less developed countries can form blocs to first amalgamate their political power and advance their endowments8. Conclusion Political economy of a state determines the structure of trade and advances it course towards attaining economic potential power. In fact, it is important to note that political power and policies form the basis of marching towards an international trading system that will generate income through international trade. Evidently, multinational, transnational and trans-governmental cooperation in terms of international trade leads to the achievement of national goals and objectives. Works Cited Alt, James, Freiden, Jeffrey, Gilligan, Michael, Rodrik, Dani and Rogowski Ronald. “The political economy of international trade.” Complimentary Political Studies 29(1996):689–717. Print. Barbieri, Katherine. “Economic interdependence.” Journal of Conflict Resolution 33(1996):29–49. Print. Becker, Gary. “A Theory of Competition among Pressure Groups for Political Influence.” Quarterly Journal of Economics 98(1983): 371-400. Print. Caves, Richard. “Economic models of political choice.” Canadian Journal of Economics 9(1976):278–300. Print. Frieden, Jeffrey and Rogowski Ronald. The impact of the international economy on national policies. New York: Cambridge University Press. 1996. Print. Gallarotti, Giulio. “Toward a business cycle model of tariffs.” International Organization 39(1985):155–187. Print. Read More