Dollar realignment: an inadequate trade policy?
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If currency devaluation has no history of reversing long-term trade declines -- Britain's 20th-century record offers proof aplenty that it does not -- several other major caveats are also in order: To begin with, the administration's lack of a sophisticated working domestic and international blueprint causes it to respond to surges of congressional anger-cum-legislative insistence by pushing the panic button. To indulge another metaphor, trade-policy sabers are rattled to convince Congress that the administration is indeed macho enough to carry the day without new legislation. The sad irony is that moves of this kind -- the sudden imposition in late May of 35 percent duties on some Canadian forest products, for example -- can simultaneously fail to impress a disillusioned Congress even as they infuriate an unsuspecting industry.Skip to next paragraph
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And these flare-ups, unfortunately, come amid world circumstances in which a ``trade war'' -- a painful realignment of global economic power -- seems all too plausible.
As of 1986, we are seeing the increasing obsolescence of a whole string of world organizations -- from the United Nations to UNESCO, the World Court to the General Agreement on Trade and Tariffs (GATT) -- largely shaped by the United States during the period of US international hegemony after World War II. Given the world's new circumstances, it may be that these organizations no longer serve enough purposes and realities and that new organizations, relationships, and rulemaking bodies will have to be shaped. But few observers raise the possibility.
Yet the change in the balance of world economic power has been enormous, with East Asia the prime beneficiary.
Thanks to the huge and mishandled trade deficits of the last few years, the United States has become the world's largest debtor nation, while Japan has become the world's largest creditor. Recycling the profits from pumping cheap electronics and automobiles into US markets, Japan has become an increasingly critical underwriter of America's borrowing spree: Will the Japanese buy bonds? Will they keep financing our budget deficit? Will they insist on better US interest rates as a condition?
Respected US economists have begun to talk about the United States being in hock to Japan and about American interest rates being determined in Tokyo, not New York or Washington.
And Harvard professor Ezra Vogel's article ``Pax Nipponica?'' in the current issue of Foreign Affairs plausibly argues that Japan's growing economic preeminence must inevitably be a force for neo-mercantilism.
In the meantime, Treasury Secretary James Baker's optimistic focus on coordinating the world's currencies and economies is winning plaudits, not least from observers who remember malcoordination and economic nationalism as a factor in the Great Depression of the 1930s.
But we have to wonder: Are today's internationalist assumptions realistic? Moreover, if avoiding the mistakes of the last war were an adequate policy for the next confrontation, then France's Maginot Line would have stopped Germany's panzers in 1940.
Let us hope late-1980s United States international economic policy is not another Maginot Line, already close to a Pacific breach.
Kevin Phillips is an author, commentator, and publisher of The American Political Report.