Page 19 - Global Political Economy_Understanding The International Economic Order

CHA PTER O NE
export-led growth strategy. Nevertheless, the major competitors for
almost all American firms remain other American firms.
Underlyingthe expansion of global trade have been a number of
developments. Since World War II, trade barriers have declined sig-
nificantly due to successive rounds of trade negotiations. During the
last half of the twentieth century average tariff levels of the United
States and other industrialized countries dropped from about 40 per-
cent to only 6 percent, and barriers to trade in services have also been
3
lowered. In addition, from the late 1970s onward, deregulation and
privatization further opened national economies to imports. Techno-
logical advances in communications and transportation reduced costs
and thus significantly encouraged trade expansion. Taking advantage
of these economic and technological changes, more and more busi-
nesses have participated in international markets. Nevertheless, de-
spite these developments, most trade takes place amongthe three ad-
vanced industrialized economies—the United States, Western Europe,
and Japan, plus a few emerging markets in East Asia, Latin America,
and elsewhere. Most of the less developed world is excluded, except
as exporters of food and raw materials. It is estimated, for example,
that Africa south of the Sahara accounted for only about 1 percent
of total world trade in the 1990s.
Since the mid-1970s, financial deregulation and the creation of new
financial instruments, such as derivatives, and technological advances
in communications have contributed to a much more highly inte-
grated international financial system. The volume of foreign exchange
trading (buyingand sellingnational currencies) in the late 1990s
reached approximately $1.5 trillion per day, an eightfold increase
since 1986; by contrast, the global volume of exports (goods and
services) for all of 1997 was $6.6 trillion, or $25 billion per day! In
addition, the amount of investment capital seekinghigher returns has
grown enormously; by the mid-1990s, mutual funds, pension funds
and the like totaled $20 trillion, ten times the 1980 figure. Moreover,
the significance of these huge investments is greatly magnified by the
fact that a large portion of foreign investments is leveraged; that is,
they are investments made with borrowed funds. Finally, derivatives
or repackaged securities and other financial assets play an important
role in international finance. Valued at $360 trillion (larger than the
value of the entire global economy), they have contributed to the

3
Gary Burtless, Robert Z. Lawrence, Robert E. Litan, and Robert J. Shapiro, Globa-
phobia: Confronting Fears about Open Trade (Washington, D.C.: Brookings Institu-
tion, 1998), 5–6.
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