Chapter 8 (International Trade Theories of Trade)
n economic issue, but a highly political one. It crosses state- defined borders, is regulated by states that are
t groups, and occurs within trade regimes maintained by and negotiated among states. Scholars of international
IPE) thus study the politics of international economic activities. The most frequently studied of these activities
relations, and multinational corporations. States are the most important actors in IPE, but are not as important as
rity. Actors in IPE, as in security affairs, tend to act in their own interests. (As Brazil put it as a statement when
S. “What’s in it for us?”)
rcantilism (SOS---these are the theories, which might be essay question)
hes within IPE differ on their views of trade. One approach, called mercantilism, generally shares with realism
state must protect its own interests at the expense of others—not relying on international organizations to
for mutual gains. Mercantilists therefore emphasize relative power (as do realists): what matters is not so much
amount of well-being as its position relative to rival states. Plus, there is a notion in mercantilism that all
ns are for military. States worry about relative wealth and trade because these can be translated directly into
us, although military power is generally not useful in economic negotiations, mercantilists believe that the
ic negotiations matters for military power.
m, an alternative approach, generally shares with liberal internationalism a belief in the possibility of
ize common gains. It holds that by building international organizations, institutions, and norms, states can
rom economic exchanges. It matters little to liberals whether one state gains more or less than another—just
s wealth is increasing in absolute terms. Liberalism and mercantilism are theories of economics and also
e state policies. Liberalism is the dominant approach in Western economics. Most international economic
as security relationships) contain some element of mutual interests—joint gains that can be realized through
ome element of conflicting interests. Game theorists call this a “mixed interest” game.
In international trade, even when two states both benefit from a trade (a shared interest), one
enefit more (a conflicting interest). Liberalism emphasizes the shared interests in economic exchanges,
ntilism emphasizes the conflicting interests. For liberals, the most important goal of economic policy is to
um of total wealth by achieving optimal efficiency (maximizing output, minimizing waste). For mercantilists,
ant goal is to create the most favorable possible distribution of wealth.
Liberal economists believe in markets. When there are multiple buyers and sellers of a good
oods that can be substituted for it), prices are determined by market competition. At this market price, sellers
fort to raise the price would drive the buyer to seek another seller, and buyers know that an effort to lower the
ve the seller to seek another buyer. Such a system reduces leverages because the second state can simply find
Disadvantage: The supply and demand system does not always produce stability. The price of a barrel of oil
adically over recent years. Each time world economic growth accelerates, demand for oil rises and so does its
time oil prices spike up, Western economies go into recession because high prices for this key commodity
whole economy. (Oil price increased from $70 to $140, after a few months it was $40) This kind of instability
a key commodity is terrible for the world economy, and creates a big incentive for governments to take
s rather than rely entirely on market forces.
Liberalism sees individual households and firms as the key actors in the economy and views
most useful role as one of noninterference in economics, except to regulate markets in order to help them
ntly (and to create infrastructure such as roads which also help the economy function efficiently). With the
ment removed from markets, the “invisible hand” of supply and demand can work out the most efficient
uction, exchange, and consumption (through the mechanism of prices).
For mercantilists, by contrast, economics should serve politics: the creation of wealth
power. Because power is relative, trade is desirable only when the distribution of benefits favors one’s
rivals. The good example is Britain, in 18th,which was based on trade surplus (on gold and silver), which
sed to buy military capabilities (mercenary armies and weapons) in time of war. Mercantilism declined in the
Britain decided it had more to gain from free trade than from protectionism.
n economic issue, but a highly political one. It crosses state- defined borders, is regulated by states that are
t groups, and occurs within trade regimes maintained by and negotiated among states. Scholars of international
IPE) thus study the politics of international economic activities. The most frequently studied of these activities
relations, and multinational corporations. States are the most important actors in IPE, but are not as important as
rity. Actors in IPE, as in security affairs, tend to act in their own interests. (As Brazil put it as a statement when
S. “What’s in it for us?”)
rcantilism (SOS---these are the theories, which might be essay question)
hes within IPE differ on their views of trade. One approach, called mercantilism, generally shares with realism
state must protect its own interests at the expense of others—not relying on international organizations to
for mutual gains. Mercantilists therefore emphasize relative power (as do realists): what matters is not so much
amount of well-being as its position relative to rival states. Plus, there is a notion in mercantilism that all
ns are for military. States worry about relative wealth and trade because these can be translated directly into
us, although military power is generally not useful in economic negotiations, mercantilists believe that the
ic negotiations matters for military power.
m, an alternative approach, generally shares with liberal internationalism a belief in the possibility of
ize common gains. It holds that by building international organizations, institutions, and norms, states can
rom economic exchanges. It matters little to liberals whether one state gains more or less than another—just
s wealth is increasing in absolute terms. Liberalism and mercantilism are theories of economics and also
e state policies. Liberalism is the dominant approach in Western economics. Most international economic
as security relationships) contain some element of mutual interests—joint gains that can be realized through
ome element of conflicting interests. Game theorists call this a “mixed interest” game.
In international trade, even when two states both benefit from a trade (a shared interest), one
enefit more (a conflicting interest). Liberalism emphasizes the shared interests in economic exchanges,
ntilism emphasizes the conflicting interests. For liberals, the most important goal of economic policy is to
um of total wealth by achieving optimal efficiency (maximizing output, minimizing waste). For mercantilists,
ant goal is to create the most favorable possible distribution of wealth.
Liberal economists believe in markets. When there are multiple buyers and sellers of a good
oods that can be substituted for it), prices are determined by market competition. At this market price, sellers
fort to raise the price would drive the buyer to seek another seller, and buyers know that an effort to lower the
ve the seller to seek another buyer. Such a system reduces leverages because the second state can simply find
Disadvantage: The supply and demand system does not always produce stability. The price of a barrel of oil
adically over recent years. Each time world economic growth accelerates, demand for oil rises and so does its
time oil prices spike up, Western economies go into recession because high prices for this key commodity
whole economy. (Oil price increased from $70 to $140, after a few months it was $40) This kind of instability
a key commodity is terrible for the world economy, and creates a big incentive for governments to take
s rather than rely entirely on market forces.
Liberalism sees individual households and firms as the key actors in the economy and views
most useful role as one of noninterference in economics, except to regulate markets in order to help them
ntly (and to create infrastructure such as roads which also help the economy function efficiently). With the
ment removed from markets, the “invisible hand” of supply and demand can work out the most efficient
uction, exchange, and consumption (through the mechanism of prices).
For mercantilists, by contrast, economics should serve politics: the creation of wealth
power. Because power is relative, trade is desirable only when the distribution of benefits favors one’s
rivals. The good example is Britain, in 18th,which was based on trade surplus (on gold and silver), which
sed to buy military capabilities (mercenary armies and weapons) in time of war. Mercantilism declined in the
Britain decided it had more to gain from free trade than from protectionism.
