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Economics Assignment: International Political Economy &Global Imbalance

Question

Task: Economics Assignment Part A: Structural Frameworks/Theoretical Traditions
Describe in your own words, and citing appropriate sources, the following theoretical traditions of International Political Economy (200 words each

a. Realism ? international economy as a vital economic tool
b. Liberalism? roles of international economic institutions
c. Marxism? class struggle and colonies at international level

ECONOMICS ASSIGNMENT PART B: Critical Analysis
The Global economy faces some huge unsustainable imbalances that taken together with the Global banking system's fragility and the failure of 9 years of low-interest rates to have done much to help out the Global Economic leave the Global economy in a fragile state. The Covid-19 pandemic is another economic shock that needs political decisions to mitigate the negative economic and political impacts.

One of these substantial Global imbalances is the trade deficit between the USA and China and the USA and the EU.
In light of the above, please answer the following questions:

1. Assess the current magnitude of the trade imbalances between the USA and China and the USA and the European Union. (800 words)

  • Critically analyse the impact of the Covid-19 lock-down political decisions on the trade imbalances.
  • The imposition of trade tariffs.
  • Present your findings using numerical analysis and charts.

2. Offer some analysis of what you think the global economy's effects maybe should the trade imbalances continue to grow.
Here you can reference, for example, the effects on exchange rates, employment, and wages in the USA, China, and the European Union economies.

Answer

Introduction to Economics Assignment
The structural framework and theoretical traditions are the baselines for international political economy. There are primarily four structures of the framework that are instrumental in determining the effectiveness of programs and methods. They are considered realism, liberalism, Marxism, and constructivism. These four principles have different roles and responsibilities in shaping up the international political and economic scenario. In this assignment, there are primarily three structures that are described namely realism, Marxism, and liberalism that have played a key role in determining the international political scenario. A critical analysis of the global imbalance caused due to the pandemic is also presented in this assignment that will help in determining the effects of trade imbalance globally.

Part A
Realism

Realism is one theoretical tradition that is considered one of the oldest paradigms in the field of international relations and political economy. It is primarily based on the behavior towards one another and is a spectrum of ideas that are based on shared principles.

Basic assumptions
According to followers of realism, there is no federal universal power that determines or rules the sovereign states. This is the reason why there are no legitimate actors in international affairs apart from nation-states. Nations usually rely on themselves under the conditions of unpredictable future and anarchy (Borshchevskyy, 2019). This is why national interest is the only driving force in the world that is primarily dependent on self-help. Survival is the prime concern of foreign policy due to the nature of uncertainty in the international political and economic scenario. Survival mainly depends on power and for this reason; followers of realism are considered pessimists according to some peers and critics.

Relevance in international political economy
The main approach of realism emphasizes the role of nations and states that are motivated by national interests. Realism is also dependent on political interactions and international security. The relevance of realism in international politics and economy is instrumental in developing the power and military capabilities of nations globally (Dalen, 2020).Capital accumulation is one aspect that is attributed to realism theories in the international market. The key concepts of realism are however attributed to three aspects namely the anarchy, the balance of power, and national interest.

Logical application with examples
The view of metaphysical status of logic is related to logical realism. Logical facts are mostly mind and language matters that are independent in nature. The Adventures of Huckleberry Finn by mark twain is an example of logical application of realism in literature. Life in the Iron Mills by Rebecca Harding Davis is also one example of logical application of realism.

Liberalism
Liberalism is a philosophy that is primarily based on the market economy and private property in the field of production. It is based on the political and economic aspects of the nations that are based on liberty. It is also considered a moral philosophy that is based on the consent of the governed and depends on the factors of equality before the law (Sansa, 2020)in the age of enlightenment this theory became a popular framework among western economists and philosophers.

Basic assumptions of liberalism
Human beings are basically egoistic and desire power. The liberals however support free markets, free trade, limited government and civil rights. They also support gender equality, capitalism, democracy, secularism and racial equality.

Relevance in international political economy
In the economic sector, liberalism depends on market freedom that is predominantly a prime aspect of the global economy. In the economic sphere, liberalism also stands for the abolition of state-imposed restrictions on the movement of goods and capital. Liberalism became a strong demand during the nineteenth century for the emerging middle class.

Logical application with examples
There are some examples of modern liberalism that can be cited for reference and proper understanding. They are voting rights for all adult citizens, environmental justice, government protection for adequate living standards, and the right to equality (Fish, 2016).These examples help in demonstrating the positive effects of liberalism on modern society. However, modern liberalism is associated with free markets and private ownership of capital assets. Liberalism commonly adheres to the political and economic philosophies that advocate budget-balancing and fiscal policies.

Marxism
The approach of Marxism is considered both a critical and a classical approach to international political economy. It is a theoretical and traditional and structured framework that is derived from the philosophical and sociological findings of the famous philosopher Karl Marx.

