The impact of politics on global financial markets is an interesting topic that has been studied for many years. It has been noted that political movements and events, especially those with significant global implications, tend to have a strong impact on world stock markets. Political risk factors include the possibility of new trade wars, the possibility of terrorist organization activities, the possibility of social stability changes, the impact of new foreign policies, and the implementation of trade protectionism measures in different countries. When it comes to political risk as a major global issue, two types of scenarios are usually considered. These scenarios are: the short-run effects of policy change and the long-run effects of policy change.
The short-run effect of political change is most commonly seen during times of change (for instance, during the election periods). There are many theories on the impact of these political events on the trading markets. Some of the most common arguments put forward are that: investors will invest more in countries that are potentially facing political challenges in the near future; there will be more government tinkering with financial rules; financial institutions will be forced to take steps to mitigate the political risks that they face by changing their business models; and finally, investors will suffer greater losses because they will be locked into poor economic policies that are beyond their control. While these arguments have been put forward, some research suggests that they are not completely correct. While there may be some temporary increases in stock prices, these do not last long.
The second scenario on the list of how to trade the impact of politics on global financial markets is attributed to the implementation of trade protectionism measures by various governments. When a country implements trade protectionism measures, the country’s exporters become less able to engage in international trade. As a result, demand for the products produced in that country decreases and its currency depreciation becomes negative. As a result, importing costs for goods from other countries increase and imported goods depreciate in value.
The third scenario on this list of how to trade the impact of politics on global financial markets is attributed to political issues in the US. Some US officials feel that the introduction of the Exchange Trade Act was an attempt to artificially prop up the dollar. According to them, the act artificially raises the dollar value and protects American exporters from foreign competition. However, these officials claim that the impact of politics on global financial markets is offset by the growth of the US economy. To the extent this is the case, the government does not need to change the rules in the hope that it will make the economic situation better for American consumers.
There are also arguments that the adoption of protectionist policies is necessary in order to preserve jobs in the United States. According to these policies, domestic producers are required to restrict imports of specific products to protect the domestic supply. Proponents of protectionism argue that this approach is necessary to prevent a reduction in employment due to foreign competition. However, proponents of free trade theories counter that there is little employment loss in America as a result of trade protectionism. Rather, a rise in international trade leads to a rise in productivity and improved living standards for all citizens.
One of the most serious effects of the introduction of trade barriers is the decline in world economic activity. Since international trade is the mechanism through which the international economy drives forward the political and socio-economic development of countries, a reduction in trade barriers can have a significant negative impact on global economic welfare. The decline in the amount of international trade leads to a reduction in the ability of countries to export goods to other countries. Without access to necessary capital and finance, a country may be unable to modernize its economy or implement new policies that may benefit employment. Moreover, a country that seizes control over its domestic economy loses access to important sources of foreign investment. The net effect of restrictions on international trade is lower income in countries with less developed industries and a decline in industrial base that may not be recovered in the short run.
Political interventions have also had a profound effect on the global economic system. The introduction of political and trade barriers has significantly reduced the rate at which countries can borrow money and expand their banks. Since international trade is the mechanism through which international capital flows, a ban on foreign investment has a major negative impact on the global financial markets. Without access to capital markets, developing countries are unable
to modernize and attract investment capital from developed countries. Political interventions have resulted in a shift in capital away from low-income countries, towards higher income countries and the ability of governments to control their currencies.
How to Trade the Impact of Politics on Global Financial Markets offers a realistic assessment of trade barriers and the likely effects of political interventions. It examines alternative approaches that governments can take to reduce trade barriers, including restrictions on agricultural products, increase rural development aid, liberalize pharmaceutical regulation, reduce tariffs on imported goods, subsidize sugar importation, and increase the efficiency of public administration. The book concludes by examining potential obstacles to trade liberalization that may arise due to environmental policies, land grabbing or seizure, protectionism, and subsidies. It provides a sound forecast of the likely effects of future trade negotiations and the likely effects of political reforms in developing countries on the global economic model. The editors are well-versed in the economics literature and have presented an original and well-researched perspective on the impact of politics on global financial markets.