2. THE USA: FOREIGN POLICY & TRADE POLITICS 1. Introduction

1. 2. THE USA: FOREIGN POLICY & TRADE POLITICS 1. Introduction 2. US foreign & trade policy before the Cold War 3. US foreign & trade policy during the Cold War 4. The US political process 5. The trade policy decision-making process 6. US trade policy after the Cold War 7. Conclusions

2. 1. INTRODUCTION • WHY THE USA? • The US is the world’s only conceivable ‘hegemonic power’ - • its policies have decisive impact on world economy & trade • Only US has credible intercontinental military power • projection capability • International organizations depend on its input for their • crisis management capacity • Is it willing as well as able to perform these roles? • If not, what will happen?

3. THE WORLD’S ECONOMIC LOCOMOTIVE ‘[In 1998] US consumers & investors generated, astonishingly, close to half of the increase in total world demand …. The US ability to increase its external deficit so rapidly has been hugely beneficial, to itself and to the rest of the world. But how long can it continue to perform this role? … The willingness of the rest of the world to hold claims on the US is not inexhaustible’ Martin Wolf, ‘Happier days are here again’, Financial Times, 28 April 1999

4. THE ‘BURDEN’ OF BEING THE WORLD’S SOLE SUPERPOWER ‘We really are indispensable at the moment in world politics. Without us, nothing gets done. And if we happen not to be involved in some issue, then immediately everybody starts calling out: “Why aren’t the Americans there? Where are they?”’ Madeleine Albright, US Secretary of State, Interview, ‘”Ohne uns laeuft nichts”’, in: Der Spiegel, no. 30, 26 July 1999, p. 146.

5. 2. US FOREIGN POLICY BEFORE THE COLD WAR • US foreign policy before WW II was normally isolationist: • - Entered WW I only when US ships attacked (1917) • - Rejected overseas engagement after WW I • - Entered WW II only after Pearl Harbour (1941) • In trade policy before WW II it tended to be protectionist: • Raised tariffs in 1920s, ending in Smoot-Hawley Act 1930 • Foundations for more active overseas role laid in WW II • But no extensive overseas military presence • envisaged immediately after World War II

6. 3. US FOREIGN POLICY DURING THE COLD WAR • US instrumental in creation of international rules to • facilitate free trade among Western states (eg. GATT • rounds) • Supplied financial aid to speed economic recovery • (eg. Marshall Plan for Western Europe) • Opened domestic market to imports from Western states • Supplied military security to allies through worldwide • system of alliances (NATO, ANZUS, SEATO, • security treaty with Japan)

7. 4. THE US POLITICAL PROCESS • Distinctive traits • Strong separation of powers between the executive • (President/White House) & legislature (Congress) • Strong ‘upper House’ (Senate), that must ratify treaties, • as well as ‘lower House’ (House of Representatives) • Relatively divided & decentralized political parties • Consequent tendency to ‘divided government’ & • ‘gridlock’ or ‘stalemate’

8. US POLITICAL PROCESS • Distinctive traits (contd.) • Case of foreign & security policy: • - President is commander-in-chief of armed forces • & may dispatch armed forces overseas • - Congress has power to declare war, budgetary powers, • & right to bring armed forces home after 60 days • Especially since Vietnam War & Watergate, • Presidential power is the ‘power to persuade’ • (Richard Neustadt)

9. 5. THE TRADE POLICY MAKING PROCESS • Constitution gives principal trade policy powers to Congress • Starting in 1930s (Reciprocal Trade Agreements Act 1934), • Congress delegated its trade policy powers to President • to reduce its exposure to particularistic interests • Since 1974, Congress can award President ‘fast-track • authority’ (FTA) to negotiate trade agreements which, • once reached, are put to Congress in ‘up-and-down’ • vote (can be approved or rejected, but not amended) • This process facilitated US’s leading role in • international trade liberalization