Basic assumptions
The Marxist political economy determines a range of political and economic perspectives that are connected to the writings of Karl Marx. The integrated analysis of the economy, society, and politics is described in the works of Marx namely The Communist manifesto, Gruindisse, and Capital (Huang, Pang, and Yang, 2020).

Relevance in international political economy
The theory of Marxism primarily focuses on the struggle between the capitalists and the working-class people. Marx had a belief that the working class will overthrow the capitalist class and seize control of the economy by creating a revolution that can be caused due to the conflict. International relations of political and economic importance can be directly affected by the Marxism approach because they are instrumental in creating relations of dependency and inequality between people by controlling and restricting access to labor and other additional resources. There are a few important features of Marxism that are integral in the field of international political economy.

Logical application with examples
Marxism emerged as a revolutionary theory and science for the philosophical pursuit of a new world. The intense class struggle for political power for the emergence of social orders like equal education for all citizens, housing and healthcare facilities and justice and dignity for all people are the practical applications of the theories of Marxism. The theory of equality and the fight for justice along with revolutionary ideas are dominant in today’s world in countries that follow Marxism.

Differences between the theories
Realism deals with the behavior of particular people on other human beings. It primarily deals with the behavioral aspects of people. Liberalism on the other hand deals with the provision of liberty in the social aspects. The liberalism theory deals with equality for all citizens with freedom of all kinds of civil rights. Marxism also has a liberal approach that deals with the working class of society gaining an upper hand in the arena of capitalists.

Part B
Critical analysis
Understanding of the global economy

The Covid 19 pandemic has created a global lockdown of trading aspects between various countries. The global economy is dependent on the trade balance between a few economically strong nations. The impact of the pandemic has particularly affected the trading between countries like China and the USA who share huge trading potential. The main aspect of the lockdown imposed in various countries globally has disrupted the supply chain and the logistical distribution sector. According to the author, (Lockwood, 2020), the worst-hit sector is the trading system between China and the USA. The next worst-hit sector is the trade between the USA and the European Union. The pandemic is creating a strong disruptive force in the trade relations between the USA and China.

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Fig 1- Trade Issues in nations
Sources- (Newth, 2021)

Protectionism
Government policies that restrict international trade to promote domestic industries are known as protectionism. The theory is usually implemented with the aim to improve economic activities within the domestic circuit. It was implemented by USA for restricting the trade flow of China. However, when the virus continues to hamper both the economies of the USA and the European Union, China has emerged as the gainer as the trade figure saw a surplus of 75 million dollars in November 2020 that is a new record after the recovery of the country from the pandemic. Liberalization

It is the process or means of elimination of the control of the state over the economic activities. The exports to the US were 21 % higher in 2020 than in the year 2019 and this proved the variation in the trade volume. The exports to the USA rose to 46% despite a trade war that resulted in increased tariffs of hundreds of dollars on the import of Chinese goods. The global trade scenario of China saw a surplus rise of 21% to an amount of 460 billion dollars. As per the author, Newth (2021) the trade and economy of China were quick to recover after the pandemic whereas, the USA and European Union suffered a setback due to the ongoing lockdown restrictions in free trade.

The economy of China is on the brink of an impressive recovery after the outbreak that shattered the world economy. One-third of the total GDP of China came at nearly 5% in the last quarter of the year 2020. The trade surplus also depicts the impact of lockdown on the economies of Western countries like the USA and countries of the European Union. According to the author, Prakash(2016) these countries have produced and exported less as a result of the ongoing lockdown restrictions, and hence they are relying more on imports. The trade deficit of the USA stood at an amount of 63 billion dollars in October 2020 and the deficit rate was 9.5 % high as compared to the previous year. The trade deficit of the USA is constantly rising with China importing more US goods than before. However, the Phase 1 trade agreement between China and the USA will help the USA in importing more Chinese goods and products but China has emerged as the gainer for the time being.

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Fig 2- Statistics of US and EU International Trades
Sources- (Rathi and Kumar, 2020)

Although, the current record-setting levels are expected to be moderate as the global economy emerges from the pandemic in the year 2021. The world has witnessed the second largest global economy strengthen its position from a global trade perspective. China has ended the year 2020 in a better position than its rival USA and other countries of the European Union. As per the author, Rathi and Kumar(2020) the county has strengthened its position in the global economy by having overcome a virus that is still disrupting the economy of Western countries. The political decision of creating a lockdown has affected the economies of the USA and European Union and created a significant imbalance in the trading relations among the countries. The imposition of trade tariffs has also caused disruptions in trading for countries of the European Union and to an extent the USA also.

