Commercializing Foreign Policy?: American trade policy, then and now

Pietro S. Nivola
Pietro Nivola
Pietro S. Nivola Former Brookings Expert

March 1, 1997

When President Clinton took office in 1993, his administration appeared determined to focus single-mindedly on the nation’s economic problems. International issues were to receive less attention, except inasmuch as they might affect American commerce. The Clinton-Gore ticket had campaigned on the notion that the United States was suffering its “worst economic performance since the Great Depression,” and that conditions might get worse if we continued to receive “plenty of empty promises,” instead of “results,” from our trading partners. According to the Clinton paradigm, with the Cold War safely over, the time had come to shift priorities. “The days when we could afford to subordinate our economic interests to foreign policy or defense concerns are long past,” explained Mickey Kantor, then the U.S. trade representative.

In the ensuing years, however, the global school of hard knocks did not easily permit narrow commercial considerations to crowd out broader concerns in foreign affairs. So, by 1996, questions of international stability and security had regained more of their traditional claim on U.S. policy, even for a president preoccupied with domestic matters.

The correction is welcome. Commercial boosterism in the early days of the Clinton presidency seemed premised in part on the false impression that previous presidents and Congresses had traded away American prosperity in deference to geostrategic interests. Had this misperception persisted, it might have risked a serious intensification of trade tensions with many countries and presented the strange spectacle of U.S. trade negotiators demanding the equivalent of an affirmative action program to compensate for mythical economic losses during the Cold War. Statecraft in today’s still perilous world requires a proper balance between trade policy and other missions.

The Myth of Commercial Martyrdom

In the immediate aftermath of World War II, the U.S. government adopted a relatively openhanded approach toward allies and former adversaries alike, offering grants, technical aid, and credits under the Marshall Plan. The altruism, however, reflected unique and temporary circumstances. Shell-shocked economies overseas had barely begun to recover. As an undisputed economic hegemon, the United States could readily afford to be generous without the quid pro quo of prompt repayment. So dominant was the U.S. economy that there was not much difference between doing favors to others and for oneself. Incentives to underwrite economic growth abroad were strong at a time when the preponderant gains ultimately redounded to the United States.

But even then, the Americans did not as a matter of course go around lowering U.S. tariffs unilaterally. Tariffs were reduced, but on a two-way basis. Presidents did not have much choice; they were explicitly required, under the Reciprocal Trade Agreements Act of 1934, to negotiate reciprocal concessions. Congress often made the U.S. commitment to free trade conditional on the protection of powerful constituencies. In exchange for renewing presidential authority to negotiate tariff cuts, lawmakers required President Truman to heed a so-called peril-point provision limiting cuts to levels that would not impair sensitive domestic producers. The executive s trade negotiating authority was extended through the 1950s, but President Eisenhower had to order limits on imports of cotton fibers and crude oil. On his watch, despite an increasingly favorable trade balance in the farm sector, Congress secured quantitative limits on imports of sugar and dairy products. The legislators also insisted on waiving obligations to remove these limits and to discipline U.S. crop production programs under the GATT. Eisenhower had limited success in overturning stringent Buy American procurement rules that had been (and remain) in effect since 1933.

Subsequently, to ensure passage of the Trade Expansion Act of 1962, which authorized another round of international trade negotiations, President Kennedy widened the use of import quotas on cottons. Lyndon Johnson, in turn, agreed to restrain an in flux of Japanese steel and was unable to lift quotas on imports of beef. Not all these safeguards for domestic interests signified grave departures from the generally liberal world economic order the United States was promoting. But neither were they trivial. “Short-term” restraints on imported cottons eventually grew into the Multifiber Arrangement–an enduring apparatus for regulating global commerce in almost all textiles and apparel. The GATT waiver for agriculture, ordained by Congress in 1955, would long complicate international efforts to curb disruptive farm subsidies and trade restraints worldwide.

And as the East-West conflict continued, each new administration became, if anything, more aggressive in its defense of domestic industries. Using language remarkably similar to Kantor’s, President Nixon’s advisers had concluded that “In the past, economic interests were sacrificed when they came into conflict with diplomatic interests.” Accordingly, in the early 1970s Nixon took action: he levied an across-the-board surcharge on imports, abandoned unilaterally the Bretton Woods monetary system, and signed the massive 1974 trade act that enshrined protectionist penalties against underpriced ( “dumped”) imports.

