Impact of Foreign Relations on the Economy

Trade between nations has always been a profitable enterprise, and never as profitable as it is today.  The amount of international trade today absolutely dwarfs that at any other time in history.  The profit that is made is likewise staggering.  Any disruption in the flow of trade threatens the lifeblood of economies that have come to depend on it, and few more so than America’s.

For the United States, today, we need the rest of the world to function as our trading partners in order for our economy to function and grow.  There is simply too much trade going on between us and the rest of the world (roughly $2.2 trillion in exports of goods and services in 2012, and $2.7 trillion in imports) for us to be able to ignore what goes on in the rest of the world; we have to do what we can to keep global trade flowing, or risk a huge blow to our economy.

Of course, it’s easy to say that we need to keep trade flowing, but things get complicated fairly rapidly when you look at how we can do that most effectively.  We have basically four kinds of levers that we can use:

  1. Trade policy
  2. Military policy
  3. Monetary policy
  4. Cultural/diplomatic policy

Unfortunately, one of the unpleasant realities that we have to face when looking at the impact of the global economy on our own economy is that, sometimes, there’s nothing we can do to protect ourselves from economic calamity.  Specifically, other nations are quite capable of destroying their own economies with poor policy decisions, and there’s not much that others can do about it.  If a large enough national economy (or regional economy, in the case of Europe) self-destructs, it will wreck the global economy.  There’s not much we can do about this, besides try to insulate ourselves if we see warning signs on the horizon.

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