Question

Given the interconnected nature of today's world, why might economic chaos and instability in another nation prompt a new direction in American foreign policy?

Answer 1

The US holds many different types of economic relationships with foreign countries: imports/exports, foreign direct investment and monetary investments (dollar vs foreign currencies). When economic chaos affects one of its foreign partners the US will tend to implement the following measures in order to protect its back. Large amounts of US capital (and other production factors) will very likely abandon such countries:

• Foreign direct investment will decline. Investors will not be willing to finance projects there due to the high uncertainty that
• US will not accept to buy public debt and to finance their deficits because the likelihood of repayment has become low.
• Imports from that country to the US will become extremely cheaper and consumers from abroad will not be able to afford US prodcuts.