U.S. International Financial Policy
Jeffrey R. Shafer
U.S. financial linkages with the rest of the world have proliferated and grown stronger over recent decades. These ties raise issues of economic security to a level of foreign policy concern formerly reserved for defense issues. Policy thinking and the process for formulating and implementing policy, however, have lagged behind the reality of markets. This gap threatens U.S. interests and deserves to be given prominence in formulating next generation foreign policies.
The extent to which the United States has become financially interlinked with the rest of the world is indeed remarkable. The market value of foreign direct investment in the United States has gone from 4 percent of Gross Domestic Product (GDP) in 1982 to 20 percent in 1997. United States direct investment abroad has gone from 7 percent of GDP to 22 percent over the same period. Turnover in the New York foreign exchange market tripled between 1989 and 1998 according to Federal Reserve Bank of New York surveys. And ever improving transmission mechanisms make shocks in foreign economies felt in the United States as never before: Mexico's finan