Government Manipulation of External Markets

Some governments use economic power as a weapon in what is later referred to as a ‘coercive foreign policy’ (  An Economist article, America is deploying a new economic arsenal to assert its power, called the practice “economic nationalism”.  President Trump has used this approach to try to “make America great again”, in the words of his election campaign slogan (, using several economic weapons:

  • Attempts to control immigration, as exemplified by his building a wall on the border with Mexico, distort the labour market and reduce America’s competitiveness. As examined later, immigration is largely beneficial in economic terms ( – although it is politically contentious (
  • He used tariffs to wage a trade war against China, despite the damage done to the American economy and the rest of the world – as described later (
  • As reported by Reuters, he announced that the “U.S. will sanction whoever purchases Iran’s oil“. He was trying to put pressure on Iran, despite damaging the business interests of his Western allies and without apparently considering whether he was likely to change Iran’s behaviour.  As discussed below (, sanctions rarely work as intended.
  • As reported by The Washington Post, he also announced that “The U.S. wants China to adjust its exchange rate policy”. As the article points out, this is a confusing message: asking China to manipulate its exchange rate, despite the fact that long-term American policy has been that China should allow its exchange rate to be set by market forces – as is equitable and is mostly the case elsewhere.
  • “Officials are considering delisting Chinese firms from US stock exchanges”, according to a South China News report: White House weighs restrictions on US capital flows into China. The article points out some risks with this.

All of these measures damage both the US economy and the global economy, creating disruption and uncertainty.


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