Economic shock on global economy and border closure
The closure of international borders affected the distribution and supply chain management of goods and restricted its transit into the foreign markets. Perishable goods were accounted for loss amounting to millions of dollars due to the Covid 19 pandemic. However, the global economy has evolved considerably over the past few eras, in the method that it is managed and administered by collaborating nations. These evolutions have consequences that not only affect the services and goods flows among nations but also the people movement. As per Fendel and Frenkel(2020), too great fluctuation in this global economic system can direct to a global economic crisis. Amadeo(2021) states that the objective of international trade is similar to that of trading within a nation and hence, international trade varies from local trade in two factors:

  • At least two nations’ currencies are included in international trade, so that can be exchanged before goods and services can be imported or exported
  • Infrequently, nations impose barriers on the international trade of particular services or products that can disrupt the affiliations between two nations.

Impact on trade balance, employment and exchange rate
However, as per the survey, it has been identified that the expectations of the economy remain high but have tempered as of December, and executives in Europe and Latin America are less positive than their peers concerning the future. As per the World Bank, China's economy generates $22.5 trillion in 2019, which is based on purchasing power parity that takes into consideration the exchange rates effect, making it the best method for comparing GDP by country. The global economy's affects the exchange rate and inflation in a number of direct and indirect methods:

  • Fluctuations in the imported goods and services rates- It can be said that this has a direct effect on the index of consumer price. For e.g., an exchange rate appreciation generally decreases the price of imported consumer commodities and durables, capital goods and raw materials.
  • Commodity prices- Several commodities are priced in dollars, this change in the exchange rate of the sterling dollar has a direct impact on the goods of the UK price that includes foodstuffs and oil. Thus, a strong dollar creates it costlier for UK to import the goods(Tutor2u, 2020).
  • Alterations in the exports expansion- Anelevated rate of exchange it is tough to trade abroad as of increment in comparative prices. In case there may be a slowdown in exports, then exporters might prefer to deduct their rates, decrease production and cut-levels of employment.

Conclusion
This assignment is primarily based on the three structural frameworks of the international political economy. The three structures like realism, liberalism, and Marxism has a vital role to play in today's global economy. Critical analysis regarding the huge imbalance that has been created by the Covid 19 pandemic is also described and the trade imbalances between the USA and China and the countries of the European Union are also described in this assignment that provides a clear picture of the economic benefits that China gathered due to the lockdown impositions in various countries.

Recommendations
The exchange rates among the countries of the European Union, the USA, and China have been affected by the pandemic. The countries like the USA and European Union should take steps regarding the export policies and increase the exchange rates according to the deficit and imbalance in trade. The Phase 1 trade agreement should be strengthened to make import easier and cheaper for the USA and Europe.

References
Amadeo, K. (2021). China’s Economy and Its Effect on the U.S. Economy. [online] The Balance. Available at: https://www.thebalance.com/china-economy-facts-effect-on-us-economy-3306345.

Borshchevskyy, V. (2019). The economy of a large city: structural transformations in the era of global changes. Regional Economy, 1(3), pp.13–23. Dalen, A. van (2020). Red Economy, Blue Economy: How Media-Party Parallelism Affects the Partisan Economic Perception Gap. The International Journal of Press/Politics, 1(1), p.194016122092693.

Fendel, R. and Frenkel, M. (2020). Special issue on “financial crisis and its effects on the European economy.” Global Finance Journal, p.100544. Fish, W. (2016). “Post-Truth” Politics and Illusory Democracy. Psychotherapy and Politics International, 14(3), pp.211–213.

Huang, N., Pang, J. and Yang, Y. (2020). The Impact of the COVID-19 Epidemic on the Housing Market in China. SSRN Electronic Journal, 1(1). Lockwood, E. (2020). The international political economy of global inequality. Review of International Political Economy, 1(1), pp.1–25.

Newth, G. (2021). Populism and nativism in contemporary regionalist and nationalist politics: A minimalist framework for ideologically opposed parties. Politics, 1(1), p.026339572199501.

Prakash, D. (2016). Cecelia Lynch. Interpreting International Politics. International Feminist Journal of Politics, 18(2), pp.319–321.

Rathi, A. and Kumar, A. (2020). Effect of Covid 19 on Various Sectors. International Journal of Trade and Commerce-IIARTC, 9(1).

Sansa, N.A. (2020). The Impact of the COVID-19 on the Financial Markets: Evidence from China and USA. SSRN Electronic Journal, 1(1).

Tutor2u (2020). Exchange Rates - Macroeconomic Effects of…. [online] tutor2u. Available at: https://www.tutor2u.net/economics/reference/exchange-rates-macroeconomic-effects-of-currency-fluctuations#:~:text=An%20exchange%20rate%20appreciation%20causes.

Zhang, Y. and Xu, J. (2020). Research on the Effect of the COVID-19 on E-commerce in China. The East Asian Trade Association, 2(2), pp.99–107.

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