Conversely, politics also significantly affects economic relations. Domestic political pressures are important determinants of tariff policies and other trade regulations. Trade can also be used as a diplomatic tool. Economic strength is a key element of every country's overall power. Economic power is based on financial position, natural resources, industrial output, agricultural output, and international competitiveness.
Countries use their economic power through a mixture of positive incentives and negative sanctions.
While each approach is sometimes successful, both incentives and, particularly, sanctions are difficult to apply successfully and have numerous drawbacks. The economies of the North are prosperous compared to those of the South. With the end of the cold war and with a variety of changing economic circumstances, however, the situation has changed greatly. The EDCs are experiencing a number of economic difficulties, including the pressure of entering into a period of postindustrial economy, and economic tensions among them have increased. The economies of the South are relatively weak compared to those of the North.