10. 6. US TRADE POLICY AFTER THE COLD WAR • Increased emphasis on domestic problems (Clinton • 1992: ‘It’s the economy, stupid!’) • Increased Congressional trade policy activism • Growing intervention of organized labour, environmental • movements & other NGOs in trade policy debates • Growing party-political polarization over trade policy • Growing public anxiety about consequences of trade • liberalization, ‘globalization’ • Growing unilateralism (Section 301) & use of trade • sanctions for political ends • FTA lost & not recovered • Stagnation in regional & international trade • talks (NAFTA extension, FTAA, APEC, WTO)

11. FOREIGN POLICY – WHAT’S THAT ? ‘In October-November 1993, Secretary of State Warren Christopher, Secretary of Defense Les Aspin, and National Security advisor Anthony Lake sent memoranda to the President [Clinton] urging him to give them one hour a week [!] for the discussion of foreign affairs. Clinton finally agreed, but to this “yes” added the words: “When possible”.’ Robert J. Lieber, ‘Eagle Without a Cause: Making Foreign Policy Without the Soviet Threat’, in: Lieber (ed.), Eagle Adrift (New York: Longman, 1997), p. 13.

12. SECTION 301 OF 1988 US TRADE ACT The US president has authority to take any of a broad range of retaliatory actions against a country that ‘maintains unjustifiable or unreasonable tariff or other import restrictions’ or ‘subsidies … on its exports … which have the effect of substantially reducing sales of the competitive United States product’ Quoted in: I.M. Destler, American Trade Politics, second edition 1992, p. 126

13. 6. US TRADE POLICY AFTER THE COLD WAR (Contd.) • NAFTA – main provisions: • Liberalization of manufactured goods trade over • 10 years & agricultural trade over 15 • Lifting of most foreign investment restrictions • Opening of bidding for public contracts • Side agreements on labour & environment • standards (without harmonization) • Dispute settlement procedures & organs

14. US TRADE POLICY AFTER THE COLD WAR (Contd.) • NAFTA – the turning-point • A Mexican idea that: • - was intended to stabilize Mexico economically • - involved almost no US concessions (except opening • own market to Mexican exports) • - had extremely modest economic implications for US • - and promised important potential political reward • (politically stable & friendly southern neighbour), BUT: • - provoked passionate political debate that • mobilized new trade policy participants & • cast shadow over all subsequent trade • liberalization projects

15. WHY THE US GOVT. WANTED NAFTA ‘Mexico’s government needs NAFTA, & the US has a strong interest in helping that govt …. For the US, this agreement is not about jobs. It is not even about economic efficiency & growth. It is about doing what we can to help a friendly government succeed. It will be a monument to our foolishness if our almost wholly irrational fears about NAFTA end up producing an alienated or even hostile nation on our southern border’ Paul Krugman, ‘The Uncomfortable Truth about NAFTA’, Foreign Affairs, November/December 1993, p. 19

16. NAFTA - A ‘DIRTY WORD’ IN WASHINGTON ‘The Congressional vote on it [NAFTA] should have been trivial. NAFTA amounted to a 4% expansion of the American economy, to include a country that accepted virtually every demand placed upon it in the negotiations and which made virtually all the concessions. The result, however, was the fiercest battle over trade in the US since the the Smoot-Hawley tariff. The vote was almost lost. Even more important, a large majority of the American public views NAFTA as a huge loser for the US … “NAFTA” has in fact become a dirty word in Washington’ Fred Bergsten, ‘American politics, global trade’, The Economist, 27 September 1997

17. 7. CONCLUSIONS • Before 1945, isolationism & protectionism dominated • US foreign & trade policies • The Depression, WWII & the Cold War turned the US • towards more liberal trade policies • Liberal trade policies were facilitated by Congressional • self-restraint that has been revoked in the 1990s • US is not the trade liberalization motor it used to be - • without FTA, WTO, APEC, FTAA, etc. are stalled • Growing resistance to free trade has occurred in • an economic boom – what if there is a crisis?