Paper 1 Theme 2 — Understanding the International Economy

H2History(Paper1)Theme2:UnderstandingtheInternationalEconomy EVIDENCEArgument World US WesternEurope Japan DevelopingWorld IMF/IBRD OPEC SecondWorldIndicatorsGDP 1950s●5%1974-80●2.8% 1948-52:MarshallRecipients●15-25%(GNP)1950s-60s:France●5% 1945-73●10% 1979:Argentina●10%,despiteoilcrisis1978-81:Mexico●8%,despiteoilcrisis1980s●Predictedstagnationto10%declineinpercapitaGDPforSub-SaharanAfrica1982:Argentina●–4.2%1983:Venezuela●–3.8%1981-2000:Argentina●–0.6%,downfrom2.6%intheprecedingtwodecades1981-2000:Brazil●0.1%,downfrom4.6%intheprecedingtwodecades1981-2000:Mexico●0.1%,downfrom8%from1978-81 1950s●6%1970s●2.4% Exports 1948-68●Volumeofmerchandiseexportsinnon-communistcountriesgrewby290%1950s●6%1960s●8%1973-79●4.5%1980s●1.5% 1948-55●Intra-Europeanexportsdoubled1958-69●TradebetweenEECcountriesquadrupled1950s-60s●Europe’sexportstoAmericagrewby8-9%annually1960s●Volkswagensbecameleadexports 1970s●HondasandNissansbecameleadexports

Argument World US WesternEurope Japan DevelopingWorld IMF/IBRD OPEC SecondWorldInternationaltrade 1973-75●–13%overall1982●–2.2%Industrialoutput 1950-57:Germany●Industrialproductiondoubled Mid-1950s●Productionmatchedpre-warlevelsProductivity 1960-75●2.7% 1960-75●5-6%1973-92●2.3% 1960-75●10% BOP/BOT 1961●Moreforeign-heldUSDthanavailableUSgoldstock 1970●Firsttradedeficitsince18931971●$2.7bntradedeficit1992●Tradedeficitreturnedto0,withaBOPsurplus 1967:Britain●UK’sBOPproblemsabandonedtheirstatusasareservecurrency 1973●$12bndeficit1978●$36bndeficit 1974-80●OPECmembersdepositedover$150bninoilearningsintocommercialbanks Inflation 1971●6%1973●10%1974●>15%1973-79●12% 1982●4% Unemployment 1975-90●>10%acrossindustrialcountries 1982●10.6%,withautomobileunemploymentat23.2%andsteelat29.2% 1974-75●7mincreaseinunemploymentOilprices 1970●Oilaccountedfor60%ofWesternEurope’senergyconsumption1955-71●$2Dec1973●OPECcutoilsupplyandimposedembargoesagainsttheWestuntilIsraelevacuatedterritoriesgained

Argument World US WesternEurope Japan DevelopingWorld IMF/IBRD OPEC SecondWorldinthe1967Arab-IsraeliWar●$12(+130%)1980●1979IranianRevolutionledtoplummetingoilsupply●$40(+300%)Bankreturnsonequity 1988:Britain,US,Canada●30% PoliciesForeignaid/loans 1948-52:MarshallPlan●$13bntoEurope1940s-50s●$2.3bntoJapan1972●Contributed30%ofworldwidedevelopmentalaid1979●0.2%oftheirGDP1982:Volcker●$3.5bntoMexico1985BakerPlan1989BradyPlan 1972●15EUmembersoftheDACcontributedover50%ofallworldwidedevelopmentalaid1979:France,Germany,Britain●0.5%oftheirGDP 1965●$800mtoSouthKoreaand$150mtoTaiwan1973●$5.8bn1974●4thlargestdonorintheDevelopmentAssistanceCommittee 1945-52●$250mtoFrance,$500mtoEurope1982●$3.8bntoMexico1983-84●$9bnto11mostheavilyindebtedLatAmcountries Defenceaid 1949:MutualDefenceAssistanceProgramme●$1.4bn,then$5.2bnaftertheKoreanWar1951:US-JapanTreatyofMutualCooperationandSecurityExportabsoption 1952●Europeanexportsconstituted50%ofUSimports1958:USTradeAct●30%ofJapaneseexportswereabsorbedbytheUS1950s-60s●Europe’sexportstoAmericagrewby8-9%annuallyEconomicplanning 1946MonnetPlan●Financedthemodernisation1949:“InclinedProductionMode”●Focusedonrawmaterial

Argument World US WesternEurope Japan DevelopingWorld IMF/IBRD OPEC SecondWorldofprivateindustry,railwaysystemandelectricalconsumption production,e.g.steel,coal,cotton Welfarestate 1938-49:France,Britain●Spendingonsocialservicesincreased64%inFranceand50%inBritain1945:Belgium,Italy,NorwayandAustriaintroduceduniversalunemploymentinsurance1945:Franceestablishedawelfarestate1948:UKestablishedawelfarestate●Basedonthe1942BeveridgeReport 1960:IkedaIncomeDoublingPlan●Includedasocialsafetynet Contribution/ParticipationinBWI 1944BrettonWoodsAgreement●SpearheadedcreationofBWSandBWI1950s-60s●Annualcontributionsexceeded$10bn1959●Held30%ofvote 1944BrettonWoodsAgreement●France,BritainspearheadedcreationofBWSandBWI1959●Held20%ofvote 1959●Held2.7%ofvote Regionalcooperation 1985PlazaAccords●CametoanagreementondepreciatingthedollartomakeUSexportsmorecompetitive 1950-58:EuropeanPaymentsUnion(EPU)●$500mgrantfromtheUStopromoteintra-Europeantrade●1948-55:Intra-Europeanexportsdoubled●1958:FreeconvertibilityofEuropeancurrenciesandmultilateraltraderestored1958:EuropeanEconomicCommunity(EEC)●Customsunionprovidedfreetradeandacommontarifftotheoutsideworld1979ExchangeRateMechanism●Soughttostabiliseexchangerates1985PlazaAccords●Cametoanagreementondepreciatingthedollarto 1985PlazaAccords●CametoanagreementondepreciatingthedollartomakeUSexportsmorecompetitive

