Conflicts of Interest

Inter-states conflicts of interest that arise within states in the politics of international trade, International finance, and international monetary relations abound in the global system. States often engage in policies and regulations that hurt the other hence creating issues between them. Monetary policies are one of the core areas that have led to feuds between countries. For instance, a country may decide to maintain its interest rates and currency value low so as to make its goods attractable in the international market. China has been on several occasions accused of maintaining a low currency value when it should have grown as part of its strategy to make Chinese goods cheaper in the foreign countries (Frieden, Lake, & Schultz, 2016). However, to the Chinese authorities, it is in their interests to protect their interests in international trade.

Moreover, unbalanced trade is a dispute that arises when a country is buying more from a state than what it exports. Each country desires to gain more from the international trade hence would be worried about unbalanced trade relations with any other country, especially where it has the capacity to export a number of products to the country in question (Frieden, Lake, & Schultz, 2016). The frosty trade relations between the United States and China are derived from this issue. The United States manufactures wish to sell more to China that there have been doing but the prevailing environment does not favor them; instead, it favors more Chinese goods to gain entry into the US market. Confronted with nationalist interests and the choice to support free trade, the Trump administration has decried the huge trade deficit with China, the US has resorted to imposing heavy taxes on Chinese goods that enter its market.

Protectionism

Protectionism, this is one of the issues that emanate from within a state and escalate to the outside world. Local industries and business people always agitate for the government policies that protect their interests, especially In the face of stiff competition from foreign firms. When a country engages in free trade products entering a country from particular countries or regions can become a source of trade disputes between states if their entry hurts the local production and marketing performance. Countries often impose high taxes and tariffs on goods from states with which they do not have a preferential trade agreement (Frieden, Lake, & Schultz, 2016). This is mainly done to cushion the local industries and businesses from unhealthy external competitions. Consequently, the affected states retaliate by imposing similarly restriction, creating a state of tension between countries.

Currency Devaluation

Monetary policies such as devaluation of the currency to give a country an upper hand in the export market usually create conflicts between states. Such action, especially if done by a large economy hurts other states, which lose a lot in terms of financial value and investments consequently, international monetary relations between countries that use devaluation unjustifiably can lead to a standoff between the perpetrator and the affected states. When used inappropriately, devaluation can destabilize the international financial system by creating unbalance playing ground. China has for a very long time maintained an artificially low-value currency, which has been used as strategy to promote local export (Frieden, Lake, & Schultz, 2016). Striking a balance between selfish interests and what is universally good is required as part of marinating orderliness in the international system. Therefore, countries consult the International Monetary Fund before devaluing their currencies to avoid creating feuds in the international financial sector.

Money Laundering

Illegal financial activities such as money laundering can start within a state, but its effects take an international dimension. Corrupt governments have influential persons who engage in this kind of illicit activities for personal gain. A state’s policies on how to handle financial crimes that relate to international monetary matters influence how it relates to the outside world I case of money laundering crisis. Frieden, Lake, and Schultz (2016) argue that country may want to protect its nationals from extradition to face prosecution over engaging in illegal activities; hence a conflict ensues between it and the affected countries. Consequently, a country must have appropriate measures to detect, investigate, and punish the offenders to avoid sanction from the international organization and other players in the international system.

Organizations Formed By State to Manage their Financial, Economic, and Trade Affairs

In order to facilitate the inter-state relations in the areas of trade, international finance, and international monetary politics, states formed various institutions and organizations. The International Monetary Fund (IMF) is an organization that was established to offer monetary policies that are binding on all member states. Governments collaborate with IMF to come up with a global monetary policy that protects them from divisive regulations by each state (Frieden, Lake, & Schultz, 2016). It would be difficult to manage international currencies without a universal body that regulates monetary policy frameworks that are adopted by countries. In essence, it is in the interest of the state to work closely with the IMF. The IMF also gives loans to countries that face budgetary deficits as part of the measures to cushion them from the financial crisis. In so doing, the monetary market is stabilized for the benefit of states. It is also important to acknowledge that IMF advice countries on monetary policies and can caution them over impending financial issues. In this respect, states are advice on how to spend and also manage their borrowing to a avoid bankruptcy.

Moreover, states established the World Trade Organization in 1994 as a replacement of the less effective the General Agreement on Tariffs and Trade (GATT) to deal with issues related to inter-state commercial activities. The WTO is concerned with opening up the international borders to free trade and solving disputes between states over matters pertaining global commerce. Enhanced business activities between countries promote international integration and cooperation, hence the need to promote it as part of creating a stable and highly interconnected world(Frieden, Lake, & Schultz, 2016). The organization encourages states to remove trade barriers between them as part of supporting the international trade.

World Bank

The World Bank is a financial institution that was set up by states in 1944 to enable them to eradicate poverty in the world by funding various development projects across the globe. The institution helps countries in their relations with each other as far as financial support is concerned. Developed states use this institution to support the poor countries or to give out developmental loans (Frieden, Lake, & Schultz, 2016). It is imperative to note that poverty in one country or region affects the rests of the states, hence their duty through the world bank to contribute to improving the economic status of the underdeveloped and developing countries.

Pareto-improvement

The IFM, World Bank, and World Trade Organization have failed in their attempt to help states in their quest for Pareto-improvement. States still experience inequalities and inequities in their distribution of resources, which underscores the prevalence of economic crisis (Frieden, Lake, & Schultz, 2016). The international institutions are not strong enough to compel countries to adhere to their guidance, hence the reason why they have not managed to assist countries in attaining Parent-Improvement.

