Our goals here are twofold – to improve the demand for American goods and services, and to reduce barriers to trade so that our goods and services can reach more markets.
The first goal, improving the market for American goods and services, gets a bit counter-intuitive. The obvious requirement for this to work is that we need to keep our goods competitive in spite of high labor costs. This requires consistently high productivity per worker, which in turn requires investment in the capital needed to produce our goods (which is what the rest of the Interlock is mostly about). The more subtle requirement, but arguably the more critical one, is that we need the rest of the world to be prosperous and industrious enough to both want our stuff and be able to afford it, at prices that generate a profit for American businesses.
There are two corollaries to this last bit. Because we need other nations to be prosperous enough to buy our goods and services, there is a strong long-term case to be made for doing what we can to help other nations improve their economies. If we can make targeted investments and encourage the growth of political institutions that improve the economies of other countries, we should do so, for our own self-interest as well as charity.
The need for a healthy global economy to provide a growing market for our goods and services also means that there is an increasingly important requirement that we work to ensure the stability and shock-resistance of the global system as a whole. Highly interdependent global supply chains are good for trade and the world economy, but they can create great fragility to local problems on the other side of the globe if we aren’t careful to include some redundancy and some buffers to make these systems more resilient. For instance, it only took one tsunami in Japan to bring the movement of billions of dollars of goods in corporate supply-chains to a complete halt; the next time something on a similar scale happens, we could be looking at the trigger for a global recession. Exactly how to cushion the impact of such global shocks is a complex subject, but the need for such preventive action shouldn’t be in question.
The second goal, increased freedom of international trade, means few (preferably zero) tariffs or other restrictions on the sale of goods in international markets, as well as a very low level of piracy, theft, or corruption that would prevent monies or goods from reaching their destinations.
This is something that we’ve been working on since the end of WWII, with generally good success. The political barriers to trade – tariffs and other measures enacted to protect a nation’s domestic industries – are hard for many nations to give up. It’s taken us decades of diplomacy to create the current patchwork of free-trade agreements, which still has some glaring gaps. Worse still, some of those gaps exist because special interest lobbies in the US have ensured that our politicians have been unwilling to give up some of their favorite protectionist measures.
Theft and corruption also remain a considerable problem for many international business transactions. Sadly, this is one aspect of the foreign policy/economics intersection that we really can’t do much about – besides strongly worded messages and attempts to steer business away from flagrant offenders, the US simply doesn’t have any foreign policy tools to effectively deal with corruption in other nations.
Back to the Impact of Foreign Relations on the Economy