[SAJC] Challenges in the Global Economy 2024 FINAL

9174/01 H2 History Paper 1 Theme II: The Development of the Global Economy Page | 1 The development of the Global Economy Topic 2: Challenges in the Global Economy SAJC History Unit, 2024 Learning Outcomes (from the Examination Syllabus) 5 Essential Questions for this topic: 5 Guiding Questions for this topic: 5 1. Overview 6 2. Major Events and Developments 6 3. Reasons for the ‘Crisis Decades’ 8 4. Positive Aspects of the ‘Crisis Decades’ 9 5. What happened to the Rest of the World? 9 6. The Oil Crises of 1973-74 and 1979-80 10 6.1 Background 10 6.2 The Formation of OPEC 10 6.3 The 1973 OPEC Oil Embargo 11 6.4 The 1979 Iranian Revolution and Its impact on Oil Supply 13 7. Impact of the Oil Crises on the Global Economy 13

9174/01 H2 History Paper 1 Theme II: The Development of the Global Economy Page | 2 7.1 Increase in Oil Prices 14 7.2 Higher Costs of Production in Both Developed and Developing Countries 15 7.3 High Rates of Inflation 15 7.4 Economic Slowdown 16 8. Did OPEC Benefit? 17 9. Did the Negative Impact of the Oil Crises Last? 17 10. What About the Soviets? 18 11. Measures to Liberalise Trade after World War II 19 11.1 What is Free Trade? 19 11.2 GATT and its impact on Free Trade? 20 12. The Rise of Protectionism in the 1970s and 1980s 21 12.1 The Global Economic Context in the 1970s and 1980s 21 12.2 What is Protectionism? 21 12.3 Reasons for Rise of Protectionism 22 12.3.1 Economic Slowdown in Developed Countries 22 12.3.2 Increased Competition among Developed Countries 22 12.3.3 Competition from Developed Countries 24 12.3.4 Domestic Political Pressures for Protectionism 24 12.3.5 Weakening US Political Will and Economic Capacity to Maintain Free Trade 25 12.4 Impact of the Rise of Protectionism and Implications for Free Trade (Counter Argument) 25

9174/01 H2 History Paper 1 Theme II: The Development of the Global Economy Page | 3 12.4.1 Benefits of Protectionism 25 12.4.2 Disadvantages of Protectionism 26 12.4.3 Development of Regional Trade Groups as a Means to Balance Free Trade and Protectionism 26 12.4.4 Continued Commitment to Free Trade Regimes and Norms 27 12.4.5 New Opportunities for Protectionism 28 13. Causes of US Trade Imbalances 28 13.1 Weakening of the US Economy in the 1970s 28 13.1.1 Budget and Trade Deficits 29 13.1.2 Currencies Under-Valued Vis-à-vis the US Dollar 29 13.2 US Response to the Trade Deficit and Its Consequences 30 13.2.1 US Abandoned Parity in 1971- Collapse of the BWS Fixed Exchange Rates System 30 13.2.2 Joint Effort to Manage Exchange Rates: The Plaza Agreement of 1985 31 14. Dependency on the USA 32 15. Causes of the Debt Crisis 32 15.1 The Concept of Third World Debt 32 15.2 Reasons for Increased Borrowing by Developing Countries in the 1970s 33 15.2.1 Economic Problems of the Third World 33 15.2.2 Availability of ‘Petrodollars’ 34 15.2.3 Low Interest Rates 35

9174/01 H2 History Paper 1 Theme II: The Development of the Global Economy Page | 4 16. How the Debt Crisis Developed 35 16.1 Drying up of ‘Petrodollars’ 35 16.2 Slowdown of the US Economy and Increase in US Interest Rates 36 16.3 Reduced Export Earnings for Developing Countries 36 16.4 Mismanagement of Loans 37 16.5 Explosion of Debts Due to Unchecked Lending and Borrowing 38 17. Default on Loans in Latin America and the Impact on the Global Financial System 39 17.1 Default on Loans in Latin America 39 17.2 Default on Loans in Latin America 39 18. Attempts to Resolve the Debt Crisis 40 18.1 The Need for a Solution 40 18.2 ‘Bail-Out’ Loans from IMF 41 18.3 The Baker Plan 42 18.4 The Brady Plan 42 19. Impact of the Debt Crisis 43 19.1 Economic Slowdown in Debtor Nations 43 19.2 Socioeconomic and Political Problems Caused by Austerity Drives 44 20. Conclusion 45

9174/01 H2 History Paper 1 Theme II: The Development of the Global Economy Page | 5 Learning Outcomes (from the Examination Syllabus) Students are able to: ● evaluate the factors that contributed to the growth of the global economy over time. ● evaluate the challenges that affected the global economy over time. ● evaluate the factors that contributed the factors that contributed to the economic transformation of Japan and China over time. Essential Questions for this topic: • How did the global economy develop? • How did the development of the global economy impact different countries? *Questions set will not require candidates to compare the economic transformations of Japan and China Guiding Questions for this topic: • When did the challenges in the global economy take place? How was it like and why did it manifest the way it did? • How would you gain a broad overview of the problems faced by the economies from the 1970s to 2000, and the underlying reasons for such problems? • What were the various characteristics and definitions that are associated with weak economies? • What were the economic and political reasons for the outbreak of the first and second oil shocks?

9174/01 H2 History Paper 1 Theme II: The Development of the Global Economy Page | 6 • What were the wide-ranging effects of the oil shocks on oil -importing and oil-exporting countries? • What were the cumulative impacts of the oil crises on the global economy? • How would you describe and illustrate the impact of GATT on international free trade? • What were the reasons for the rise of protectionism in the 1970s and 1980s? • What was the impact of the rise of protectionism on developed and developing countries and its implications for free trade? • What were the causes of the trade imbalances between the USA and the rest of the world? What was the impact of such imbalances on the US and world economy? • What were the reasons for increased borrowing by the Third World in the 1970s? • How did the debt crisis of the 1980s develop? • What was the impact of the default on loans in Latin America on the global financial system? • How would you assess the measures undertaken to resolve the debt crisis? • How would you evaluate the economic, social and political impact of the debt crisis? 1. Overview o The ‘Crisis Decades’ could be said to have started in 1971, with the first cracks appearing in the international economic system, as signalled by the collapse of the Bretton Woods System. o During this period, there were occasional good years but a great deal of economic instability on the whole. 2. Major Events and Developments o ‘First Oil Shock’ (1973) : Oil prices quadrupled as a result of OPEC

9174/01 H2 History Paper 1 Theme II: The Development of the Global Economy Page | 7 action to limit production quota (partly for profit but largely for political reasons), affecting producers and consumers all over the world. o Recession, (1974-1975): Most severe in industrial countries, such as the USA, Britain, Germany and Japan, with the most serious fall in output since the 1930s. Economic growth rates were negative, mostly for 7 or more quarters. o Rise in unemployment in the West: The unemployment ra