II.

Trends in International Political Economy

Since the end of World War II, the pace of international economic transactions has risen steadily. At the same time, different regions of the world have experienced dramatically uneven patterns of economic growth. New international institutions have emerged to coordinate policy efforts and resolve international disputes that have accompanied these transformations in the global economy (see Globalization).

A.

International Trade

In the early 21st century, international trade had grown to 20 percent of the world’s total production of goods and services—around $6.5 trillion per year. This volume of trade was almost seven times larger than the entire world’s military spending.

New institutions have developed to promote and manage the world’s trade. From 1948 to 1995, nations negotiated a series of treaties through the General Agreement on Tariffs and Trade (GATT), which gradually lowered tariffs for most manufactured goods. In the 1990s the GATT transformed itself into the World Trade Organization (WTO), with more powers of enforcement and a broader mandate to promote trade. Overall, most political activity related to trade is concentrated in the industrialized countries of North America, Western Europe, and East Asia. Together, these countries account for about two-thirds of all international trade.

The goal of the WTO is free trade, the open exchange of goods and services without tariffs. Proponents of free trade argue that increasing trade promotes economic growth, to the benefit of all. Many activists and developing nations have recently spoken out against free trade at WTO meetings, instead arguing that states should be allowed to protect their environment, workers’ rights, and infant industries with tariffs and other trade restrictions.

B.

International Currency

Explosive growth in the exchange of foreign currencies in international markets has also transformed the global political economy (see foreign exchange). Advanced telecommunication technologies now link these markets in major financial trading centers, such as Tokyo, Hong Kong, Zürich (Switzerland), and New York City. The sum of privately controlled foreign exchange transactions today exceeds the annual global expenditures on military forces. It also dwarfs the amounts of money available to national governments, which have lost some of their former ability to influence the international purchasing power of a given currency in foreign exchange markets.

C.

International Integration

The growth of international integration has been equally dramatic, with the most important developments occurring in Europe. The European Union (EU), formed in the 1950s as the European Coal and Steel Community, began with six countries coordinating coal and steel policies, then lowering tariffs to allow free trade among themselves. By 2008 the EU had 27 member nations and several more candidate countries. The organization closely coordinates virtually all aspects of the economic policies of member nations, from trade and immigration to labor regulations and agricultural policies. In 1999 a group of EU member nations adopted the euro, a single currency that replaced the national currencies in those countries. More European countries have since adopted the euro or are considering doing so. Outside of Europe, regional integration has proceeded more slowly, with the implementation of the North American Free Trade Agreement (NAFTA) in 1994 and less influential agreements in other regions of the world.

D.

Multinational Corporations

The nature of international business has shifted dramatically as well since World War II. In the past, multinational corporations based their operations in one country, with their activities in other countries limited primarily to the sale of products. Today, the MNCs manufacture products in locations around the world. This allows corporations to take advantage of the various conditions in each country, such as cheap labor, skilled workers, natural resources, and favorable trade or tax regulations. MNCs have also created global markets for their products, a trend that has led to the standardization of brand name products worldwide. For example, McDonald’s hamburgers are sold in dozens of countries, and every half-second a Barbie doll is sold somewhere in the world. The growing power of MNCs, however, raises difficult issues for national governments, which must weigh the need for foreign trade and investment against the desire to preserve national sovereignty and culture.

E.

Growth of Asian Economies

As the world economy grew in the 1980s and 1990s, the center of economic activity shifted from Europe and North America to the Asia-Pacific region. In East Asia, South Korea, Taiwan, and Singapore have registered dramatic economic growth and prosperity by using strategies based on foreign trade and export growth. China achieved 10 percent average annual growth in the late 1980s and early 1990s using a similar model of economic development. Other East and Southeast Asian countries seek to emulate these successes. Meanwhile, most of Africa and several smaller areas have been left behind, with low and falling standards of living. Global economic change has also transformed the balance of political power. For example, U.S. policy makers pay more attention to Japan and China and less to Europe than they did several decades ago.