Later came the trade activism of Ronald Reagan. While Reagan expressed confidence in the ability of markets to take care of themselves–and while he was urging the free world to close ranks against The Evil Empire–he also promised to defend “unceasingly” U.S. firms and workers that were “victims” of unfair trading practices. Thus, Reagan presided over a profusion of U.S. trade restrictions, including new quotas on European steel and Japanese automobiles, as well as controls on imported machine tools, lumber, and computer memory devices. By 1988, some form of trade sanction covered almost a quarter of the $550 billion a year the United States spent on imported goods.

The point is not that postwar American economic leadership was hypocritical, preaching open trade while practicing protectionism. From Bretton Woods to Punta del Este, no other country’s leaders ordinarily championed with greater conviction the idea that collective well-being and security would be enhanced by lowering barriers to commerce and investment among nations. But much political rhetoric, uttered primarily by Democratic congressmen and presidential candidates during the 1980s and early 1990s, seemed fastened on a fiction: that American international economic policy during the Cold War had been faintly naive, selflessly passing handouts to the rest of the world, forsaking domestic groups, and getting little in return.

In reality, long before the Berlin Wall came down, this country, like any other, had minded its national economic stakes, often tenaciously. When they served U.S. purposes–reinforcing the anticommunist fire wall, but also improving the balance of payments, diverting imports to other markets, or enabling other economies to become potential customers for U.S. exports–Washington advanced multilateral tariff reductions. When the flow of freer trade was deemed injurious or unjust to native industries, they were often sheltered. And when emerging global institutions threatened to encroach on sovereign economic rights, such as U.S. antidumping laws or farm price supports, exemptions were arranged. This pattern of give-and-take, moreover, was evident almost from the start, not just after the Cold War had ended.

The Clinton Trade Policy

At first, this did not appear to be how the Clinton administration understood past precedents. Its view seemed to be that policymakers had to make up a lot of lost ground. Thus, some of the administration’s early pronouncements were jarring. Shortly after Clinton’s inauguration, for instance, he surprised the European Union by seeming to suggest that a bilateral agreement on commercial aircraft subsidies, concluded by President Bush only a year before, ought to be scratched and redrawn. Then, at a press conference that spring, the president suddenly expressed astonishment that the previous administration had declined to order a tenfold increase in duties on imported minivans, a decision he called “a $300 million-a-year freebie to the Japanese.”

For a while, the administration seemed to be on a collision course with Japan. Clinton’s trade strategists lost little time pressing the Japanese government to negotiate more consignments of automobiles, auto parts, supercomputers, medical equipment, and insurance services–and to measure “tangible progress” in each of the sectors with “objective criteria.” The Japanese side interpreted these terms to be coded demands for specific sales figures or designated market shares, not unlike the quantitative trajectory for sales of semiconductors negotiated some years earlier by the Reagan administration. The squabble over automobiles and auto parts escalated to the brink before an accommodation was finally reached in June 1995, only hours before the United States planned to impose punitive tariffs.

Nevertheless, at least judged by its deeds rather than its words, the new regime gradually settled into a less confrontational style. The trial balloon proposing to revise the European Airbus pact was rather quickly lowered. Virtually all the trade cases that the administration inherited in 1993 were eventually dispatched without trashing existing agreements or resorting to reprisals. Quarrels with the Europeans over public procurement practices for telecommunication equipment and with Canada about imports of beer were resolved uneventfully. During the presidential campaign, Clinton had criticized George Bush for extending most-favored-nation trade status to China in light of human rights violations. But China’s MFN status remained intact and virtually certain to stay that way.

The intensity of trade wrangling with Japan also subsided. Though some new frictions would still loom (regarding aviation rules, for instance, and Kodak’s dispute with Fuji), a number of old thorns were no longer high profile. Interim settlements were reached on the long-festering matter of American participation in Japanese public works contracts and on penetration of the Japanese market by vendors of products ranging from apples to insurance. By the time of the Tokyo summit in April 1996, Japan’s bilateral trade surplus had declined, U.S. auto exports were up, and Clinton instead chose to solidify security arrangements amid mutual worries about bigger dangers in Asia.

The first Democratic administration in a dozen years resisted the protectionist proclivities of a bedrock constituency, organized labor. The litmus test was the North American Free Trade Agreement. Although Clinton had lent only lukewarm support to the prospective treaty during the campaign, he strove energetically for ratification in the last decisive stages of the debate. Likewise, the president chalked up another major achievement when Congress approved the broad trade liberalization of the Uruguay Round. Congressional consent for this sweeping accord was needlessly delayed by the administration’s attempt to request authorization for a follow-on agenda, replete with fast-track procedures, to take up divisive questions of workers’ rights and environmental standards. Nonetheless, with a strong tug from the White House and the usual flurry of last-minute bargaining, legislation implementing the Uruguay Round collected substantial bipartisan support and finally cleared Congress at the end of 1994. Building credibility, Clinton’s success here and on NAFTA were to pave the way for subsequent multilateral deals, including a recent agreement to liberalize trade in telecommunications services.

