Wealth of Nations: America's Involvement in International Economics

The Wealth of Nations, written by American colonial economist Adam Smith, is an ancient novel that is still relevant to modern international economics. In the novel, Smith discusses the origin of capitalism and how capitalism is rooted in mercantilism, a system designed to maximize exports and minimize imports for an economy. True mercantilism focuses on the total advantage of monopolizing the manufacturing of certain goods or services. This perfect system brought forth the ideology behind comparative advantage versus absolute advantage. While absolute advantage describes a country’s ability to produce more units of a good than another country using the same quantity of resources, comparative advantage represents the ability to produce a good at a lower opportunity cost than another country. Behind the economic theory of comparative advantage was British economist, David Ricardo. Ricardo is given credit for the creation of the logical system to maximize economic efficiency while simultaneously maximizing out production, however, his theory has its flaws. For example, the United States is knowledgeable about its opportunity costs and knows that if it used its resources to monopolize the manufacturing of one product, there would fewer jobs available, domestic chaos because of the loss of jobs, and the fact that is unrealistic for any governing body to unanimously wish to export one good and import all its other necessities. This is one of the various reasons supporting an anti-free trade market. A government’s ability to intervene when necessary, such as the United States’ current ability to sanction Russia, allows for a country to control trade conditions. Discussing the modern examples previously mentioned, Russia and Ukraine have been fighting a war in the last month. Because Russia is the aggressor and currently continuing its unprovoked war campaign, the United States began placing sanctions on trade with private American companies and corporations following suit. Sanctions are just one of the many protectionist policies that the United States and its NATO allies can employ on their communist counterpart. An even harsher consequence of disturbing international peace is to utilize an embargo against Russia, effectively banning trade and other commercial activity with the country. 

America’s role as the hegemonic leader in the international sphere of influence leads to  other democratic nations and American allies reacting similarly, causing the Russian ruble to collapse in value. Because of America’s position in the world’s economic sector, the country has many responsibilities in regards to maintaining its status as both a world superpower and a democratic leader. One organization that exemplifies America’s involvement in the governing of international trade is the role it places in the World Bank. The World Bank was created in 1944, as a result of the devastation and depression remnant of WWII. The purpose of the World Bank is to fund projects which attempt to tackle poverty in developing countries worldwide and to promote the growth of the country’s financial and monetary stability. To solidify America’s duty as a supervisor or authority figure of the bank, American presidents nominate and approve educated and qualified American citizens as President of the World Bank. Alongside the World Bank, America has also backed the former organization known as the General Agreement on Tariffs and Trade (GATT). The objective of this formerly known organization was to eliminate trade barriers and lower tariffs rates, which it effectively did. Tariffs rates dropped from 22% just to 5% and eventually, this organization began identifying itself as the World Trade Organization (WTO). Ensuring that trade flows freely and predictably, settling disputes between nations, lowering tariff barriers, and helping developing countries economically blossom are some of the major duties this international institution is known for. The United States is an original member of the WTO and a steadfast supporter of the rules-based multilateral trading system that it governs. Working through the WTO, the United States is able to protect and advance the economic interests of American businesses and workers while opening foreign markets. The ongoing debate regarding America’s involvement in international economics has been split. Some theorize that America’s true intentions are to assist other countries in socio-economic development while others believe the primary reason for playing such a prominent role is to work in the economic interests of America and the American people.