Economy gives Reagan lever abroad - but can he avoid higher taxes at home?
The past week has provided us with an interesting example of the leverage of American economic power in world affairs. Washington was in negotiation with Poland over a possible trade. Washington would lift some or perhaps eventually all of its economic sanctions against Poland in return for the easing of martial law in Poland.
Other events of the week included the return empty-handed to Washington of President Reagan's special envoy to Central America, Richard Stone. He and the Salvadorean rebels were unable to agree on terms for even meeting with and talking to each other.
Tension remained high in the Middle East, where Syria refuses to accept the terms of the pending Israel-Lebanon agreement. On the occupied West Bank, trouble between Israeli settlers and resident Arabs continued after the killing of an Israeli student in the center of Hebron.
In Washington there were further signs of a tendency in the Reagan White House to move in the direction of doing some business with the Soviets. United States Secretary of State George Shultz may go to Madrid to join with Soviet Foreign Minister Andrei Gromyko at the signing of a compromise paper on East-West human rights. Talks in Madrid over human rights could be a step toward further business between Washington and Moscow over weapons.
The negotiations over the possible lifting of US sanctions against Poland are a direct consequence of the recent visit by Pope John Paul II to Poland. The essential fact is that Poland's economy was damaged by the sanctions, partly because Poland enjoyed most-favored-nation trading status before the sanctions, and because several of its industries were keyed to imports from the United States. US grain shipments, for instance, had been used in developing a chicken industry.
The Polish government is figuring out what concessions it can make to the Polish people in return for a lifting of some sanctions. US weapons have no weight in Washington's dealings with the Polish government. But US economic power has weight and influence. The regime in Warsaw may soon ease the burden of martial law on the Polish people, although probably not to the point of a revival of the banned Solidarity movement.
Recent improvements in the American economy have enhanced US leverage. This is particularly so since the Soviet economy continues in a state of stagnation. A revival of the economy has been a major goal of Moscow's new leader, Yuri Andropov. Western experts in Moscow report that he has had some success in some sectors of the Soviet economy, but not enough to get productivity moving up in an important way.
The best news for the West is that US unemployment has started to decline, thanks largely to a revival in the building and automotive industries. But the euphoria of the moment is chilled by one question. Will the recovery be long-lasting, or will it be smothered by continued high interest rates?
Perhaps the most important event of the past week in world affairs was a meeting of the Federal Reserve's Open Market Committee. The key bankers of America were deciding among themselves whether and by how much to contract US money supply growth to prevent a revival of inflation.
We do not know yet what they decided. It will emerge in due time when the figures on money supply are published and the stock markets react. The White House is delighted by the performance of the American economy, so far. If the momentum of recovery can be sustained without a revival of inflation, then Mr. Reagan need have no concern about 1984. If he wants to run, he can have the nomination for the taking, and probably the election as well.
But Washington-watchers have recorded the fact that George F. Will, a syndicated columnist and ardent supporter of Mr. Reagan and his policies in most respects, is now asserting that the recovery can last only if the President will reverse his stand on taxes.
Mr. Will recognizes, as do most other observers of the Washington scene, that it is politically impossible to squeeze the budget further for either military or welfare programs. That being the case, the only possible way to get to a budget balance and a sound economy would be to cover the deficit by higher taxes.
It is almost unthinkable that Mr. Reagan will reverse his stand on taxes this year. There is too much hope at the White House that today's good news is only the beginning of a long run of economic good news. High and middle income taxpayers, as well as corporations, make up the backbone of his political constituency. He promised them tax relief and he is giving it to them.
So all anyone can do is watch and wait to see whether Mr. Reagan is correct that the US can have economic recovery and declining unemployment without either a balanced budget in sight or a revival of enough tax revenue to cover the deficit.
Of course, even if the boom falters, the US still has by far the most powerful and productive economic system in the world. Its GNP (gross national product) is about three times that of the Soviet Union. Even in the worst of economic times it can afford to be more generous with its clients than can the Soviet Union. Its economic strength is a source of strength to its allies and clients and is, in fact, the true cement holding the Western political and economic system together.
There are limits, of course, on what that economic power can do. It could not , for example, deter the Soviets from invading Afghanistan. It is not enough in itself to outweigh the old resentment against ''Yankee imperialism'' in Latin America. Mosow's greatest asset in competition for countries like Nicaragua is the memory of US armed intervention which dates from the Mexican War of 1846-48, and the taking of Texas and California from Mexico. US Marines policed Nicaragua for much of the first third of this century.
But where other factors are more or less equal, the power of the American economy can stretch out even into Poland, on Moscow's front doorstep. If the material well-being of the Poles improved over the next year or so, it would be because the US relaxed its sanctions against Poland in return for gentler treatment of the Polish people by the Polish government.