Global economy

        Anglais des affaires

Introduction

International trade means exchange = activity of buying/selling

When you buy from another country, you import and when you sell something to another, you export

Business dictionary : Exchange of goods and services along international borders

This type of trade allows for a greater competition and more competitive pricing on the market

Therefore, this competition results in more affordable products for consumers

Also makes goods and services obtainable everywhere in the world

Example : Without international trade we would have access to fewer ressources

Pineapples, coffee…

After WW2, it’s a turning period of the international trade, in fact, after WW2, new institutions, laws have been created to regulate trade and to promote peace

IT increased because of new informatical technologies ( Internet ) => fast transportation, lowering tariffs, cloud computing, cross border exchanges…

The international trade’s story is linked to the way countries deal with international trades

2 ways :

-Protectionism

-Free trade

Protectionism consist in economic policies that protect domestic industries against foreign competition

For ex : If you put tariffs/restrictions on imports…

Historically, tariffs have been used to stimulate industries in countries suffering to recession.

Free trade : OCED = Organisation for economic cooperation and development

Free trade is defined as a type of trade that implies that goods and services are exchanged between countries without tariffs, quotas, any other restrictions on imports

This expression has been coined by John Stuart Mill who was a British economist ( XIX ). He was in favour of free trade and said that trade barriers are chiefly dangerous ( damaging )  the countries imposing them.

Today, virtually ( =nearly ) all mainstream economists agree that the global economy benefits from free trade. Yet, many countries are in favour of restricted, limited trade and implemented protectionist policies. ( USA )

2. History of international trade

International trade is one of the oldest branches of economics.

Since the time of the ancient greeks there has been a dual view of trade.

First one : Some people considered that international trade was a benefit

Other one : Some people thank the contrary.

This debate still exist today

2.1 Mercantilism

Emerged in Europe in the XVII century, and in France existed the most famous figure of Mercantilism ( Colbert )

-The main objective of IT was to afford a favorable balance of trade ( you export more than you import )

Imports were dangerous because countries were enemies and imports = give money to others

Export were nice for army power

During this period, there was a highly interventional government and taxes were used to manipulate the balance of trade.

Mercantilism was a failure because it was extremely expansive for a government and because this strategy couldn’t work if all countries wanted to do the same. ( stop imports )

2.2 Adam Smith’s The Wealth of Nations

He strongly attacked Mercantilism.

To his point of view, economic growth depended of specialisation = You don’t produce everything but you get specialised on certain goods and services => More productive.

If you produce more, it mean that you can export more. And in the goods and services you don’t produce, you import them. ( close to David Ricardo ).

For Adam Smith, international trade effectively increased the size of the market.

2.3 The interwar period 1919-1939

The major economic event during that period was the 1929’s crash.

After the crash the whole world entered in a period of great depression.

When the crisis started, many countries reacted with protectionist practices to save their economies.

They began to limit imports by imposing tariffs and quotas.

The decrease in importations leads to an increase in protectionism, and the world trade fall dramatically. The world trade decreased by more than 53%.

After the WW2, there was a general desire to give up/turn away protectionism and reduce trade restrictions.

2.4 Bretton Woods System

July 1944, a meeting was held, organized in bretton woods and 730 delegates from 44 countries to reorganize the international financial system that have been destroyed bat great depression and WW2

There are 2 leaders : Roosevelt and Churchill , they wanted to ensure ( guarantee ) post-war prosperity through economic cooperation.

They were convinced that economics conflicts between countries contributed to the war.

Reaching a collective agreement was an enormous project.

Preparation  for this agreement started 2 years before the conference in Bretton Woods and financial experts met many times in order to decide on a common strategy. The primary (most important) designer of the new financial system were John Maynard Keynes who was at that time adviser to British treasury and Harry Dexter White who was chief international economist at the US treasury department.

The goal of the meeting was to ensure a foreign exchange rate system in order to private competitive devaluation, in order to promote economic growth.

During the conference, the delegates faced 2 main issues :

-How to establish a stable system of exchange rates?

-How to pay for rebuilding the war-damaged economies in Europe?

The two solutions were created :

Creation of 2 international organisations

-IFM : control exchange rates, lend reserve currencies to nations. Created in December 1945, and at this time there are 39 members. Today there is 189 members.

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