International Trade Structure

International Trade StructureExamine the International Trade Structure. Do you accept Krasners Argument for an Open Trade Regime? Address his need for a Hegemon.Now that todays world is more of a global village, world-wide cover has force institutionalized not only by economical factors, exclusively also non-economic factors. Trade is not solely based on commercial objectives rather politics also plays a preponderating role in it. some(prenominal) of the world(prenominal) trade outline two drives and reacts to national, semipolitical, fiscal and monetary policies (Hanink 1989 268). As a result, there are new emerging problems and concerns that put up come up in the international trading structures (Boger 1958 1753). The international system is anarchicalsovereign states are rational self- captivateking actors resolutely if not exclusively concerned with sexual relation gains (Krasner 1992 39).Trade usually takes place keeping in view the classical principles of opportuni ty cost, factor endowment theory and comparative advantage where, each expanse specializes in those branches of production in which it has a comparative advantage, or in other words produce those goods whose costs are relatively lowest (Ellsworth 1940 286-287). However, the international trade system can best be regarded as a situation of prisoners dilemma under which the best outcome for an individual thespian is for that player to cheat by for instance imposing an optimal tariff, while the other player cooperates. However, if both players cheat, they depart be worse off than if both had cooperated (Goldstein, Krasner 1984 284). data-based findings suggest that the winning strategy for this sort of a situation is the Tit for Tat strategy in which the player cooperates on the first move and accordingly does whatever the other player did on the preceding move (Goldstein, Krasner 1984 284). In their views, such a strategy is not meant to start a trade state of war rather its aim is to promote cooperation and set-apartr trade (1984 284). The prisoners dilemma depiction also claims that a stable system of international free trade involves the supply of a common good. Such goods are joint in supply and non-excludable (Gowa 1989 1245). This public good may be one or numerous depending upon the case. These public goods implicate political stability, regional stability, progressive economies etc.After the second World War the emphasis of the trade regime was to regulate all trade distortions. good-looking rules, norms and procedures were to be adopted by states and patrolled by international organizations (Goldstein, Krasner 1984 282). But in todays world, the bulk of international trade takes place between the industrialized or gamy countries. This pattern of trade is in contradiction to the factor endowment theory because trade is taking place between countries with similar, rather than dissimilar, factor (capital) endowments (Hanink 1988 323).The internat ional trade structure is also characterized by the hegemonic stability theory which asserts that an on the loose(p) international trading regime is most likely where there is a single dominant power (Krasner 1992 40). This view is held by Krasner, Gilpin, Kindelberger and Hirschman. A hegemonic power creates a stable international order and the hegemons decline leads to global instability (Stein 1984 355). The assumptions of this theory are that the international system is anarchical with nation-states being the dominant actors, the international market is a non-homeostatic market and the nation-states seek to maximize their absolute and relative gains from trade (Lake 1984 149). It asserts that the hegemon has an incentive to see if the collective good is provided even if the hegemon alone has to bear the full burden of providing it. The hegemonic leader will place a bulkyer, absolute value upon a liberal international economy than others and, as a result, will undertake to stabi lize the international economy and construct a strong regime (Lake 1984 146). Because of the provision of public goods, the element of free riders exist. Kindleberger argues that the international political economy will be stable only if a single leader is instinctive to assume right for maintaining a relatively open market for distress goods providing counter-cyclical long-term lending and discounting in a crisisthe leader must also undertake to manage in some degree the structure of foreign exchange rates and provide a degree of coordination of domestic monetary policies (Lake 1984 145). This theory asserts that only large states have the power, capabilities and the responsibility to lead the international economy. A hegemonic leader will place greater absolute value upon a liberal international economy than others and, as a result, will undertake to stabilize the international economy and construct a strong regime in order to achieve this goal (Lake 1984 146). So the hegemon wi ll provide the public good of stability and security because its hold benefits far exceed the costs that it has to bear.For the large nation, the larger its size is, the more willing it will be to opt for international stability because of its large relative and absolute gains from trade. The free functioning of the international market is therefore assumed to change state wealth in nations of high productivity. Under this assumption highly productive nations will give free play to the functioning of the international market and will favor free trade because they enjoy disproportionate