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.Skip to next paragraph
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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.