The interactions between states that are strongly influenced by international institutions include the balance of trade payments, debt servicing and borrowing, and trade among countries. Financial institutions guide payments between countries, which mean that there is a lot of references done by the players to the international standards (Frieden, Lake, & Schultz, 2016). Institutions such as the IMF and World Trade organization are more influential in these relationships.

Activities that have little influence of the international institutions include diplomacy and establishing of trade relations between countries. Each state has the freedom to choose who to trade with and how to actualize it without referencing their decisions on global institutions (Frieden, Lake, & Schultz, 2016). The state is the sole determinant of the products in which it should trade or decisions such as the mount to lend and when to pay. In this respect, countries enjoy sovereign authority on how to conduct their relations with each other.

Breakdowns

Trade Wars

The collapse of free trade between states, as recently witnessed in trade wars between the United States and China start with unfair trade practice that benefits one country than the other.  The end result of this is unbalanced payment of trade and economic losses on the victim’s side. Various factors can lead to this condition including low cost of production due to low labor costs and low value of the currency. China enjoys this status and has been on several occasions accused by the United States that it manipulates its currency values to ensure that it is low even when it has been consistently registering a big economic growth per year (Frieden, Lake, & Schultz, 2016). The reason behind this is to ensure that the Chinese goods as cheaper and attractive in the international market. In a free trade system, a country like China has an upper hand over the US and many other western countries that experience high cost of production and their currencies are highly valued.

Moreover, producing mass goods at a lower price makes them preferred in the international market, selling more than local goods it the countries that they are exported to. In the long run, local industries that produce same products will face stiff competition that they cannot sustain without the government cushioning them. Industries collapse or relocate where there are no interventions to protect them from unhealthy foreign competition (Frieden, Lake, & Schultz, 2016). Consequently, the host may take interventionism measures to save the local economy from the loss of jobs through the closing of firms, hence leading to trade restrictions.

Debt Crisis

Debt crisis starts with a state spending more than it can raise to finance its budget, which leads to borrowing than the ability to repay. In most cases, this situation is influenced by local and external factors that relate to appropriate spending, unhealthy financial and monetary policies, and unhealthy trade and investment. The Greek financial crisis was partly contributed to by external forces that made quick money from the country and gave falsified financial records. The joining of the Eurozone by Greeks exposed it to exploitative economic practices that benefitted strong economies such as Germany more than Greece (Frieden, Lake, & Schultz, 2016). Consequently, the country lost a lot in terms of economic strength. The international institutions that are mandated with regulating the finance, trade and monetary terms proved to be less effective in cushioning smaller states from exploitations by the multinational corporation form the developed economies. Consequently, it was just a matter of time before Greece could face serious financial and economic challenges.

Moreover, poor local monetary and financial policies can lead to a debt crisis. Greece is accused of having falsified its financial records to join the Eurozone. Corrupting the record gives a wrong impression that the country has a stable economy and is doing well when in the actual sense this is not the case. As a result, more borrowing is done than it ought to have to be. Moreover, with a faked financial status, Greece prematurely joined the Eurozone, exposing itself to stiff competition that the country had no muscles to handle (Frieden, Lake, & Schultz, 2016). Therefore, wrong decision pegged on wrong information on the financial performance of the state is one of the factors that lead to the debt crisis. The development, supported by other factors led to the Greek debt crisis. The international financial institutions such as IMF and World Bank have to express authority over the countries’ management of their monetary and financial matters. Moreover, the global economy is largely run by private corporations, which are not members of IMF or World Bank.

Currency Crisis

In the international system, currency crises are common occurrences that emanate from widespread doubts on if a state’s central bank holds enough sufficient foreign exchange reserves to sustain its fixed exchange rate. Frieden, Lake, and Schultz (2016) affirm that speculations about the performance of the country in the foreign exchange market accompany this challenge, escalating the adverse effects and making it severe. Investors are the major precipitators of a currency crisis; they withdraw huge amounts of money based on the projected performance of the country in the world financial markets, leading to a cash drain. It is important to note that central banks in a fixed can attempt to uphold the current fixed exchange rate through allowing the exchange rates to fluctuate or spending of the country’s foreign reserves when hit by currency crisis. However, when the crisis is too strong, this may prove to be an exercise in futility.

Furthermore, a decline in the value of the currency also leads to a currency crisis, leading to failure of the country to maintain a stable exchange rate. In the long run, the economy nosedives, leading to a multifaceted crisis. In 2001, Argentina experienced a currency crisis, which left the government without the capacity to meet its financial obligations (Frieden, Lake, & Schultz, 2016). Investors, out of fear of loses chose to pullout from the country, contributing to immense financial loses that impacted negatively on the general economy. They do this by engaging in a massive withdrawal of their cash and banking it or investing it elsewhere outside the country. The investor’s interest is to protect their investments, hence may take any action within the law to protect their ventures from economic collapse. On the other hand, the government has to try and ensure that the monetary, financial, and trade sector are stable and rescued from the currency crisis. The International financial institutions have no enough power to prevent currency issues from arising. According to Frieden, Lake, and Schultz (2016), the start of the Thailand financial crisis in 1997 saw the collapse of the currency systems as many people moved to the banks to withdraw more cash and the exchange rates of the state faced turmoil.

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