Chapter 11: Economic Statecraft

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Chapter Summary

International political economics and globalizing markets are increasingly important to political actors and the public. The relationship between the wealth of the United States and the poverty of other countries is also increasingly important, especially in the realms of transnational problems like AIDS and terrorism. The United States today finds itself caught between two visions of political economy, each of which has deep roots. Economic liberalism, often translated into capitalism, calls for free trade and open markets with very little government intervention and is based on the premise of the "invisible hand" of the market. Economic nationalism, also known as mercantilism, prefers a role for the government in promoting trade, growing the economy, and preserving economic stability. Different political parties, public officials, and societal groups "pull" and "push" on these two converging political economies.

U.S. trade policy has often emphasized economic liberalism, whereas enacted policies have been more closely aligned with mercantilism, specifically in the arena of foreign tariffs. Top U.S. trading partners are both regional (Mexico and Canada) and global--China and Japan have become increasingly important for the U.S. import and export markets. Despite a trade deficit of nearly $500 billion, the United States is the largest importer, exporter, and foreign-aid provider in the world. Yet from this predominant position, the country faces challenges from regional trade blocs, multinational corporations, interest groups, and job outsourcing stemming from globalization.

Foreign aid represents a significant portion of U.S. foreign economic policy; less-developed countries receive low-interest loans and grants for economic development. The United States does not grant aid without considering its national interests and political motives, further feeding criticism of this program. New justifications for aid come from the post-Cold War era where aid allocations now go to countries with open economic markets, similar to the United States. New foreign aid regimes, such as President Bush's Millennium Challenge Corporation, have found similar difficulties in getting aid to targeted countries.

Foreign economic policy is not completely separate from security and other foreign policy. The United States continues to use economic sanctions to punish countries with different interests and government abuses. Boycotts, embargoes, suspension of foreign aid, freezing of assets, and divestment are chief strategies used to punish countries. Smart sanctions attempt to punish a country's elites and government actors rather than the country's entire population. On the other hand, policies such as the most-favored-nations-status, are used as carrots or positive sanctions to establish trading relationships beneficial to the United States.

U.S. hegemony in the economic realm is not as strong as that enjoyed in the security domain. How the United States responds to challenges in trade and aid depends greatly on the political actors and environment surrounding the policy area. At the heart of the challenge lies the continuous debate between economic liberalism and nationalism, where the United States has foreign economic policies of both types.