Skip to: Content
Skip to: Site Navigation
Skip to: Search


What role for the US abroad?

By Pat M. Holt / May 6, 1987



THE dramatic reversal in the international economic position of the United States demands reconsideration of the country's role in world affairs. As late as 1981, the US was the world's largest creditor; foreigners owed it $140 billion. This changed with startling rapidity. The US became a debtor in 1985 for the first time since 1914 when World War I forced the liquidation of Great Britain's foreign investments. By the end of 1986, US foreign debt had reached more than $220 billion; it may be $700 billion by 1990. Interest payments alone will be $60 billion.

Skip to next paragraph

Many factors worked together to produce this change. The most important probably was the misguided tax cut of 1981. This was a part of what George Bush (before he was vice-president) described as voodoo economics. Then-senate majority Leader Howard Baker called it a riverboat gamble. The Reagan administration and Congress rolled the dice, and the country lost.

The tax cut and sharply higher defense spending produced the budget deficit. This was financed by borrowing, much of it from foreigners attracted by higher interest rates in the US than were available in Europe or Japan. The dollar rose, relative to foreign currencies, and Americans enjoyed cheaper imports. Domestic demand in the US increased by 3.5 to 4 percent a year, but domestic production incresed by only about 2.5 percent. Clearly, this cannot be sustained indefinitely.

At the end of World War II, the US had about 6 percent of the world's people and about 50 percent of the world's wealth and productive capacity. A homey analogy was drawn to a poker game: When one player gets all the chips, either the game ends or the chips are redistributed and the game starts over. The US redistributed the chips. It also assumed many of the burdens of world leadership, frequently because it was the only country in a position to do so. When the British could no longer afford their historic role in Greece, the US stepped in with the Truman doctrine and the Greek-Turkish aid program.

The US is still thinking in these terms and is still acting according to the habits of 40 years, but it is not the same country. An Air Force general worries about Soviet capabilities ``if the United States were ever called upon to enforce the free flow of oil to the Western world through the Strait of Hormuz.'' Here is an implicit assumption that the US has a responsibility to see to it that the Western world gets oil through the Strait of Hormuz. Most of that oil goes to Europe and Japan, not to the US. Why don't the consuming countries have some responsibility?

Of course they do have responsibility, but it is the US which has the naval power. Until this disparity is adjusted - at best, a complicated process - the US will probably have to continue to do some things which ideally ought to be done by others.

Secretary of State George Shultz has warned Congress that cuts in the State Department and foreign aid budgets will mean the start of American withdrawal from the world. ``It's a tragedy,'' he said. But there are degrees of withdrawal. Despite the State Department's protests, the American presence in the world is not going to be substantially diminished by closing some consulates here and there. It appears that Congress may come up with less than the $2.5 billion in foreign aid to which American military bases are linked in eight countries. Surely NATO could help here - if the bases are really important.

Much is heard these days about competitiveness, but the foreign debt, the trade deficit, and the budget deficit are all so huge that no amount of competitiveness is going to change them soon. Any drive for competitiveness needs to be part of a broader reordering of priorities. The 1981 tax bill was supposed to stimulate investment; instead, we saw corporate takeovers. Much of the talent which could be making us more competitive is working on defense research and development.

Japan, which relies on the US for its defense, now has most of the chips in front of its place at the poker table. In many respects, the Japanese have largely achieved what World War II was fought to keep them from doing. It is time they redistributed some of the chips, and they have made a start in announcing $30 billion more for Latin America.

The ABC television network created a stir with ``Amerika,'' its program about the US 10 years after a Soviet occupation. It would have been more to the point to do a program about the US 10 years after its purchase by Japan.

Pat M. Holt, former chief of staff of the Senate Foreign Relations Committee, writes on foreign affairs from Washington.