The Future of International Economic Policy

By Reynolds, Larry | Management Review, March 1993 | Go to article overview

The Future of International Economic Policy

Reynolds, Larry, Management Review

When Bill Clinton said during the campaign that his first foreign policy priority will be "to restore America's economic vitality," he acknowledged the growing link between domestic economics and what have been considered separate foreign policy and national security issues.

As the Clinton White House and Congress work to draft new policies to jump start the American economy, they will define and address international trade and financial questions that will have a major impact on domestic political economics.

Much of the attention normally surrounding international trade debates gets focused on such things as unfair foreign trading practices and the elimination of trade barriers. But this is only a portion of the problems facing the major trading nations.

For instance, the United States also has an interest in encouraging both Japan and Germany to stimulate their sagging domestic economies by increasing government spending and lowering interest rates--a difficult task in the face of Germany's historic fear of inflation and traditional tight money practices--to create overseas markets for U.S. firms. However, if the American economy gets healthier while Germany's and Japan's stagnates, U.S. imports will rise, the trade and federal deficits will soar, and more American jobs will be lost.

As a result, Washington has realized there has to be better coordination at both the domestic and international levels. "We have to recognize that America cannot solve its problems in the face of policies in Europe and Japan that are not moving in sync with ours," says Jeffrey Garten, a managing director of the Blackstone Group, a Wall Street investment banking firm, and former State Department official. "What goes on among nations will be shaped more heavily than ever by what happens within them. Finding new ways to bring domestic and foreign considerations together will constitute a sea change in our economic and foreign policy," Garten says.

While it is generally agreed the major industrialized nations should work to coordinate their economic policies, exactly what that means has yet to be determined. In turn, there is still much behind-the-scenes confusion and uncertainty in Washington, Tokyo and the different capitals of Western Europe as to what the so-called New World Order will look like as they attempt to redefine their relationship in a world that, to many, seems increasingly less ordered and predictable since the end of the Cold War.

For the past two generations, the Cold War dominated world geo-political thinking. America was unique in its economic and military might. The foreign policy objectives of the United States and its allies were clear cut and easily definable: contain communism at all costs. Symbolically, the story line of the Cold War drama was similar to an old Hollywood Western. The basic issues were black and white--the free world versus communism. Countries were either "good guys" or "bad guys," depending on which camp they sided with.

From 1945 to 1990, "just about all it took to quickly settle a brewing dispute between America and its allies was a high ranking official's comment that the Western Alliance couldn't afford to get bogged down in such arguments because it might change the East-West balance of power," noted the New York Times. As a result, "a succession of U.S. presidents have consciously subordinated domestic economic interests to foreign policy objectives," notes Ohio University Professor Alfred Eckes, a former member of the federal International Trade Commission. "The United States achieved its foreign policy objectives: It won the Cold War and revitalized economics in Europe and Asia. But, it lost American markets to imports" as a result.

In the short time since the fall of the Berlin Wall, the definition of national security has changed from the amount of military firepower a country commands to indude questions of economic and technological advantage. …

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