Politics and trade relationships in international commerce

Politics and Trade

Within a perfect market place, the economic transactions would be ruled and influenced exclusively by the economic principles. Still, in the realistic and modern day market place, the economic and business transactions are also influenced by other forces. In such a setting, the current emphasis falls on the identification of the political factors which influence the United States trade policy and the national balance of payments.

According to Susanne Lohmann and Sharyn O'Halloran (2001), the trade policy in the United States is severely impacted by the internal strength of the government, as well as by the institutions in the political field. In a context of a weak government and a strong president, the responsibility of trade policy development and implementation would fall mostly in the hands of the President, resulting in a final policy which might be biased and unsubstantiated by specialized consultancy in the matter. While in this theory, the government may still hold some power, it is often unable to use it.

A second theory of political impacts upon the development and implementation of the trade policy is represented by the situation in which more power within the state is possessed by the United States Congress. In such a setting, the trade policy "will mirror congressional interests" (Lohmann and O'Halloran, 2001).

"Applied to trade policy, the congressional dominance hypothesis in its extreme form suggests that even if Congress delegates power to the executive, the President's discretionary powers are limited due to procedural constraints. The resulting trade policies, then, are identical to those that would be implemented by Congress if its members passed trade legislation without recourse to delegation" (Lohmann and O'Halloran, 2001).

Aside from the trade policy, the political context also influences the balance of payments within the United States. Probably the most eloquent example in this sense is represented by the changes in the exchange rates (Euractive). Specifically, the exchange rates are influenced by monetary policies of the central bank and these generate a direct impact on the balance of trade. A low dollar for instance increases the competitiveness of the sales, as well as the sales volume, but decreases their value and weakens the positive results in the balance of payments. Subsequently, a high dollar decreases competitiveness within the international market place, but strengthens the balance of payments (Wang, 2009).

Then, aside from the exchange rate, the balance of payments is also influenced by the balance trade in the meaning that this tends to "move markets on release" (FX Words). The same impact is generated by the current account balance, as well as by the net purchases of foreign security (FX Words). All these factors are directly or indirectly generated by the political field and they, as such, represent political causes for changes in the balance of payments.

Finally, Jain, Ohri and Majhi also point out to the existence of several political factors causing changes in the balance of payments. They as such point out the following:

The expansion of the U.S. embassies and their maintenance, which engage vast resources and negatively impact investments and as such generate negative impacts on the balance of payments