Reality Check

Trade policy by the mid-1990s had become not only less contentious, but also less preeminent in U.S. foreign relations. The adjustment was compelled by both good news and bad. The good news was that the economy of the United States was actually in fine shape, indeed better shape than any other in the industrial world. Asserting that U.S. businesses were globally uncompetitive, and blaming economic woes on the vicissitudes of trade, was now decidedly unconvincing (as Pat Buchanan and Ross Perot discovered during the 1996 presidential campaign). So the need for vigorous government programs of commercial promotion, making up for earlier supposed self-denials, had become more dubious than ever.

The bad news was that the post-Cold War world was not benign. Its harsh realities featured plenty of rogue states orchestrating international terrorism, trafficking freely in horrific weaponry, and sending waves of refugees streaming across borders. Local bullies were marauding not only in the Middle East and Africa, but with impunity on the doorstep of Europe. Surely, few, if any, of these threats could be considered primarily economic in any meaningful sense of the term. They called for the leader of the only superpower to be more than a “glorified secretary of commerce,” as John Judis of The New Republic put it.

In the Clinton administration’s first months, there had been no mistaking its revisionist outlook. The Clintonites came to town convinced that huge parts of the American economy needed radical surgery, and that while this operation was going on, many international ills could be marginalized. Now and then pesky external events–such as a late-20th-century reprise of ethnic cleansing and national dismemberment in Europe’s backyard–interrupted the administration’s deliberations on domestic policy. The flashpoints abroad elicited from Washington much vacillation and infrequently a sustained, credible response. There were exceptions. In the Middle East, the administration persevered with the Arab-Israeli peace process and remained prepared to meet Saddam Hussein’s provocations. But in a series of other trouble spots–Somalia, Bosnia, North Korea, and, for a time, Haiti–foreign policy wobbled.

By the middle of the decade, however, there were signs of a change. In the fall of 1994, a rapid deployment of U.S. forces had been ordered to the Persian Gulf to reinforce Kuwaiti defenses against Iraq. Over the next couple of years, American power would be put on display in more places, as renewed importance was attached to stabilizing a wider assortment of corrosive foreign conflicts. By the spring of 1996, a U.S. division had begun to police a U.S.-brokered armistice in the Balkans. The Seventh Fleet steamed into the South China Sea when Chinese military exercises in the Formosa Strait menaced Taiwan. In the face of China’s rising power in Asia, hints of a Sino-Russian detente, and a dangerously unstable regime in Pyongyang, mutual defense precautions dominated the 1996 U.S.-Japan summit. And when hostilities repeatedly threatened to boil out of control along Israel’s border with Lebanon and on the West Bank, concerted U.S. diplomatic pressure helped put a shaky lid back on.

A Question of Balance

After an unsteady start in Clinton’s first term, U.S. foreign policy has regained more of its customary equilibrium, recognizing that a fixation with commercial competition between nations runs the risk of being blindsided by other international challenges. Ancient problems, such as violence born of religious fanaticism and virulent ethnocentric nationalism, resurfaced with the passing of the Cold War. So have new and profoundly disturbing uncertainties such as the spread of material and technology for nuclear, chemical, and biological weapons. Most of the threats to global stability today have less to do with the intricacies of “geo-economics” than with a primal fact of international politics, namely, states and peoples intimidating one another by force of arms.

Commercial goals have always had a prominent place on America’s international agenda. They always will, and often should. But cluttering foreign policy with too many trade tiffs and business calculations can expend a great deal of diplomatic capital, often in return for disappointingly marginal material gains to the United States. Even if the perennial U.S. trade deficit is a troublesome predicament (a big “if”), going to the mat to get rid of it might, in Paul R. Krugman’s estimate, lift the share of manufacturing employment in the U.S. economy from 17 percent to 17.5 percent. Knocking down all of Japan’s known barriers to imports seems long overdue and is plainly in that country’s own best interest, but even under utopian conditions (with no offsetting exchange rate effects and no displacement of productive resources), the Herculean feat would at best boost U.S. exports by a grand total of one-fifth of 1 percent of GDP.

Prizes of that magnitude may still be worth pursuing doggedly, but not at the cost of neglecting a larger strategic architecture, painstakingly built over half a century, to protect us and others from the world’s ever-present thugs and tyrants.