Liberalism sees individual households and firms as the key actors in the economy and views government's most useful role as one of noninterference in economics, except to regulate markets in order to help them function efficiently (like to create infrastructure, which will help efficiency). Politics, in this view, should serve the interests of economic efficiency. With the hand of government removed from markets, the "invisible hand" of supply and demand can work out the most efficient patterns or production, exchange, and consumption. Because of the benefits of free trade among countries, liberals disdain realists' obsession with international borders, because borders constrain the maximum efficiency of exchange. Trade based wealth depends on international political cooperation and violence usually inherently promotes peace, an idea introduced earlier. A state's motivation to protect domestic industry can arise from several sources. Often governments simply cater to the political demands of important domestic industries and interests, regardless of the overall national interest. An industry may lobby or give campaign contributions in order to win special tax breaks, subsidies, or restrictions on competing imports.
States often attempt to protect an INFANT INDUSTRY as its starts up in the state for the first time, until it can compete on world markets.
Another motivation for protection is to give a domestic industry breathing room when market conditions shift or new competitors arrive on the scene. Sometimes domestic industry requires time to adapt and can emerge a few years later in healthy condition. Government also protects industries considered vital to national security. Autarky may not pay in most economic activities, but for military gods, states will sacrifice some economic efficiency for the sake of self sufficiency, to reduce vulnerability in the event of war
Finally, protection may be motivated by a defensive effort to ward off predatory practices by foreign companies or states. Predatory generally refers to efforts to unfairly capture a large share of world markets, or even a near-monopoly, so that eventually the predator can raise prices without fearing competition. Most often these efforts entail DUMPING products in foreign markets at prices below the minimum level necessary to make a profit. Within a domestic economy, the government can use antitrust laws to break up an impending monopoly, but because no such mechanism exists in IR, governments try to restrict imports in such situations to protect their state's industries. Such restrictions are recognized as legitimate, although great disagreements exist about whether given price level is predatory or merely competitive. These conflicts now generally are resolved through the WTO.
As with international law generally, economic agreements among states depend strongly on the reciprocity principle of enforcement.
One disadvantage of reciprocity is that it can lead to a downward spiral of noncooperation, popularly called a trade war. To prevent this, sates often negotiate agreements regarding what practices they consider unfair. Currently, the World Trade Organization hears complaints and sets levels of acceptable retaliation. In addition, some regional trade agreements establish mechanisms to hear and resolve complaints as well.
U.S. hegemony has helped create the major norms and institutions of international trade in post 1945 era. Now that US hegemony seems to be giving way to a more multipolar world -- especially in economic affairs among the great powers -- institutions are even more important for the success of a world trading system
States have found it worthwhile to expand trade steadily, using a variety of regimes and institutions to do so -- the WTO, free trade areas, bilateral agreements, and cartels.
Overall, despite some loss of state sovereignty as a result of growing interdependence, these efforts have benefited participating states. Stable political rules governing trade allow states to realize the great economic gains that can result from international exchange.
Globalization is transforming not only trade but money, business, integration, communication, environmental management and the economic envelopment of poor countries.
Weird fact that I might need to know: Smoot-Hawley Act adopted by the US in 1930, which imposed tariffs on imports, contributed to the severity of the depression by provoking retaliation and reducing world trade
In centrally planned economy (or command economy), political authorities set prices and decide on quotas for production and consumption of each commodity according to a long term plan, and international trade occurs at government-controlled prices.
Now the former Soviet republics andE Eastern Europe are transitional economies, changing over to a market-based economy connected to the world capitalist economy.
China, whose government continues to follow a Marxist political line, has shifted substantially toward a market economy. This transition has dramatically increased China's economic growth ever since the 1980s.
Today, thew world's economic activity follows the principles of free markets more than central planning but often falls somewhere between the extremes.