Questions: International Political Economy Fundamentals

Question 1

The United States imposes tariffs on steel from a close ally, even though economists calculate that this raises domestic steel prices and costs consumers more than it saves in manufacturing jobs. What does IPE analysis suggest best explains this policy?

• A. The US has a hidden comparative advantage in steel that standard economic models fail to capture
• B. The tariffs reflect political goals — protecting an electorally important domestic industry — that outweigh economic efficiency considerations
• C. Trade theory predicts tariffs always benefit the imposing country in the long run
• D. Both countries have equal structural power, making tariff costs negligible

Answer: (B)

IPE's foundational insight is that trade policy is never purely economic. Tariffs on steel may be economically inefficient — costing more in consumer welfare than they save in jobs — but they serve political purposes: maintaining employment in politically important regions, satisfying domestic steel industry lobbying, or signaling economic nationalism to a domestic audience. IPE analysis asks why states choose policies that differ from economic efficiency recommendations, and the answer is almost always about political interests embedded in the economic relationship.

Question 2

Which of the following best illustrates the IPE concept of 'structural power'?

• A. A major power deploying its military to force a trading partner to open its markets
• B. A country using foreign aid as a direct incentive for trade concessions
• C. The United States' ability to run persistent trade deficits because other countries need dollars to settle international transactions and hold as reserves
• D. An international organization mediating a trade dispute between two equal partners

Answer: (C)

Structural power flows from controlling key nodes of the international economic system — not from direct coercion or bilateral bargaining. The dollar's status as the global reserve currency is the paradigmatic example: other countries need dollars to buy oil, settle trades, and hold stable reserves. This gives the US the 'exorbitant privilege' of borrowing cheaply and running deficits other countries could not sustain. This power shapes everyone else's choices without any threat being made. Options A and B are relational power (direct coercion or inducement), not structural power.

Question 3

According to IPE analysis, economic sanctions are best understood as attempts to optimize global economic efficiency by correcting market distortions.

• T. True
• F. False

Answer: False

Economic sanctions are instruments of political coercion, not efficiency optimization. They impose economic pain on a target country to change its political behavior — Iran, Russia, North Korea — not because they improve global markets. In fact, sanctions typically reduce global economic efficiency by disrupting trade and financial flows. IPE's core insight is that states routinely use economic tools (tariffs, sanctions, subsidies, currency manipulation) to pursue political goals, and these policies cannot be understood through the lens of economic efficiency alone.

Question 4

Free trade generally benefits most participating countries, because comparative advantage guarantees that specialization raises everyone's welfare regardless of their starting position.

• T. True
• F. False

Answer: False

Comparative advantage theory predicts mutual gains from trade under idealized conditions, but IPE scholarship challenges whether these gains are distributed equally — and whether the historical record supports the theory. Dependency theorists and revisionist IPE scholars note that early-industrializing nations (Britain, US, Germany) used high protective tariffs to develop their industries, then pushed open markets on latecomers once their own industrial dominance was established. Countries locked into exporting raw materials face terms-of-trade deterioration and slow growth. Whether free trade benefits all participants equally is an empirical question with a contested historical record, not a theoretical certainty.

Question 5

What is the IPE concept of 'structural power,' and how does it differ from direct coercion such as military threats or economic sanctions?

Model answer: Structural power is the ability to shape the rules, institutions, and frameworks of the international economic system in ways that constrain everyone else's choices — without requiring explicit threats or bargaining. A country with structural power doesn't need to coerce; other states adapt to the structure it controls. The dollar's reserve currency status is the classic example: the US never threatens to withhold dollars, but other countries must structure their economies around dollar access. Direct coercion (military threats, sanctions) is relational — it requires a specific interaction between two parties, and the target can resist. Structural power is systemic — it operates through the architecture of the global economy itself.

Susan Strange's analysis of structural power in international finance is the foundational reference. She identified four key structures: production, finance, security, and knowledge. Whoever controls these structures shapes what is possible for everyone else, without ever issuing a direct command.