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Magazine / ISSUES & IDEAS

New Era, New Foreign Policies

Future trade policy is likely to reflect the lessons of today's Great Recession.

July 18, 2009

Current and long-standing U.S. trade policy was born from the bitter lessons of the Great Depression. Washington embraced broad trade liberalization, often willingly giving more than it got, as a necessary antidote to dangerous protectionism. This open-door trade paradigm was a powerful instrument in extending American influence abroad in the post-World War II era.

Future American trade policy will more likely reflect the lessons of today's Great Recession. Washington's need for a more sustainable international balance sheet will dictate a greater emphasis on reciprocity. The new realeconomik will have no less of an impact on America's relations with the world than did the earlier policy of liberalization.

A more self-interested U.S. trade policy could fuel anti-Americanism, hasten the spread of Chinese influence globally, and risk alienating the emerging markets that will drive worldwide economic growth. But a stronger U.S. economy is necessary right now and, in the long run, the return to economic health will sustain a more robust American foreign policy.


America's relatively open market fueled the postwar recoveries of Europe and Japan, helping cement their support for Washington's Cold War policies. Later, a strong dollar allowed our allies to enjoy successful economies based on exports to the United States, thereby reinforcing the ultimate American goal of peace and stability.

But that international leadership, which is built, in part, on Americans living beyond their means, is unsustainable. The U.S. current-account deficit -- our negative balance in goods, services, and transfer payments -- which was at unprecedented levels until recently, required ever more innovative and dangerous ways of recycling dollars; in the end, it contributed to the global financial crisis. To avoid similar problems in the future, Washington must steer toward a more stable trade balance.

In effect, the United States has to save more and spend less. At the moment, the recession is imposing this difficult discipline. Sustaining that trend over the long run, however, will require a weaker dollar and a more aggressive trade policy. America must produce more of what it consumes. If exporters worldwide no longer view the United States as necessarily the market of first resort ,we will be in uncharted foreign-policy territory.

Defensive U.S. trade actions in the wake of the recession, plus recent subsidies for beleaguered industries, have already led allies to complain that the United States is forsaking its commitment to free trade and limited government. This perception could undermine America's global stature.

Another consequence is that as the United States imports less, China may begin to import more. South Korea, Taiwan, Malaysia, and other Asian exporters would then inevitably fall even more into the Chinese economic orbit.

Moreover, if the financial crisis leads Washington to focus on deeper economic integration with developed nations, such as the European Union, where trade can more quickly realize tangible economic benefits, the developing world is sure to complain sharply about being left out. Short-term gain could thus risk America's long-term economic and security interests in Africa, Asia, and Latin America.

These possible negative effects can be exaggerated, however. American economic and foreign-policy influence remains robust. Most publics in most countries still think of the United States as the world's leading economic power and do not expect China to supplant America as No. 1. Support for the United States has rebounded sharply since the departure of President Bush. President Obama enjoys immense popularity and political capital as he deals with the unavoidable foreign-policy friction created by a new U.S. trade course.

And to be fair, the United States' open-door market bought less international support than the foreign-policy establishment would like to believe. Anti-Americanism increased over the past eight years despite foreigners' growing dependence on U.S. consumers.

Finally, the foreign-policy benefits of a U.S. economy that is no longer the world's largest creditor are huge. The image of Secretary of State Hillary Rodham Clinton appealing to the Chinese to buy U.S. bonds during her first trip to Beijing lent credence to worries that U.S. dependence on Chinese capital gives Beijing too much leverage.

In the long run, an American economy that is less dependent on debt provides the most stable base for a strong and independent foreign policy. But re-establishing economic stability will require refashioning trade policies that have been a pivotal pillar of America's postwar mind-set. That transition will be difficult and dangerous.

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