International Economic Order Implications for Globalization TainJy Chen

International Economic Order: Implications for Globalization Tain-Jy Chen Chung-Hua Institution for Economic Research

I. Pax Britannica 1815 – 1870 II. Gold Standard－First wave of globalization 1871 – 1914 III. US Hegemony－Second wave of globalization 1946 – Present IV. The Future of Multilateralism

I. Pax Britannica 1815 – 1870 1815: Battle of Waterloo with Napoleon Bonaparte (June 18, 1815) 1870: Franco – Prussian War July 19, 1870 – May 10, 1871 q British Dominance of World Politics and Trade q The Spread of English, British Imperial System of Measures, The Emergence of Commodity Markets, English Common Law q The Supremacy of Royal Navy as a power to maintain the security of trade. q q Colonization of the non-European world q Force open the world markets and control commodity flows (Taiwan was open to trade in 1860).

II. Gold Standard 1871 – 1914 q Most major countries adopted the gold standard in the 1870 s. q Fixed exchange rate facilitated world trade. q Trading system was based on bilateral treaties. q Capital mobility was substantial, particularly from Britain to its colonies. q Migration from Europe to the New World was substantial. q Globalization caused equalization of income between Europe and the “New World”.

III. US Hegemony 1. The Bretton Woods System q International Monetary Fund (IMF) established a dollar-based world reserve system, creating a fixed exchange rate until 1971. q International Bank for Reconstruction and Development (World Bank) was established to finance economic development. q International Trade Organization (ITO) was to be establish to manage world trade but failed. Instead General Agreement on Tariffs and Trade (GATT) was created in 1947.

III. US Hegemony 2. The Contributions of GATT: 1947 – 1995 1. Establishing a multilateral trading system under the principle of “most favored nations” (MFN). 2. Tariff concessions led to an enlargement of world trade. 3. Removal of non-tariff trade barriers since the Tokyo Round further increased world trade. 4. Consultation and dispute settlement mechanisms avoided trade wars.

III. US Hegemony 3. The Positive Roles of US in GATT q Lead the way in market opening q Set the rules and agendas of GATT q Push and punish the non-performers (section 301 and others) q The power of US relies with its market potential in addition to military might

III. US Hegemony 4. The Negative Roles of US in GATT q Serving its own interests at the expense of the rules – agriculture, textiles, … q Pushing its own agendas without considering the interests of its trading partners – intellectual property rights, environment, labor standards, … q Insufficient care for developing countries – generalized system of preferences (GSP), tariff structure, …

IV. The Future of Multilateralism The threat of bilateralism and plurilateralism (free trade areas, …) q Divide between the South and North – uneven distribution of trade benefits between developed and developing countries q What more can be traded? Agriculture, service, … q The limit of WTO as a ruling body for world trade – Can WTO monitor the environmental standards, labor standards, competition laws …? q q The limit of US as hegemony – war against terrorism, … q The rise of China – the return of Empire