benefits from such trade (Lake 1984 149). In the case of middle and smaller nations, they too will be in favor of such a system because they too will gain from the trade, although relatively less. The incentives to cheat and become a free rider are great enough that any international regime which depends on collective provision is inherently unstable. Stability can only be assured when a hegemon bot h bears the cost of providing the collective good and extracts the support of others (Stein 1984 356).But this theory has some loopholes as well. First, Krasner is concerned with regime formation and trade but he does not take historical context into account while explaining how the free trade regime is established. He mentions that a hegemon uses inducements and force to create or maintain open markets but does not provide a sense of how this occurs (Stein 1984 357). A hegemon cannot bring about a free trading regime, it can unilaterally lower its own tariffs but this by no means assert that it can create an international trading system of lower tariffs. Tariff bargains only leads to trade liberalization among major trading states. This leads to similar sort of nations trading with each other, especially the powerful trading with one another and the poor nations are discriminated against. It can call in an open trading regime on weak countries, but this too does not create an ope n regime (Stein 1984 358). This is evident from the fact that both in the 19th and the 20th centuries, the hegemonic power accepted compromises but itself deviated from the free trade ideal. The liberal trade regimes that emerged in both the centuries were founded on asymmetric bargains that permitted discriminations, especially against the hegemon. The agreement that lowered tariff barriers led not to free trade, but freer trade. In the process, they legitimated a great deal of mercantilism and protectionism (Stein 1984 359). Great Britain and the United States had important political motives behind their economic concessions. Also, such economic orders created by trade agreements have been sub systemic rather than global since only some states became parties to such agreements and umteen were actually excluded from them. They did not even provide collective goods because the non signatory states could be excluded. Thus the systems allowed for discrimination and exclusion, and can not be considered to have provided a collective good (Stein 1984 360).The periods dubbed free trade eras certainly saw years of rapid trade expansion, but they were hardly periods of free trade. Rather, they were periods of freer trade (Stein 1984 383). There was severe discrimination against those outside the system and these systems were based on asymmetric tariff bargains characterized by dumping. Also in the process of evolution, international trade has become institutionalized and non economic factors have become relatively important in evaluating the consequences of changes in the relevant variants (Boger 1958 1753). Krasner suggests nations may also be interested in additional goals of social stability, political power and economic growth (Lake 1984145).It is this dramatic change in the structure of the international trading system that has led to the creation of new problems and at the same time, more and antithetical concerns. Although the hegemon does provide collective g oods, it only promotes and creates liberal international economic orders because of their own vested interests in open markets and not because of altruism (Stein 1984 357). The hegemon effectively changes the policies of others to satisfy its own goalsthe leverage exerted by the hegemon may take many different forms including negative sanctions (threats), positive sanctions (rewards), the reconstructing of market incentives, ideological leadership or simply success worthy of opposition (Lake 1993 469). So it thus proves that the hegemon will go to any length just to satisfy its own self interests.BibliographyBoger, L.L 1958 DiscussionTrading Problems in International Marketsjournal of Farm Economics, Vol. 40, No. 5, pp 1753-1755http//links.jstor.org/Ellsworth, P.T 1940 A Comparison of International Trading TheoriesThe American Economic Review, Vol.30, No.2, pp 285-289http//links.jstor.org/Goldstein, Judith L. and Krasner, Stephen P 1984 Unfair Trade PracticesThe Case for a Differen tial result The American Economic Review, Vol. 74, No.2 pp 282-287http//links.jstor.org/Gowa, Joanne 1989 Bipolarity, Multipolarity and Free TradeThe American Political Science Review, Vol. 83, No. 4, pp 1245-1256http//links.jstor.org/Hanink, Dean M. 1989 IntroductionTrade Theories Scale and StructureEconomic geographics Vol. 65, No. 4, pp 267-270http//links.jstor.org/Hanink, Dean M. 1988 An Extended Linder Model of International TradeEconomic Geography Vol. 64, No. 4, pp 322-334http//links.jstor.org/Krasner, Stephen P. 1992 Realism, Imperialism and Democracy A Response to GilbertPolitical supposition Vol. 20, No. 1, pp 38-52http//links.jstor.org/Lake, David A. 1993 Leadership, Hegemony and the International Economy Naked Emperor or Tattered Monarch with Potential?International Studies Quarterly Vol. 37, No. 4, pp 459-489http//links.jstor.org/Lake, David A. 1984 Beneath the Commerce of Nations A Theory of International Economic StructuresInternational Studies Quarterly Vol. 28, No . 2, pp 143-170http//links.jstor.org/Stein, Arthur A. 1984 Great Britain, the United States, and the International Economic OrderInternational Organization Vol. 38, No.2, pp 355-386http//links.jstor.org/