Argument World US WesternEurope Japan DevelopingWorld IMF/IBRD OPEC SecondWorldmakeUSexportsmorecompetitiveFDI/MNCs 1969●MNCsaccountedfor30%ofworldwideproductionand50%ofthelargesteconomicentities 1950-65●AmericansubsidiariesinWesternEuropequadrupled1967●9000AmericansubsidiariesinWesternEurope 1967:Britain●$15bn 1973●$2bn Defencespending 1964-73:VietnamWar●$168bnLate1960s●Nearly9%ofGDP 1958-60●JapanesedefencespendingasshareofGDPdeclinedby20%1970●Japanesedefencespendingfellbelow1%ofGDPTradeliberalisation 1947-93:GATT●Averagetariffsfellfrom22%to5%bytheUruguayround1947-52:GenevaRound●45,000tradebarriersliftedintheGenevaRoundalone1973-79:TokyoRound●102participatingnationswithconcessionsmadeon$19bnoftrade1986-93:UruguayRound●Averagetariffsfellto5%●123participatingnations,establishingtheWTOProtectionism AgricultureexcludedfromGATTrounds1974Multi-FibreAgreement●Imposedquotasonclothingandtextilesdevelopingcountriescouldexporttodevelopednations●Costthedevelopingworldsome27millionjobsandUS$40billionayearinlostexports1990s:Protectionismlinkedtradetohumanrightsandenvironmentalstandardstodisguisetradebarriers 1971NixonShock●Endeddollar-goldconvertibility●Imposed10%tariffonimports1974USTradeAct●Section301enabledtheUSPresidenttocarryouttariffandnon-tariff-basedretaliation●Strengthenedbythe1988amendmentthatestablishedSuper301,compellingthePresidenttoinvestigateabroadrangeofunfairtradepractices1981US-JapanVRAon 1962EUCommonAgriculturalPolicy●AgriculturalsubsidiestoEuropeanfarmersundercutagriculturalproducersintheThirdWorld1968EUCustomsUnion●EstablishedacommontariffacrossEurope,increasingbarrierstointernationaltradeevenasitpromotedintra-Europeanfreetrade1968US-EUVRAonsteel●Enhancedin1978,whenCarterinstitutedthetriggerpricemechanismtoestablishareferenceprice 1968US-JapanVRAonsteel●Enhancedin1978,whenCarterinstitutedthetriggerpricemechanismtoestablishareferencepriceforsteel1976UK-JapanVRAonautomobiles●VRAsexpandedtoWestGermany,Canada,theNetherlandsetc.1977France-JapanVRAonautomobiles●VRAsexpandedtoWestGermany,Canada,theNetherlandsetc.

Argument World US WesternEurope Japan DevelopingWorld IMF/IBRD OPEC SecondWorldautomobiles●VRAsexpandedtoWestGermany,Canada,theNetherlandsetc.1988OmnibusForeignTradeandCompetitivenessAct●CountrieswithtradesurpluseswiththeUSwouldbesubjectedtobilateralsurplus-reductionrequirementsof10% forsteel1976UK-JapanVRAonautomobiles●VRAsexpandedtoWestGermany,Canada,theNetherlandsetc.1977France-JapanVRAonautomobiles●VRAsexpandedtoWestGermany,Canada,theNetherlandsetc. 1981US-JapanVRAonautomobiles●VRAsexpandedtoWestGermany,Canada,theNetherlandsetc. Debt 1967●$33bninforeignliabilities1971●$68bninforeignliabilities 1975-82:LatinAmerica●20.4%annualincreaseindebttocommercialbanks●Externaldebtquadrupledto$315bn,reaching50%ofregionalGDP1979:VolckerShock●1%increaseininterestratescostdebtors$4-5bnaweek1981:LatinAmerica●LatinAmericaborrowed$1bnaweek,amountingto$50bninthewholeyearDefaults 1982●LossestobankersintheUnitedStateswereperhapsmorethanthebankingindustry'sentirecollectiveprofitssincethenation'sfounding 1982:Mexico●$97bn1982:Brazil●$99bn1982:Argentina●$48bnDebtservicing ParisClubLondonClub 1982:Volcker●$3.5bntoMexico1985BakerPlan1989BradyPlan 1982●$3.8bntoMexico1983-84●$9bnto11mostheavilyindebtedLatAmcountriesFinancialreforms 1988BaselCapitalAccord●Harmonisesminimumcapitalrequirementsforinternationallyactivebanks

Argument SouthKorea TaiwanIndicatorsGDP 1970s● 8%1980s● 9% 1970s● 9%1980s● 8%Exports 1971● $1bn1973● Accountedfor36%ofGDP1977● $10bn1988● $60bn 1980● Accountedfor47%ofGDP1985● Taiwan’s$75bnforexreserve