This chapter continues with the second key substantive domain that affects U.S. foreign policy today: global economic relations. 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 rising in importance, 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 that the “invisible hand” of the market will automatically make the requisite market corrections. 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. The chapter also discusses briefly a third type of political economy, socialism.

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 $504 billion in 2014, the United States remains the largest importer and foreign-aid provider (in number of dollars) in the world, and is second in exports. 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. Even so, 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: aid allocations now go to countries with open economic markets, similar to the United States. New foreign aid regimes, such as the Millennium Challenge Corporation established by President George W. Bush, have found similar difficulties in getting aid to targeted countries.

Foreign economic policy is intertwined inextricably with security and other foreign policy domains. The military preponderance currently enjoyed by the United States would not be possible in the absence of a productive population, vast natural resources, advanced technology, and commercial links to other markets. As such, the United States also sees itself as a guarantor of the global economic system, continuing 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 extension of most-favored-nation status to trade partners are used as carrots or positive sanctions to establish trading relationships beneficial to the United States.

Today, U.S. hegemony is no longer as certain in the economic realm as it remains 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.