International trade is a significant entity between countries that share mutual benefits and enjoy other benefits from strong bilateral and multilateral relations. Mutual associations are often regarded as having political affiliations given the proponents who establish trade-related policies and laws, particularly international trade laws. Some countries benefit from world politics. Consequently, others experience adverse effects emanating from unethical political activities done in contempt of due processes (World Politics).
As a result of harsh laws on international trade, the political faction deprives people of employment opportunities. Furthermore, high living standards, and enjoyment of a wide variety of goods. Thus, while it is essential to understand the influence of world politics on trade and investment, it is crucial to assess critical aspects of world politics. More so, including political relations and the impact of laws and policies on a country’s economic status and well-being.
The global market is highly volatile and susceptible to changes from multiple jurisdictions. The history of world markets shows that political events rather than economic undertakings cause drastic changes in financial markets (Baylis et al., 2020). This signifies that world politics command a considerable stake in global economies. Hence, regulate trade processes such that conformity to laws and policies remains upheld accordingly (World Politics).
However, researchers have argued that as much as world politics contribute to international trade. Politics often create barriers to the efficient and effective delivery of goods and services from one country to another. For example, during the US election and Brexit vote in 2016, when the United Kingdom opted to leave the European Union, there were high stakes in the global market. It depicted the high volatility of the market and at the same time presented multiple trading opportunities that improved people’s living standards.
Political Relations (World Politics)
Different countries exhibit varying influences on world politics and economies. For example, China and Western countries have for many years experienced growing influence. Hence, subsequently leading to conflict escalation in extreme situations, most of which have ripple effects on dependent countries. On the other hand, since the Great Depression, the US has bailed out many countries from economic downfalls. Consequently, has cemented itself as a formidable influence on global matters (Baylis et al., 2020) (World Politics).
For example, during the economic recession in Europe, the US’s influence aided reconstruction activities resulting in enhanced international economic cooperation. These events occurred during President Harry Truman’s administration; they provided economic stimulus while preventing communism from spreading through Europe.
Volatility and Uncertainty
Electoral processes across the world are significant for trade and investment activities, particularly financial markets. In 2016, the US presidential elections and the UK’s referendum on EU membership depicted the influential role of politics in determining and shaping global economies and traders’ perceptions. Hillary Clinton remained the most preferred candidate over her rival, Donald Trump, whose candidature remained highly regarded as unpredictable (Anderson et al., 2019).
As a result, markets were relatively calm as they projected Hilary’s presidency and continued previous economic policies and regulations. However, with Trump’s shock win, the markets significantly changed. Moreover, with traders preparing for the next administration’s influence on world trade operations. This signifies the effect of world politics on global markets.
Similarly, during the United Kingdom referendum on EU membership, many projected that it was unlikely for the UK to take the ‘Leave’ vote. Nevertheless, with the unexpected unfolding of the UK’s decision to leave, subtle implications occurred in the markets; the British Pound fell sharply (Whitten et al., 2020).
Moreover, different political and economic fronts projected that the EU might disintegrate. More so, given its existing influence in Europe and the rest of the world. The two events show that the accuracy of election poll-taking and measuring results in uncertainty and mistrust of processes. Consequently, causes significant changes in international markets (World Politics).
Governments exist for a particular period after which their tenure end and another administration take over. Therefore, changes in government indicate a high likelihood that a different approach to monetary policies will occur. For example, after Donald Trump won the 2016 elections, the US dollar surged. Hence, a loose fiscal policy brought expectation to force the country’s central bank to increase interest rates to support the currency (Anderson et al., 2019).
Many people believe increased spending by the government results in economic growth . Furthermore, subsequently high inflation rates prompting Federal Reserve systems to raise interest rates. In addition, politicians are often considered preferred persons to trigger economic growth by influencing markets and currencies. Therefore, economy-friendly governments risk losing market power as traders and investors abstain from currency and stock-related activities.
Political scenes are avenues that contribute significantly to the development of financial markets but could also discourage trading through harsh trade policies. When political leaders rally to establish economically viable options for traders and investors, there is a surge in political and economic stability. In two landmark events involving the Eurozone, uncertainty and instability rocked Greece.
In 2012, the Eurozone almost collapsed as the country became bankrupt, and politicians could hardly salvage the situation. Similarly, in 2015, Greece was on the verge of leaving the Eurozone, triggering significant moves in international markets (Whitten et al., 2020). Due to political influence, a landmark deal was struck in Brussels and brought about market stability-indicating the importance of world politics in global markets.
As much as world politics influence international trade through state efforts and liberalization of various activities, it is essential to consider the resultant effects on other levels. For example, some of the effects are experienced at individual, firm, industry, national, and regional levels (Whitten et al., 2020). In addition, it can result in conflicts among transnational groups that matter in political decision-making processes.
Trade politics are complex and multifaceted as they constitute societal preferences and influences on trade policy, shaping perceptions towards economic actors in society. Societal preferences are created at grassroots levels and are structured to influence policies by special-interest lobbying groups. Although these policies embody different configurations in societal coalitions and organization structures, considering societal inputs and policy outputs is necessary.
World politics are different for countries, and influences on economies and trade policies vary significantly. Governments directly influence trade agreements diffusion processes, global civil society, distribution of power, and orientation of international institutions such as the World Trade Organization (WTO).
These can be considered as societal inputs and have a massive impact on policy outputs. In most cases, the government places trade barriers tariff-based and non-tariff-based, limiting financial operations to the extent of destroying bilateral and multilateral relations resulting inability to build strong economic interconnections.
World politics exhibit direct and indirect influence on trade and investment activities. The global market is highly volatile, and uncertainty can render trade and investments less significant in international markets. Different countries have varying political and economic relations, which makes it tenable to facilitate trade activities even during uncertain national events and global occurrences.
During election periods, market prices and shares become susceptible to changes, both on the downtrend and upward. Therefore, world politics should promote stability during unprecedented events, hence ensuring sustainable trade and investment.
Anderson, J., Larch, M., & Yotov, Y. (2019). Trade and Investment in the Global Economy. Retrieved 3 June 2021, from https://voxeu.org/article/trade-and-investment-global-economy.
Baylis, J., Smith, S., & Owens, P. (2020). The globalization of world politics. Oxford University Press.
Whitten, G., Dai, X., Fan, S., & Pang, Y. (2020). Do political relations affect international trade? Evidence from China’s twelve trading partners. Journal of Shipping and Trade, 5(1). https://doi.org/10.1186/s41072-020-00076-w