M23 TZ1 [16] Global financial flows affected by actions of governments Flashcards
Intro 1
Global financial flows include the movement of capital, investments and funds across international borders.
These flows are vital for the functioning of the global economy, but can be significantly influenced by the actions of governments.
Intro 2
This essay will discuss various ways these floors can be significantly influenced by government actions, including tariffs and quotas, fiscal policies, aid and loans, and trade agreements.
Tariffs and quotas
Point, evidence
Governments can influence global financial flows through the implementation of tariffs and quotas, which directly affects international trade.
A prominent example of this is when the U.S. government imposed a 25% tariff on steel imports from China in 2018.
This policy was aimed at encouraging China to eliminate unfair trade practices.
By imposing tariffs, the U.S. government wanted to protect local industries and jobs.
Tariffs and quotas
Explanation
Such tariffs can lead to a decrease in imports from China, causing Chinese steel producers to seek alternative markets.
However, these measures can lead to retaliatory tariffs from other countries, further complicating international trade, potentially reducing global trade and affecting financial flows.
Fiscal policies
Point, evidence
Fiscal policies implemented by the government, including taxation and public spending can also impact global financial flows.
Countries that offer favourable tax rates, such as Ireland with its low corporate tax rate, have successfully attracted significant FDI.
According to the Irish government, foreign companies have invested billions in the country, contributing to economic growth and job creation.
This encourages TNCs to operate outside their borders, increasing capital flows.
Fiscal policies
Explanation
On the other hand, countries that impose high tax rates may discourage foreign investment as investors will seek more favourable conditions elsewhere, evident in countries like Venezuela.
This illustrates how government fiscal policies can directly influence financial flows, affecting economic outcomes.
Aid and loans
Point, evidence
Government decisions to provide aid or loans can significantly influence global financial flows, particularly in developing countries.
For example, the International Monetary Fund (IMF) and World Bank often provide financial assistance to countries facing economic instability.
In 2020, during the COVID-19 pandemic, the IMF approved emergency financing for numerous countries, including $4.3 billion for Egypt, to help stabilise their economies.
Aid and loans
Explanation
Such aid can restore investor confidence, leading to increased foreign investment and financial flows.
This illustrates how government actions in providing financial assistance can shape financial flows globally.
Trade agreements
Point, evidence
Trade agreements and economic partnerships established by governments can significantly affect global financial flows.
The North American Free Trade Agreement (NAFTA) was implemented in 1994 and facilitated increased trade and investments between the U.S, Canada, and Mexico.
This agreement led to a surge in foreign direct investment (FDI) in Mexico particularly in manufacturing and export oriented industries.
Trade agreements
Explanation
Supply chains have become more interconnected, particularly in industries like automotive manufacturing, where vehicles manufactured in the U.S. may contain parts sourced from Canada and Mexico.
This economic interdependence highlights how countries rely on one another for goods, services, and labour, fostering a sense of shared interests and mutual benefit.
This suggests that global interactions have strengthened rather than weakened ties between nations.
By reducing trade barriers and fostering economic cooperation, governments can create an environment favourable for increased financial flows.
