Economic interdependence occurs in situations where trade salience and symmetry exists between one or more countries to establish mutual cost benefits. Trade salience is defined as “a function of the total trade between two states as a proportion of each state’s total trade with the international system…symmetry is a function of the balance of importance of trade between two states” (Crescenzi 32). In most economic interdependence relationships, there is an unspoken conflict of interest between the states. However, the states have to maintain mutual ties due to the sensitivity of their relationship.
Economic interdependent relationships; its effect on current society; and the single most important aspect of this term are exemplified by examining the relationship between the United States and China. American citizens and some policymakers often discourage trade with China because of its communist system and differentiated core values. However, both countries depend on the strength of each other’s economic success for its continued success and economic growth and cannot afford to discontinue trade or to enter into conflict. As noted by Forbes’ contributor Ali Wyne, neither China nor the United States can afford to become antagonists because of the potential aftershocks that would occur throughout the world’s markets (Wyne). Thus, the single most important aspect of economic interdependence is balance.
Three ways that the government involves itself in the economic affairs of citizens include taxation, spending, and regulation (Higgs). These methods are used to allocate economic resources; distribute wealth among citizens, or control the rate of economic growth (Higgs). For example, taxation is used to ensure individuals with lower income levels do not pay unequal and/or unfeasible amounts of their earnings on federal taxes, while higher earning individuals are taxed at higher rates. This is identified as a distribution of wealth or an allocation of economic resources because the state, federal, and local governments use taxes to fund programs that are typically offered to citizens at little to no charge. Spending and regulation are methods that the government uses to both allocate resources and control the rate of economic growth.
- Crescenzi, Mark J. C. Economic Interdependence And Conflict In World Politics. 1st ed. Lanham: Lexington Books, 2005. Print.
- Higgs, Robert. ‘The Growth Of Government In The United States : The Freeman : Foundation For Economic Education’. Fee.org. N.p., 1990. Web. 16 Oct. 2014.
- Wyne, Ali. ‘China May Not Be A U.S. Ally, But It’s Also Not An Adversary’. Forbes.com. N.p., 2012. Web. 16 Oct. 2014.