Conducting International Economic Policy

As we saw in the last chapter’s review of international trade, the United States has become increasingly linked to the global economy in recent years. Government now plays a critical role representing the interests of the nation on the international stage and negotiating beneficial agreements with other countries on a wide range of issues. We can group the international issues of economic policy into four main areas Reducing trade batten. An important part of economic policy involves harmonizing laws and reducing trade barriers so as to encourage fruitful 117 international specialization and division of labor.

In recent years, nations have negotiated a series of trade agreements to lower tariffs and other trade barriers on agricultural products, manufactured goods, and services. Such agreements are often contentious. They sometimes harm certain groups. as when removing textile tariffs reduces employment in that industry.
In addition, international agreements may require giving up national sovereignty as the price of raising incomes. Suppose that one country’s laws protect intellectual property rights, such as patents and copyrights, while another country’s laws allow free copying of books, videos, and software. Whose laws shall prevail?

• Conducting assistance programs. Rich nations have numerous programs designed to improve the lot of the poor in other countries. These involve direct foreign aid, disaster and technical assistance, the establishment of institutions like the World Bank to give low-interest-rate loans to poor countries, and concessionary terms on exports to poor nations.

• Coordinating macroeconomic policies. Nations have seen that fiscal and monetary policies of other nations affect inflation, unemployment, and financial conditions at home. The international monetary system cannot manage itself; establishing a smoothly functioning exchange-rate system is a prerequisite for efficient international trade.

When the East Asian economic “flu” broke out in 1997, the impacts on trade and finance threatened to slow economic growth in japan, Europe, and the United States. Particularly in tightly integrated regions, like Western Europe. countries work to coordinate their fiscal, monetary. and exchange- rate policies, or even adopt a common currency; so that inflation or unemployment in one country does not spill over to hurt the entire
area.

• Protecting the global environment. The most recent facet of international economic policy is to work ‘with other nations to protect the global environment in cases where several countries contribute ‘ to or are affected by spillovers. The most active areas historically have been protecting fisheries and water quality in rivers. More recently, as enlists have raised concerns about ozone depletion, deforestation, global warming. and species extinction, nations have begun to consider ways to protect our global resources. Clearly, international
environmental problems can be resolved only through the cooperation of many nations. Even the conservatives agree that government has a major role to play in representing the national interest in the anarchy of nations.

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